6 ms·

The 3 points you make forget the little guy: that early employee, whose employee number has 1 digit, who trusted the founders when he accepted the option grant

• grellas 15y ago
  Very good point - I actually had just edited my point 3 (first sentence) to add this point, posted the edit, and then saw your post. This definitely fits into the equation in an important way as part of the policy discussion. Thanks for highlighting it.
• keeptrying 15y ago
  Your "little guy" has been earning a salary for the last 3 years in the startup - in fact he makes more money than the founders. I still think its okay to compensate the founder for getting the app to this point.
  • fukeeptrying 15y ago
    you are a douchebag!!.. the "little guy" works his ass off for 80-90 hrs and potential upside off some more money if they get to IPO. I am sure the employees in airbnb didn't make 20-30 millions. The app is built together by founders and the employees not only by founders..
  • steve8918 15y ago
    You should probably read this prescient thread a few weeks back. If you go through the comments, the majority of early employees got screwed by the founders. The ones that benefited are the best-of-breed companies like AMZN, GOOG, etc. They took care of their employees. http://news.ycombinator.com/item?id=2958766 http://news.ycombinator.com/item?id=2958766
    • keeptrying 15y ago
      I'm not talking about the final exit. I'm talking about an award to the founders if they can get the company to a billion dollar valuation. That's all I'm talking about. And not Fu money but something of the order of 1million which would give the entrepreneur a small nest egg for having gotten this far but doesn't really make him financially secure. And I agree that shafting employees is reprehensible and downright despicable.
  • jroseattle 15y ago
    Try using that as your sales pitch for hiring the "little guy" in this market and let us know how far you get.
    • philwelch 15y ago
      Are prospective startup employees really motivated by stock options? There's no shortage of HN posts that actually work out the math and conclude that you won't get rich from employee stock unless the startup succeeds on the scale of Google, Amazon, or Microsoft.
      • jroseattle 15y ago
        Based on the number of times I've been offered stock options as a benefit of joining a startup, I'd say it's very prominent in startup culture as a motivator and recruitment tool. If it doesn't hold value (as it seems you're positing), then early employees are getting played in the worst way. They're the ones who are getting screwed. The context of what most people are saying is that founders are now getting their pound of flesh from VCs/investors (summary of other comments, not this thread.) The tone of those comments is that founders are simply putting steps in place to ensure they don't get screwed. If this is the case (I don't know how true it is) then the marker for who gets hosed lands squarely on those early employees, and THAT will be a gigantic problem for startups. If early employees begin to distrust founders and investors, it's not just a headwind -- it's pretty much game over. Early employees are quite often the difference between success & failure. Those top-flight team members you need to execute on that idea will use the only leverage they have in that relationship -- they simply won't join the startup. I hope AirBnB is an anomaly, but I expect this type of scenario to happen more and more. As for founders wanting to put themselves in position to do this -- who could blame them? But, it's not without consequence and their reputation as startup founders will be summarily tested with any future ventures. The smartest startups will very quickly learn that success will only come when all parts are working together, doing their jobs -- founders, investors, early employees.
        • philwelch 15y ago
  • sbov 15y ago
    Not sure how normal it is, but I've never worked for a startup where I made more than the founder.
    • garry 15y ago
      At YC startups especially, it is quite common. Founders often take the minimum amount of money necessary to survive. But they will often pay market (especially after Series A) or near-market to their hires, plus equity.
      • georgespencer 15y ago
        Most intelligently run startup should do the same thing. You should be hiring people who will add more value to the business. Often you should be hiring people who are smarter than you. It's the same principle which means if Steve Jobs came to me and said he wanted to be involved in my startup, I'd happily hand over 60% of my equity to him. The 40% I'd be left with, whilst proportionally lower than what I had previously, would be worth far more than what it was before. At the moment I earn my rent + expenses from my business. As and when we close our next round of funding, I'll likely formalise this arrangement (at the moment we're boxing clever with the tax man by paying me in various ways), but I'll definitely pay market + equity for early hires.
      • rdl 15y ago
        We recently got told by our accounting/legal people that founder salaries had to be at least 35k/yr once they started (which we did so we could get payroll/benefits in place for new hires; has to run for 6-8 weeks first, unless you go though a PEO like TriNet, which we didn't want to do) -- otherwise we were going for $2k/mo. So now I make $3k/mo. It's interesting trying to live within that amount (I have savings, but consciously would like to not dip into them more than I have to) in the Bay Area. It is a great opportunity to do IRA to Roth conversions and such this year. The crazy thing is I would technically qualify for rent controlled apartments in SF, although my income might be too low to rent them. I think $50-60k is a much more reasonable founder salary, once we finish Series A. I suspect most Bay Area startups get to that point, or even up to $70-100k, for founders, once they raise >$3mm or so.
  • ojbyrne 15y ago
    Perhaps more than the founders, but often significantly less than they can earn elsewhere. Foregone income and all that...
  • keeptrying 15y ago
    Just to be clear, I'm not talking about the final exit. I'm talking about an award to the founders if they can get the company to a billion dollar valuation. That's all I'm talking about. And not Fu money but something of the order of 1million which would give the entrepreneur a small nest egg for having gotten this far but doesn't really make him financially secure. And I agree that shafting employees is reprehensible and downright despicable.
  • keeptrying 15y ago
    Just to be clear I dont think giving FU money to the founders and nothing to the employees is fair. But something of the order of 500K to 1million for the founder I think is fair. Ie a small nest egg but not nearly enough to be financially secure. The founder in all ways owes his company to the employees and everyone who has helped him and any big upside MUST be shared.
• gojomo 15y ago
  You don't know if any 'little guys' were hurt. If the same amount of money had been taken in through sales of additional stock, at the same pre-money valuation, everyone with vested or unvested options would be more diluted. So treating cash-to-early-shares this way (rather than equity sales) can be a slight benefit to all employees and stockholders. Meanwhile, investors are diversified and have great counsel, so they can look out for themselves. The only question for me in a situation like this is if there are people who were vested but unexercised, who would have exercised had they known the unique dividend was coming. It'd certainly be nice for a company to give them the info they'd need to participate knowledgeably.
  • vm 15y ago
    Secondary transactions don't cause the company to issue more shares. They transfer shares from one party to another, so the total number of shares does not change and existing shareholders take no dilution.
    • deleted 15y ago
      [deleted]
    • gojomo 15y ago
      If the only alternative being considered is for founders to sell their existing shares, yes. But other approaches to limiting founder dilution and rewarding early shareholders could have included new offsetting stock awards to key staff, or selling even more shares to pay bonuses taxed at ordinary income rates. Those could have been more dilutive to smaller shareholders than this dividend approach. Dividends are legal, tax-favored, and exist to reward actual shareholders-of-record (even though they're rarely used at this growth-needing-capital stage). Closing that alternative wouldn't necessarily benefit the employee-optionholder 'little guy'... but it might benefit the new-money sophisticated investors who would then have more control.
      • VladRussian 15y ago
        >Dividends are legal, tax-favored, and exist to reward actual shareholders-of-record there is a special well known definition for a schema when "dividends" are paid using new incoming capital. The dividends you're talking about are supposed to be paid using earnings from the actual business.
• gavanwoolery 15y ago
  Founder's can cash out without screwing employees. I had almost no stock as an employee in my first startup, but the founders took care of me post-acquisition.
  • rdl 15y ago
    That kind of thing happens a lot, but you shouldn't count on anything not in writing (and probably not even then, unless it's on a cashier's check). Google's founders famously helped an early employee (Scott Hassan) who had done a lot of work and didn't have much on-paper equity. He's now running an awesome robotics startup, Willow Garage.