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Ask HN: Should an experienced engineer join a startup?

• enigmatic02 5y ago
  You raise a great point: does it make sense for highly compensated tech talent to bet on startups with their time / labor? Ultimately, decision depends on what you are solving for. If it's purely about $ in the hand, startups never make sense. If it's about participating in potential massive upside, investing is a perfectly good choice. Difference between investing vs. joining startup is that you get to build stuff from scratch and operate more like a business owner. You'll do more and learn more in a shorter period of time. This makes a ton of sense IF you like that sort of adventure. Also allows you learn on someone else's dime before you start your own business If you're joining VC-backed startup, the outcome they'll be shooting for is $1B+ exits, and you can get 2-3% equity if you join early.... so there's that You can find comparable salary and equity offers here: https://topstartups.io/startup-salary-equity-database/ https://topstartups.io/startup-salary-equity-database/
• MaknMoreGtnLess 5y ago
  The first question to ask yourself is whether you want to be an: 1. Entrepreneur, or 2. Investor
• alper 5y ago
  > Become an angel investor, since they are getting a much better deal, I might as well join them. I think yeah. Dan Luu was also getting at this on twitter.
• joezydeco 5y ago
  No, you pretty much nailed it, except for two things: 1) You're critical to getting the company from PowerPoint pitch to shipping product, but you won't be treated this way. 2) You'll be diluted to almost nothing if the company got to a .5 Billion exit. If you want the excitement and experience? Go for it. If you want the money? Buy a lottery ticket.
• codegeek 5y ago
  "I make around $0.9M-$1.2M per year today" A startup is like a lottery when it comes to that kind of money. 99.99% chance you will not make that money with the startup. So if money is the main factor, you are better off staying with the current company. If you were making like 200K/Year, even then it is a tough call but at least was worth a discussion. 1M a year is not even worth a discussion.
• late2part 5y ago
  Your financial analysis is correct. However, if you have enough money you can choose to do things you enjoy. That is why a startup makes sense for experienced people, in many circumstances.
• BerislavLopac 5y ago
  After working for large organizations, compensation will be the least of your problems in a startup.
• strikelaserclaw 5y ago
  It seems like you are very interested in the making money aspect of a startup, from that view point, it doesn't make sense to leave 1 mm on the table to have a slim chance at a big payoff. IMO people who work at startups are either people who are extremely passionate about their work or people who couldn't make it into big tech companies.
  • tempforquestion 5y ago
    For me is less about the money and more about how the risk is asymmetric for the investors. I get it is how the system works... The issue is companies DO try to sell the idea their equity is going to be extremely valuable in the future, which is what started me on this rabbit hole to try to quantify how valuable they actually are.
    • joezydeco 5y ago
      That's just as much handwaving as their pitch deck. If they are a 100% lock on an profitable exit they wouldn't need you. Or anyone else. Get the cash.
• doopy1 5y ago
  Why are you using very optimistic scenarios instead of realistic ones? Do you know that most startups don't see an exit at all let alone one that can be measured in the hundreds of millions?
  • tempforquestion 5y ago
    Excellent question! I want to give the benefit of the doubt to the value of equity and I'm assuming I would join a company that I truly believe. If you account the true risk, for sure is not worth it.
• mianos 5y ago
  If you want to give up your $1M salary (seriously WTF) and you want to have much more control over a technology stack, sure. I halved my salary and worked in startups for quite a few years, some things were fantastic. For example, bootstrapping a bank from scratch. I left all that chaos for an established large firm and it totally sucked the life out of me. The chances of getting a million dollar a year income, in stock or salary in a new startup is next to nil. It is like being a muso and saying you want to be a rock star or actor. I worked for 4 startups over 9 years. Three are gone completely and the one that may be successful has diluted my equity so much it is now near worthless. Basically I will never get the salary cut I took back, ever.
  • tempforquestion 5y ago
    I'm not trying to make $1M at a startup, but it does bother me when a startup spins their compensation to be what it is because the equity will become so valuable in the future.
  • czhiddy 5y ago
    $1M in W2 earnings isn't that unusual for senior engineers at companies that have seen significant stock growth. Suppose you had a $200k salary, $500k RSUs over four years, $50k/year bonus offer mid-2017. The last batch of stock vesting in 2021 would have pushed total stock adjusted compensation close to the 7 figure mark. NVDA has seen over +500% stock growth during that time. Apple has gone up close to 400%, GOOG over +200%. What's interesting is that even if we ignore the recent dip, FB has only gone up +150% since mid-2017. If you held through the recent dip, that falls to something around +60% over four years.
    • mianos 5y ago
      The chance of getting a million a year in stock equivalent is next to nil. These are extreme outliers, you can probably count the number of companies on two hands, and maybe name them all. In terms of statistics, achieving this would be very 'unusual'.
• cjbprime 5y ago
  Everything you wrote is correct, and there's previous writing available about this, e.g. https://danluu.com/startup-tradeoffs/ https://danluu.com/startup-tradeoffs/
• lostdog 5y ago
  You just can't justify joining a startup between series A and when they switch to RSUs. The equity amounts are usually small enough to be worthless, and if they are big they become impossible to exercise. Angel investing a smaller amount is almost always a better tradeoff. In my last search, the series D+ and public offers were good, and the startup offers were just laughable. I couldn't justify going to any of them just to make a bunch of other people rich. My friends in similar situations take exactly the options you described. Some become founders (getting 30-40% of a company), some are angel investing (and sometimes joining a company they've invested in "for fun"), some just can't handle the bureaucracy beyond 100 people and join startups, and the vast majority are at larger public companies or startups that are nearly there. I really believe there's an imbalance that's due for a correction, because skilled and experienced people mostly avoid startups right now. Early valuations may need to increase, employee equity pools will need to increase, equity terms must become less confiscatory, team sizes should shrink, and timelines to exiting must decrease. Will it happen? I'm not sure. It depends on whether startups can continue to coast on the pool of less-skilled engineers joining the true believers.
  • tempforquestion 5y ago
    > I couldn't justify going to any of them just to make a bunch of other people rich. That is a nice way to put how I feel about my situation.
    • lostdog 5y ago
      Yeah. Working for a quarter salary for a non-profit would be completely fine. Working for a quarter salary so a VC gets to keep another fraction of a percent? Nope.
• Graffur 5y ago
  > I make around $0.9M-$1.2M per year today Wow, can I ask how you make that much per year? I am not in that position but to me it sounds like you should not go with the startup. The chance of failure is very high EDIT: One thing I thought you go do is invest in startups. That way you're into the startup world with less risk.
  • United857 5y ago
    Senior staff/E7 level at FAANG will get you that comp, especially with stock appreciation if you've been there for a while.
    • Graffur 5y ago
      What does someone at Senior staff/E7 level do?
      • tempforquestion 5y ago
        Pretty much what @United857 said. I had a successful career, but I'm far of an outliner. I did have luck to be at the right place, at the right time. My day to day work is around planning, coding, and system design.
        • okhobb 5y ago
          US tech industry has been staggeringly right place/time for the last decade. As a proxy, the NASDAQ has roughly increased 6x in that timeframe.
        • Graffur 5y ago
          Damn, I can do all of that pretty well but earn more than 13x less
      • hideo 5y ago
        Not the OP but I posted this the last time this question was asked https://news.ycombinator.com/item?id=29554069 https://news.ycombinator.com/item?id=29554069
• shuckles 5y ago
  The strongest case for startup equity as compensation is made by Ben Kuhn, in my opinion, and it amounts to: you can diversify your equity exposure in more companies than you could as an angel because (i) the best companies will want to hire you and (ii) you can quit your company as soon as it appears to not be a rocketship, something you'll have insider knowledge of. https://www.benkuhn.net/optopt/ https://www.benkuhn.net/optopt/
  • spamizbad 5y ago
    The fact that this is the strongest argument is pretty damning. Most startups aren’t offering 1%. And that percentage will be diluted as the company works through various funding rounds. Likewise, if you quit, you generally have a limited window to exercise your options, and you have to shoulder the tax consequences when you exercise even if the company hasn’t had a liquidity event.
    • shuckles 5y ago
      Many quality startups nowadays offer early exercise (tax-free) and long exercise windows. In addition, in this scenario you're leaving because you don't believe in the equity.
      • spamizbad 5y ago
        That’s very good news. I hope this trend continues.
  • tempforquestion 5y ago
    That is actually a good point and the kind of info I was looking for. Paying for equity is "work" means I could stop working whenever I felt like, where a VC cannot (easily) ask the money back.
• heybecker 5y ago
  Only if you want to have fun
• lr4444lr 5y ago
  I think your estimate is correct. 0.9 -1.2 million isn't likely gonna be met risk-adjusted by startup exit unless you are a founder.
• revorad 5y ago
  Honest question - what do you do with all that money?
• throwaway879423 5y ago
  > around $0.9M-$1.2M per year today Like others have said this salary should make not want to leave. I make around $1.5M at a startup. I think I can get around $350k at regular job. Even if you consider a generous 20% of startups that gonna to make it, I need to make more than $1.75M in income to justify the risk of a startup. Doing the same math for your $1M salary, it means you need to make at least $5M per year to adjust for risk.
  • lifeisstillgood 5y ago
    Can I clarify - you make 1.5M at a startup? is that equity vesting? or salary / cash bonus?
• zaptheimpaler 5y ago
  lol wtf.. you make a million a year.. i have worked at startups my whole career and the best one, that succeeded big and turned my options into valuable stock years later, the annual comp was like $350k. No, you're probably never ever going to get even close to a $1M/year at a startup. If money is your main motivation, a startup will probably never make sense. I do agree early engineers get pretty terrible deals w.r.t equity compared to founders or investors, but that's to be expected IMO. A startup does not have the structure in place to plug in an engineer and crank out tens of millions of extra revenue. They typically don't have extremely complex technical problems that need a highly specialized engineer. They need to solve simple problems quickly and a $1M engineer no matter how good is not going to outcompete a team of 5 $200k engineers.
• United857 5y ago
  It looks like you have a solid financial cushion already. Maybe try working for a year or so, in the worst case, you're likely quite senior that you probably wouldn't have much difficulty boomeranging back (or to a comparable big tech)
• KerryJones 5y ago
  I've seen a bunch of people saying your financial calculations are correct, but I disagree. One person pointed out "why are you saying the optimistic side?" This _can_ be calculated, and it doesn't seem like you are applying realistic probabilities. This is pretty routine in value investing when you are trying to value a company. In essence, you multiply the probability of each possible valuation by the valuation, and then sum them up over the expected number of years. Here's a quick calculator I threw together with possible scenarios what you can modify: https://docs.google.com/spreadsheets/d/e/2PACX-1vTox68rXDr1rAgflufwi2eZ-5iTRB9juabdtuq4JXA4jBcoynZ7mKHNlGFI3tOrpGwhPhAmVcKnKC9B/pubhtml https://docs.google.com/spreadsheets/d/e/2PACX-1vTox68rXDr1r... At the end of the day, it's a risk reward tradeoff, this can help put things in the correct picture for what you're after. Startups have been said a number of times _do not_ give you the best odds for making money. Investors, often because they start earlier in the company, are trading more risk for higher possible payoff. Make sure that you don't delude yourself with probabilities, get actual base rates (how many startups fail in 5 years? How many go public?), and if you have insight to believe this is different, then you should modify that base rate.
• jrochkind1 5y ago
  I suppose the other way to look at it is if your'e making $1M/year now, and living anywhere close to like a "normal" person, you have put enough away in the bank/investments that now you can easily afford to do whatever you want without worrying about money, without getting paid at all. You are in the position where you can choose what you want to do, with the money not even being an issue. So why even worry about the pay at a startup? If it's something exciting you want to do, go for it. But if you're happy where you are, and/or primarily motivated by money... what's even leading you to consider these offers, why even ask? If you're hoping to make even more money at a startup, the discussion here seems to say "unlikely, unless you get lucky".
  • tempforquestion 5y ago
    Well, I'm not happy where I am :) I have enough that would not be a problem if I made 20% of what I make today, but I don't have enough that money would never be an issue. I'm not trying to optimize for money, but I'm not going to ignore it. From what I'm getting from this thread is probably be a founder might be a better fit for me rather than a startup employee.
    • sshine 5y ago
      Yes.
    • _9omd 5y ago
      One question to think about is how much longer you'd need to work in your current role to never have to worry about money again. Say you were to cut your expenses to the bare minimum, invest aggressively, and stick it out there another couple years. Would you have enough to be financially independent (FIRE)? I'm not usually one to advocate sticking it out at a job you don't like, but it seems you have a real chance to never have to worry about money again if you're willing to live a non-lavish lifestyle. Just something to consider.
    • stevage 5y ago
      How much do you think you need to retire, out of curiosity? Someone suggested you'd work 5 to 10 years more, but that seems like a massive nest egg. What do you need it all for?
• 999900000999 5y ago
  I'd make enough to retire, and afterwards work part time for fun. I would never join a startup to get rich. Just doesn't work out most of the time.
• lifeisstillgood 5y ago
  My suggestion (which if I had not made financial mistakes in years past I would be doing now) is building my own personal accelerator - basically decide on a stack, find five cool ideas (with some audience) and build the products with at least one co-founder for each idea. When one idea completely misses kill it quick and pluck a new one out. Spread the risk of one idea failing like VCs do but keep most of the upside.
  • tempforquestion 5y ago
    That is not a bad idea, I like it
    • lifeisstillgood 5y ago
      It's been a pipe dream for a while. Software I view as a form of literacy and this I would see more as a "writers collective" than anything else. There is an inherent unfairness about a lot of the VC world (#) and while some of that is access to capital for me the big part is that each founder can only bet on one idea, but VCs bet on dozens (in in post YC world hundreds). A collective agreement between the founders evens that out. It is more likely workable as a partnership - a set of senior partners and junior partners. My bet on this however is that smart engineering will outweigh the pull of massive hiring. Any partnership cannot afford to dilute too much - and the (my) underlying principle is to avoid exploitation. So while it is possible to generate more code by hiring more coders, my experience is that there is always a tipping point after which that becomes a management problem and the cause is lost. So I am starting to ramble - there is a lot of this in my brain - but yeah please start up your own VC fund - but don't act like a VC and employer - Act like an engineer and a partner :-) # There is an argument that owners of capital do not want workers to achieve Financial Independence because then their leverage is gone. This is most red in tooth and claw in the negotiations between VCs and first time founders.
• thenerdhead 5y ago
  I don't really get why you'd be asking this question. Especially if you're making that much money a year. Do the math. https://tldroptions.io/ https://tldroptions.io/ In just about every case, you're rolling dice for what? A faster paced environment and sleepless nights? I get it, the hedonic treadmill is real. Happiness isn't bought with money, but couldn't you just save enough money to semi-retire and do something different at that point?
  • deleted 5y ago
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• reilly3000 5y ago
  Given you have achieved the means for financial security, I think a more important question to ask yourself instead of "what is the best deal I can get" is "what do I want to build?" You have gotten to where you are by being highly-capable and applying yourself consistently. You have the personal skills and financial leverage to bring about many things in this world. What do you want to build? What needs nurturing the most? What, if any, legacy would I like to leave behind? I believe we are in early days of a century of revolution. Pick your battle and fight it. The money will follow if your work continues to create value. Besides that personal take, it seems like you may not have to make a breaking change. I always try to ask myself "why not both?". Given you're in the tech ecosystem, you probably have an information advantage on what startup investing opportunities exist and which may be viable. There is nothing stopping you from being a part-time angel investor and generating passive income. Certainly you have to source and work deals, but its generally a lot more passive to be a semi-silent partner than one who does it full-time, and as long as you go in with talented investors who want to take a more active role you can be somewhat assured your investment will be shepherded well. Should you find your investment(s) have traction and you feel you can add value with your specific skills, it may make sense to join the team. You can do so while being reasonably assured that you'll average $80K+ / month as a baseline, while also virtually guaranteeing things will be a bit more interesting day to day. Best of luck to you.
  • tempforquestion 5y ago
    That is a good advice, thanks. Big companies are not fans of moonlighting like this (potential conflict of interest), but I like the way you are thinking.
• tyre 5y ago
  The number one rule — and I cannot emphasize this enough — is that you should not work at a startup for the money. The risk adjusted returns are not terrible if you know how to screen for good founders. It is, however, exceedingly unlikely that you make more than $10m over ten years — especially considering investment returns on your comp today over that time period. So it depends on what you want. Startups offer flexibility, opportunity to shape a company and its culture, building a team, incredibly fast growth (both personal and company), and the opportunity to touch many-if-not-all parts of the company. The downsides are lower comp, longer hours (if you’re actually going to see returns), less support. For engineering, for example, big company employees drastically underestimate how much they rely on homegrown tooling. Whether that’s worth it to you isn’t something I can answer. You will make less money. Probably a lot less. There are things you get that might be worth more than money, especially when you already have a lot. But also maybe they’re not to you and that’s okay!
  • MaknMoreGtnLess 5y ago
    > For engineering, for example, big company employees drastically underestimate how much they rely on homegrown tooling. Are you in engineering yourself? I can assure you that people in sales, marketing etc also drastically underestimate how much they rely on homegrown or integrated tooling and support systems. Sometimes, they don't even know what those tooling and support systems were. They only learn when they either join a company that don't have those tooling and support systems, or start their own > if you know how to screen for good founders What are some questions you ask for screen for good founders?
• FarhadG 5y ago
  Are there other ways for you to find what you're looking for without leaving your position? It seems to me you're wanting a challenge but not wanting to take the financial hit. Have you considered alternative solutions to fulfill these two requirements?
• deanmoriarty 5y ago
  Don’t forget dilution! I started with 1.X% pre Series A at a successful startup that is now valued at more than $1B, and my slice of the pie is down to roughly 0.2%, while the damn thing is still private after 10+ years and many, many diluting investment rounds. If I am lucky and the startup sells at some point, my annualized income will have been roughly $1M/y. So, it takes way more than $500M to break even! Each and every round of investment will dilute you of 15-20%+. I am now at a FAANG with similar comp to yours, and if someone offers me a job at an early startup I will laugh in their face. For me the future choices will either be my own startup, or a pre-IPO (within a year) company. This will continue to be true even after I’ll reach financial independence, because once you go through an early startup as employee you realize you are taking exactly the same risk of the founders but orders of magnitude less potential rewards. It’s just for suckers, no other ways to put it. And I really enjoy working in small startups, so it’s sad that this is the reality. And keep in mind my experience with the startup was extremely lucky, since it is a unicorn now. I feel like I did beat all the odds, and even then it will likely not match what I could have made in FAANG all along, with better benefits (401k anyone?) and working hours. I made peace with it, but it tormented me for quite a while.
  • tempforquestion 5y ago
    The sad part of it is not that you didn't get rich with your startup, it is that you didn't BUT some else did!
  • mavelikara 5y ago
    > if someone offers me a job at an early startup I will laugh in their face. For me the future choices will either be my own startup, If and when you found a company, how do you plan to handle the situation when an engineer laughs at your face when you try to hire them?
    • grumpyprole 5y ago
      Maybe they'll be offered a better deal.
    • deanmoriarty 5y ago
• leetrout 5y ago
  Some places don't even offer a full percent for early employees. As someone on the other side of you I would stay put, angel invest or found.
• sys_64738 5y ago
  No. Having done a startup I wouldn’t ever do another. They usually fail.
• SmellTheGlove 5y ago
  IMHO, stay put. At your compensation, it's going to be nearly impossible to join a startup and have the opportunity cost make sense. Do what you're doing for as long as you reasonably want to, or until the comp drops off. Hopefully you're saving, and then you can either be a founder or an investor/advisor once you want to get involved with a startup and have it be better worth your time. >- If I accept a position with 1% equity, the company exit would need to be at least $500M just to match my previous comp. Layer in some assumptions here and I think it needs to be a lot more than that. I think, currently, it's on average 5-7 years between first funding and IPO, with let's say 5 fundraising rounds. [0] Being optimistic and assuming 10% dilution each round, maybe you have 0.6% at IPO time. To cover that 7M of opportunity cost, you need closer to a $1.2B exit. This isn't even factoring the odds of picking a winner that actually exits! Unless you really don't like what you're doing right now, it makes sense to keep that going as long as possible, then exit to the couch and do whatever you want. (Also, someone tell me if I did bad math. I do bad math.) [0]: https://about.crunchbase.com/blog/how-many-rounds-of-funding-do-companies-raise-before-exiting/ https://about.crunchbase.com/blog/how-many-rounds-of-funding...
  • deanmoriarty 5y ago
    Your math is good, but even too conservative regarding dilution. See my reply, I am a living proof of your math.
    • SmellTheGlove 5y ago
      I just saw that. I knew 10% was pretty optimistic, but wow, I think you've also talked me out of ever joining an early startup :D I'm on my second unicorn, joining around their D both times. If one or both of these go public, I might try and do it again, or just go to one of the big public tech companies for a while if they both have solid IPOs. Always did want to work at Google.
• deleted 5y ago
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• rsynnott 5y ago
  Do you need that million a year for anything? Not being facetious; for many people earning that sort of money, their lifestyle wouldn't change if it was cut in half or more. If you want to work in a startup, then realistically, yeah, you probably wouldn't make as much money. But, well, particularly at that level, money isn't everything. All depends on what you prioritise. I worked in startups in the 5 people to 100 people range for a decade or so; I now work in a big company, but I'm glad I did the startup thing. That said, it's probably a lot easier to go startups -> big companies than vice versa, from a "what are you giving up" point of view.
• somenewaccount1 5y ago
  Are you a VP? How the duck do you make $1M a year, liquid, otherwise? A $500M exit isn't so strange if you join a legit and successful company though. You can leverage the equity by puting it in your Roth IRA, this avoids tax liabilities (although it's inaccessible till you get old). Even still, equity is taxed as capital gains, not income. Like others have said, you need to build something you love, otherwise you will just have a different pair of poorer handcuffs. Make sure your 1%are not common shares that can be diluted,although I suspect you already know that.