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I don't understand why all these people are responding to this post so positively. Overage hours? Job-less risk? Career risk and opportunity cost? What? You s

by ctide 15y ago

I don't understand why all these people are responding to this post so positively. Overage hours? Job-less risk? Career risk and opportunity cost? What? You seem to be including those numbers as his 'cost', are you assuming he's not getting benefits, or that he's going to work only 40 hours a week at this mythical 100k / year job? Also, the advice is just wrong. No startup is giving away a 20% equity slice to their first employee after they've already raised a round. The chance of a startup even creating a 20% options pool for employees hired after series A is slim, and even slimmer is them giving their entire pool to the first employee. You're essentially saying you expect nearly the same equity slice as the people who invested their time to validate the market and build a prototype, which is absurd. I'd love for someone to prove me wrong by pointing out a startup that's given 20% to their first employee after raising a seed round. EDIT : To clarify, the dude in the original post is definitely getting screwed, but this is way too far in the other direction to be at all useful.

deleted 15y ago
[deleted]
geebee 15y ago
That's a very good point. But I think the problem is that we're blurring the distinction between founder and employee. I remember an old quote "founders get rich, early employees get screwed, and late employees get paid." I've worked for startups where I received a miniscule percentage of the company. But they paid me market rate and provided me with a health plan. The equity was nice, but this was really just a job... ok, it was more than "just a job", I did pursue it with more passion, and there was less stability (and one of them did tank leaving everyone scrambling), but the equity was really a bonus in exchange for the lack of stability and perhaps a more passionate workforce, but it wasn't a stand-in for a substantially below market rate paycheck. So I agree, 20% equity is a massive amount to give to an "employee" who is not a founder. But a 50% pay cut is a massive amount to ask of an "employee" who will not be treated as a founder. That sounds more like the kind of arrangement that might normally be worked out between a couple of founders, where one needs an income and agrees to lower the equity share in exchange, whereas the other goes without income at all. In this case, it does sound like the early employee may be getting a little screwed, because his deal is the worst of both worlds - working for "free" (well half the time) like a founder, but receiving miniscule equity, like an employee.
- gaius 15y ago
  But a 50% pay cut is a massive amount to ask of an "employee" who will not be treated as a founder. The term "employee" is not a good way to look at this. The employee is not a subordinate; he's a free economic entity, the startup is another economic entity, either it makes sense for these two entities to collaborate for mutual benefit, or it doesn't. Make it symmetric not asymmetric and what you should do becomes crystal clear.
macspoofing 15y ago
>No startup is giving away a 20% equity slice to their first employee after they've already raised a round Then pay your first employee a market wage. On the other hand if you want him to take a 50% haircut you better compensate him.
michaelochurch 15y ago
I advised him to start the negotiation at 20%, not demand it. Going as low as 10-12% makes sense if he really likes the concept. If he's getting single digits, he should expect to be paid. And yes, he will most likely be rejected when he asks for this much.
- runako 15y ago
  If they give him 10% out of an options pool of 20%, he just cut the options pool in half for future employees. This will make it harder to attract future staff, who will be needed to grow the company enough to make the equity worthwhile. Isn't taking too much post-financing risky too?
  - wpietri 15y ago
    Not sure why somebody downvoted you; that is definitely correct. VCs have some very clear notions about the correct size for employee equity pools. They insist on creating one as part of the initial funding, so it doesn't come out of their share. For similar reasons, they will resist increasing it later.
bermanoid 15y ago
Overage hours? Job-less risk? Career risk and opportunity cost? What? You seem to be including those numbers as his 'cost', are you assuming he's not getting benefits, or that he's going to work only 40 hours a week at this mythical 100k / year job? There's nothing at all mythical about a 100k / year job where you work 40 hours a week. There are plenty of coders out there making at least that much by pumping out enterprise Java 9 to 5 for insurance companies and banks. You don't even have to be very good, you just need to not completely suck, stick around for long enough, and know when and how to ask for more money...hell, if you go the consulting route, you can make that much on a 20 hour work week at $100 an hour, which is not very difficult to get to if you're good and pick the right clients. I'd love for someone to prove me wrong by pointing out a startup that's given 20% to their first employee after raising a seed round. You won't likely find that. But what you will find is startups that are willing to offer their early employees wages fairly close to market rates (though to be fair, we don't know in this situation whether the person in question's salary was near typical market rates, we just know that he was deciding whether to take a 50% cut in it), which is (if I'm reading correctly) what the article is suggesting people look for rather than settling for shitty wages and delusions of Facebook-level growth. I can't think of many people in real life that have ever seen much more than a nice bonus as the result of employee-level ownership in a company, and I think that's the lesson to take away from this - equity should not usually be a deciding factor in your employment decisions, nobody's typically going to offer you enough for it to matter very much.
- ctide 15y ago
  There's nothing at all mythical about a 100k / year job where you work 40 hours a week. There are plenty of coders out there making at least that much by pumping out enterprise Java 9 to 5 for insurance companies and banks. You don't even have to be very good, you just need to not completely suck, stick around for long enough, and know when and how to ask for more money...hell, if you go the consulting route, you can make that much on a 20 hour work week at $100 an hour, which is not very difficult to get to if you're good and pick the right clients. Those are not the people we're discussing. Those people aren't deciding whether to work 9 to 5 writing java for an insurance company or go work for a startup as employee #1. Yes, you can make lots of money consulting. I spent a year doing nothing but consulting. It's mind-numbingly painful work. Apples to oranges. But what you will find is startups that are willing to offer their early employees wages fairly close to market rates (though to be fair, we don't know in this situation whether the person in question's salary was near typical market rates, we just know that he was deciding whether to take a 50% cut in it), which is (if I'm reading correctly) what the article is suggesting people look for rather than settling for shitty wages and delusions of Facebook-level growth. I think you'll find this is much rarer than you think. Most startups, especially YC companies for what it's worth, are offering exactly what's mentioned in this article at that stage. While it's totally ridiculous, it's currently the state of the world. Sure, it sucks, but asking for 20% is going to get you laughed out the door.
alnayyir 15y ago
>work only 40 hours a week at this mythical 100k / year job? Mythical? I'm one of two engineers at my startup and I get $120k, bennies, and equity. Edit: And I'm 23 years old and have been a professional for ~4-5 years.
- ctide 15y ago
  Yes, so this 100k / year job with no benefits and no equity for exactly 40 hours / week is mythical.
pnathan 15y ago
Look, if I'm going to work somewhere, it needs to have a expected ROI that's equal to or greater than my current job. That can be done via equity, bennies, cost of living, salary, and a few other knobs. I'm a pretty cynical guy, so if you were hiring me as an early employee, you'll have to work on a better presentation than expecting your company to be warm, fuzzy, and grow faster than Facebook. That probably means you load me down with cash or equity. If you don't have the cash, then I expect equity or bennies. I don't expect more than market rate, mind you... just... fair treatment.
wnight 15y ago
If you want your employee to take a pay cut they'd best get rewarded as much as an investor who put in the same amount. Look at the numbers, if you want a dedicated tech genius on call, and loyal, in his market, $700k for four years is very reasonable. The hypothetical founders want someone to pass up being an employee for $100k/y, and costing the company at least $50k more, to work as a contractor for $50k per year - something that saves the company $400k, more than $200k of which comes out of the employee's pocket. If you think anyone should keep their mouth shut so as to not jinx that deal you need to go back and read the article again. Taking that deal is horrible. Especially because when you show yourself to be dumb enough to take it the company will really start treating you like crap. At that, how is the founder really worth $500k in your average startup? The idea? I find it a little ridiculous that people who have no clue how to implement their idea think they deserve so much for it. Why wouldn't the key employee be worth as much as that? For the record, I'm currently turning down a $150k 2y offer. On the face of it it's not too bad ($75k/y) but it has an optional buyout of my stake after two years at that $150k price, so that's the best it could ever get even if the company got huge. And that's instead of a wage, so I'd be doing the work free until, hopefully, it got big. So I'd have been, after all that, making a regular wage for someone doing this sort of work at a regular company, someone who has benefits, decent hours, etc, but I'd have taken all the risk. Anyways, long story short, I agree with the article. Years ago they'd have had me at "So we'll be valuing your shares at $150K!"

by ctide 15y ago

deleted 15y ago

[deleted]

geebee 15y ago

That's a very good point. But I think the problem is that we're blurring the distinction between founder and employee. I remember an old quote "founders get rich, early employees get screwed, and late employees get paid." I've worked for startups where I received a miniscule percentage of the company. But they paid me market rate and provided me with a health plan. The equity was nice, but this was really just a job... ok, it was more than "just a job", I did pursue it with more passion, and there was less stability (and one of them did tank leaving everyone scrambling), but the equity was really a bonus in exchange for the lack of stability and perhaps a more passionate workforce, but it wasn't a stand-in for a substantially below market rate paycheck. So I agree, 20% equity is a massive amount to give to an "employee" who is not a founder. But a 50% pay cut is a massive amount to ask of an "employee" who will not be treated as a founder. That sounds more like the kind of arrangement that might normally be worked out between a couple of founders, where one needs an income and agrees to lower the equity share in exchange, whereas the other goes without income at all. In this case, it does sound like the early employee may be getting a little screwed, because his deal is the worst of both worlds - working for "free" (well half the time) like a founder, but receiving miniscule equity, like an employee.

gaius 15y ago
But a 50% pay cut is a massive amount to ask of an "employee" who will not be treated as a founder. The term "employee" is not a good way to look at this. The employee is not a subordinate; he's a free economic entity, the startup is another economic entity, either it makes sense for these two entities to collaborate for mutual benefit, or it doesn't. Make it symmetric not asymmetric and what you should do becomes crystal clear.

macspoofing 15y ago

>No startup is giving away a 20% equity slice to their first employee after they've already raised a round Then pay your first employee a market wage. On the other hand if you want him to take a 50% haircut you better compensate him.

michaelochurch 15y ago

I advised him to start the negotiation at 20%, not demand it. Going as low as 10-12% makes sense if he really likes the concept. If he's getting single digits, he should expect to be paid. And yes, he will most likely be rejected when he asks for this much.

runako 15y ago
If they give him 10% out of an options pool of 20%, he just cut the options pool in half for future employees. This will make it harder to attract future staff, who will be needed to grow the company enough to make the equity worthwhile. Isn't taking too much post-financing risky too?
- wpietri 15y ago
  Not sure why somebody downvoted you; that is definitely correct. VCs have some very clear notions about the correct size for employee equity pools. They insist on creating one as part of the initial funding, so it doesn't come out of their share. For similar reasons, they will resist increasing it later.

bermanoid 15y ago

Overage hours? Job-less risk? Career risk and opportunity cost? What? You seem to be including those numbers as his 'cost', are you assuming he's not getting benefits, or that he's going to work only 40 hours a week at this mythical 100k / year job? There's nothing at all mythical about a 100k / year job where you work 40 hours a week. There are plenty of coders out there making at least that much by pumping out enterprise Java 9 to 5 for insurance companies and banks. You don't even have to be very good, you just need to not completely suck, stick around for long enough, and know when and how to ask for more money...hell, if you go the consulting route, you can make that much on a 20 hour work week at $100 an hour, which is not very difficult to get to if you're good and pick the right clients. I'd love for someone to prove me wrong by pointing out a startup that's given 20% to their first employee after raising a seed round. You won't likely find that. But what you will find is startups that are willing to offer their early employees wages fairly close to market rates (though to be fair, we don't know in this situation whether the person in question's salary was near typical market rates, we just know that he was deciding whether to take a 50% cut in it), which is (if I'm reading correctly) what the article is suggesting people look for rather than settling for shitty wages and delusions of Facebook-level growth. I can't think of many people in real life that have ever seen much more than a nice bonus as the result of employee-level ownership in a company, and I think that's the lesson to take away from this - equity should not usually be a deciding factor in your employment decisions, nobody's typically going to offer you enough for it to matter very much.

ctide 15y ago
There's nothing at all mythical about a 100k / year job where you work 40 hours a week. There are plenty of coders out there making at least that much by pumping out enterprise Java 9 to 5 for insurance companies and banks. You don't even have to be very good, you just need to not completely suck, stick around for long enough, and know when and how to ask for more money...hell, if you go the consulting route, you can make that much on a 20 hour work week at $100 an hour, which is not very difficult to get to if you're good and pick the right clients. Those are not the people we're discussing. Those people aren't deciding whether to work 9 to 5 writing java for an insurance company or go work for a startup as employee #1. Yes, you can make lots of money consulting. I spent a year doing nothing but consulting. It's mind-numbingly painful work. Apples to oranges. But what you will find is startups that are willing to offer their early employees wages fairly close to market rates (though to be fair, we don't know in this situation whether the person in question's salary was near typical market rates, we just know that he was deciding whether to take a 50% cut in it), which is (if I'm reading correctly) what the article is suggesting people look for rather than settling for shitty wages and delusions of Facebook-level growth. I think you'll find this is much rarer than you think. Most startups, especially YC companies for what it's worth, are offering exactly what's mentioned in this article at that stage. While it's totally ridiculous, it's currently the state of the world. Sure, it sucks, but asking for 20% is going to get you laughed out the door.

alnayyir 15y ago

>work only 40 hours a week at this mythical 100k / year job? Mythical? I'm one of two engineers at my startup and I get $120k, bennies, and equity. Edit: And I'm 23 years old and have been a professional for ~4-5 years.

ctide 15y ago
Yes, so this 100k / year job with no benefits and no equity for exactly 40 hours / week is mythical.

pnathan 15y ago

Look, if I'm going to work somewhere, it needs to have a expected ROI that's equal to or greater than my current job. That can be done via equity, bennies, cost of living, salary, and a few other knobs. I'm a pretty cynical guy, so if you were hiring me as an early employee, you'll have to work on a better presentation than expecting your company to be warm, fuzzy, and grow faster than Facebook. That probably means you load me down with cash or equity. If you don't have the cash, then I expect equity or bennies. I don't expect more than market rate, mind you... just... fair treatment.

wnight 15y ago

If you want your employee to take a pay cut they'd best get rewarded as much as an investor who put in the same amount. Look at the numbers, if you want a dedicated tech genius on call, and loyal, in his market, $700k for four years is very reasonable. The hypothetical founders want someone to pass up being an employee for $100k/y, and costing the company at least $50k more, to work as a contractor for $50k per year - something that saves the company $400k, more than $200k of which comes out of the employee's pocket. If you think anyone should keep their mouth shut so as to not jinx that deal you need to go back and read the article again. Taking that deal is horrible. Especially because when you show yourself to be dumb enough to take it the company will really start treating you like crap. At that, how is the founder really worth $500k in your average startup? The idea? I find it a little ridiculous that people who have no clue how to implement their idea think they deserve so much for it. Why wouldn't the key employee be worth as much as that? For the record, I'm currently turning down a $150k 2y offer. On the face of it it's not too bad ($75k/y) but it has an optional buyout of my stake after two years at that $150k price, so that's the best it could ever get even if the company got huge. And that's instead of a wage, so I'd be doing the work free until, hopefully, it got big. So I'd have been, after all that, making a regular wage for someone doing this sort of work at a regular company, someone who has benefits, decent hours, etc, but I'd have taken all the risk. Anyways, long story short, I agree with the article. Years ago they'd have had me at "So we'll be valuing your shares at $150K!"