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I actually don't understand the author's point or numbers. A fully loaded engineer costs 100-200k depending on where you're located in US/Canada. And let's say
by OmarIsmail 15y ago
I actually don't understand the author's point or numbers. A fully loaded engineer costs 100-200k depending on where you're located in US/Canada. And let's say you need 25-50k for 2 founders to live for a year. Giving yourself a 12 month runway you're at needing 150-300k in the bank to even be in the position to hire.
If you have 150k in the bank it's because you have some seed money, or have bootstrapped your way to that position. If you've bootstrapped then you've achieved pretty good product/market fit and have good revenues. Conversely if you've raised 150k and haven't achieved product/market fit, then you probably shouldn't be hiring.
Now, if you look at companies that have raised 150-300K I don't think you'll find many of them hiring, at least not very aggressively. I feel that level of money is used to give the founders time to iterate until product/market fit and not be cash constrained when it comes to things like contracting a good designer or buying a domain. And once a seed funded company achieves some semblance of product/market fit they go and raise 1-2 million.
So is this article intended for the few companies that have raised in the 100-300K range that are starting to hire? If that's the case then ya, I agree such a company is going to have difficulty hiring. They have significant risk of not achieving product/market risk, and they don't have sufficient capital to give a fair market wage. So a potential employee is taking a huge chance on such a company, and should obviously be compensated for that (relative to the very attractive compensation packages are companies like Yammer, Square, etc). But I don't really think there are very many companies like that, but maybe I'm out of the loop.
- ChuckMcM 15y agoThe authors point is that the system has changed: Before: Founders put together a biz plan and raised a decent seed round and then started hiring the first few employees. Now: Some person gets an idea, pitches it to another person, and they start building it, then they pitch it to a third person. They don't pay themselves salaries, live off their savings and their credit cards. An 'incubator' may give them some cash to pay for things like AWS instances and filing incorporation papers. They may be up to 5 or 6 people before they have a 'minimum viable product' (MVP) and are willing to pitch it to VCs for a real series A. The author points out that all of the first 3, 4, 5, or 6 people who were working to get the company to the MVP point, they are founders. Not just the 'idea guy' or the 'wizard' that they snagged to help implement the idea. Everyone who came on board before series A has made it possible to get to that point is a founder. And yet there are companies that treat person 2 - n as 'employees' and give them way less equity. Because of that people don't want to be employee 2-n, and thus hiring them is 'hard'. I've noticed this as well, and have been puzzling around with the following thoughts. Lets say you create a company and decide that prior to series A, 80% of the company will be owned by the founders and 20% to outside investors. You start with 10 shares, 2 for an angel, 8 for the founder. Now you add a founder, you double the share pool and now you give 8 to the new founder and 2 to the angel (distribution is 4 + 8 + 8). Now you add another engineer/founder and you now add 80 shares to the pot and distribute them 27 + 27 + 26 for the founders and 20 for the angel. Add a new angel and you double the shares to 200 where each angel get (20 + 20) and founders get (54 + 53 + 53) shares. The idea being to keep the ownership percentage of the company 20% angels, 80% workers. Now you go for series A - my thought is you pick three ratios, investors/founders/employees. That may end up being 49/31/30. Allow your angel to either contribute their shares to the series A (cash out) or to participate. But at the end of the day the representation is 49,31,30. Same deal when you add more investors, add to the size of their pool so that works, add to the other pools to keep it balanced. I am undecided if it would make managing the equity table easier or harder.