7 ms·

That's a lovely sentiment, but it's not close to reality when it comes to the presentation made when pitching those early-stage employees to join a startup. Im

That's a lovely sentiment, but it's not close to reality when it comes to the presentation made when pitching those early-stage employees to join a startup. Imagine a founder talking to an engineer about their fantastic idea, explaining how huge the opportunity is, etc. etc. and that the engineer will earn experience and a close-to-market salary. And you'll have options, but they likely won't be worth much unless we become Google, Amazon or Microsoft. Yeah, I can't imagine that conversation either. The demand for talent makes this situation appealing only to those who really need the experience. The highest quality talent -- the ones you need for your early-stage startup to succeed -- can do better than this nowadays.

philwelch 15y ago
Pre-funding, yes, is a leap of faith. Post-funding, if you offer a market salary, standard benefits, and a startup working environment (which seems to be the norm for YC startups), why wouldn't top talent choose that over, say, working for Google?
- jroseattle 15y ago
  > Post-funding, if you offer a market salary, standard benefits, and a startup working environment (which seems to be the norm for YC startups), why wouldn't top talent choose that over, say, working for Google? If someone was making this statement to me, as a prospective employee at Startup X, a giant red flag would go up. This is a signal that (a) this company isn't aware of what's being offered elsewhere, and (b) this company is projecting what's valuable to me as an employee (no financial gain, but "better working conditions".) I wish it was that trivial, but this is a quaint notion that simply doesn't work if your goal is to pull in premium talent. It may work once in a while, but long-term -- no way. Maybe that simplicity has worked for you in hiring situations, but in my geography -- you'll end up with mediocre talent. The bigco environment you mention -- the Amazons, the Googles, the Microsofts -- top flight candidates are using the pool of bigco and startups against each other to gain greater financial rewards. It's leverage, and the top candidates have it and are using it to their advantage. Play the reindeer games or not, the market is what it is.
  - rdl 15y ago
    They're just being honest. If a company sells for $150mm, and you have 1%, and there has been $20-40mm in financing (i.e. certainly not a great outcome for later investors, but ok for early), it's possible your equity will be worth $0 (due to preference), or maybe $200-300k. The odds of the company going from early to this are maybe 20%. Getting 1% isn't all that common either; 0.1% is a lot more likely unless you're pre-A. $200-300k is nice, but if you figure there's a 20% or less chance of it happening, and you have to wait 4 plus maybe 1-4 more years for it. So, the net present value is about $10k/yr in extra salary. Now, if you're Google, Facebook, or Microsoft, it's totally different; or if you are early at a company which takes very little financing and has a good ($50-150mm+) early exit. As an employee, what I'd want from a prospective employer is full visibility into the financials/cap table, and help running through various assumptions about the future. Misleading people about the value of compensation, up or down, isn't reasonable. As an employer I wouldn't want to be hiring someone who was too stupid to understand the accounting when given the numbers, or too meek to ask for the numbers, either. But an employee would be a lot better if he were motivated by wanting to solve this problem, use this tech, expand skills, be in this industry, or learn to do his own startup, vs. banking on the options lottery.
    - jroseattle 15y ago
      I'm afraid we're getting off on a tangent on this thread, but your math is correct, and I agree with your probabilities. > As an employee, what I'd want from a prospective employer is full visibility into the financials/cap table, and help running through various assumptions about the future. Misleading people about the value of compensation, up or down, isn't reasonable. I think that's the crux of it. Most startups are not this transparent and upfront with potential candidates. > As an employer I wouldn't want to be hiring someone who was too stupid to understand the accounting when given the numbers, or too meek to ask for the numbers, either. Very true. > But an employee would be a lot better if he were motivated by wanting to solve this problem, use this tech, expand skills, be in this industry, or learn to do his own startup, vs. banking on the options lottery. For the company, absolutely. For the employee? Yes, if certain circumstances hold true. But expecting this to be of equivalent benefit to everyone is uninformed. > As an employer I wouldn't want to be hiring someone who was too stupid to understand the accounting when given the numbers, or too meek to ask for the numbers, either. But an employee would be a lot better if he were motivated by wanting to solve this problem, use this tech, expand skills, be in this industry, or learn to do his own startup, vs. banking on the options lottery. Again, great sentiment, but when you fold in everything that's been discussed and you target premium talent, more often than not I'm finding that talent is often going elsewhere. As a summary, I think the tension around financials between founders and VCs is slowly being pushed off to early-stage employees, and premium talent recognizes it and is expecting more than invaluable startup experience as compensation for making someone else wealthy.

philwelch 15y ago

Pre-funding, yes, is a leap of faith. Post-funding, if you offer a market salary, standard benefits, and a startup working environment (which seems to be the norm for YC startups), why wouldn't top talent choose that over, say, working for Google?

jroseattle 15y ago
> Post-funding, if you offer a market salary, standard benefits, and a startup working environment (which seems to be the norm for YC startups), why wouldn't top talent choose that over, say, working for Google? If someone was making this statement to me, as a prospective employee at Startup X, a giant red flag would go up. This is a signal that (a) this company isn't aware of what's being offered elsewhere, and (b) this company is projecting what's valuable to me as an employee (no financial gain, but "better working conditions".) I wish it was that trivial, but this is a quaint notion that simply doesn't work if your goal is to pull in premium talent. It may work once in a while, but long-term -- no way. Maybe that simplicity has worked for you in hiring situations, but in my geography -- you'll end up with mediocre talent. The bigco environment you mention -- the Amazons, the Googles, the Microsofts -- top flight candidates are using the pool of bigco and startups against each other to gain greater financial rewards. It's leverage, and the top candidates have it and are using it to their advantage. Play the reindeer games or not, the market is what it is.
- rdl 15y ago
  They're just being honest. If a company sells for $150mm, and you have 1%, and there has been $20-40mm in financing (i.e. certainly not a great outcome for later investors, but ok for early), it's possible your equity will be worth $0 (due to preference), or maybe $200-300k. The odds of the company going from early to this are maybe 20%. Getting 1% isn't all that common either; 0.1% is a lot more likely unless you're pre-A. $200-300k is nice, but if you figure there's a 20% or less chance of it happening, and you have to wait 4 plus maybe 1-4 more years for it. So, the net present value is about $10k/yr in extra salary. Now, if you're Google, Facebook, or Microsoft, it's totally different; or if you are early at a company which takes very little financing and has a good ($50-150mm+) early exit. As an employee, what I'd want from a prospective employer is full visibility into the financials/cap table, and help running through various assumptions about the future. Misleading people about the value of compensation, up or down, isn't reasonable. As an employer I wouldn't want to be hiring someone who was too stupid to understand the accounting when given the numbers, or too meek to ask for the numbers, either. But an employee would be a lot better if he were motivated by wanting to solve this problem, use this tech, expand skills, be in this industry, or learn to do his own startup, vs. banking on the options lottery.
  - jroseattle 15y ago
    I'm afraid we're getting off on a tangent on this thread, but your math is correct, and I agree with your probabilities. > As an employee, what I'd want from a prospective employer is full visibility into the financials/cap table, and help running through various assumptions about the future. Misleading people about the value of compensation, up or down, isn't reasonable. I think that's the crux of it. Most startups are not this transparent and upfront with potential candidates. > As an employer I wouldn't want to be hiring someone who was too stupid to understand the accounting when given the numbers, or too meek to ask for the numbers, either. Very true. > But an employee would be a lot better if he were motivated by wanting to solve this problem, use this tech, expand skills, be in this industry, or learn to do his own startup, vs. banking on the options lottery. For the company, absolutely. For the employee? Yes, if certain circumstances hold true. But expecting this to be of equivalent benefit to everyone is uninformed. > As an employer I wouldn't want to be hiring someone who was too stupid to understand the accounting when given the numbers, or too meek to ask for the numbers, either. But an employee would be a lot better if he were motivated by wanting to solve this problem, use this tech, expand skills, be in this industry, or learn to do his own startup, vs. banking on the options lottery. Again, great sentiment, but when you fold in everything that's been discussed and you target premium talent, more often than not I'm finding that talent is often going elsewhere. As a summary, I think the tension around financials between founders and VCs is slowly being pushed off to early-stage employees, and premium talent recognizes it and is expecting more than invaluable startup experience as compensation for making someone else wealthy.