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Your compensation for any given job can be broken down into an equation that looks something like: Compensation = Equity + Salary + Bonus + Benefits + Training

by emmett 15y ago

Your compensation for any given job can be broken down into an equation that looks something like: Compensation = Equity + Salary + Bonus + Benefits + Training + Credentialing + Interest Level of Work... Clearly some places (Academia, for example) pay you mostly in Training, Credentialing, and Interest level. Big companies pay you almost entirely in Salary and Benefits. Hedge Funds pay you mostly in Bonus, with some Salary. Good startups pay you pretty good in Salary, and pretty good in Equity. Great startups pay you almost ENTIRELY in equity on a percentage basis, because that's the part that makes you rich (Google, Facebook, ...) Of course it's hard to tell if you're working for a great startup ahead of time.

aaronblohowiak 15y ago
Startups that start off being run by well-intentioned people you trust can turn into places with management that has no problem diluting or otherwise devaluing your equity. Also, most startups use a little trick: they tell you that your equity is enough to make up for the difference in salary. Some of the clever ones will even do this using the valuation at the last fundraising event. VCs will agree that startups are a risky investment, and they seek 10x return on their investment because most of their investments fail. If you know that most investments fail, then you should really be compensated at a risk-adjusted amount of equity (ie: you should get waaay more equity at the current valuation than the discrepancy with the market rate to compensate you for the risk that the equity will be worth 0.) Additionally, there is the chance that after starting employment you discover the personality fit isn't there or you otherwise have to leave before the first year is up; if you don't reach your one year anniversary you take a 100% loss on the income discrepancy because you have no equity. To add insult to injury, you ARE NOT BEING GIVEN THE AMOUNT OF STOCK IN YOUR PACKAGE; an "option" is just the right to purchase at a set price. So really, people are "paying" you the difference between the current valuation of the company and its future growth, so you are getting a much worse deal than the last round of investors.
- emmett 15y ago
  Equity is not a sure thing, by any means, but it's worth something. And that something means that on average startups will pay less salary than big companies.

by emmett 15y ago

aaronblohowiak 15y ago

Startups that start off being run by well-intentioned people you trust can turn into places with management that has no problem diluting or otherwise devaluing your equity. Also, most startups use a little trick: they tell you that your equity is enough to make up for the difference in salary. Some of the clever ones will even do this using the valuation at the last fundraising event. VCs will agree that startups are a risky investment, and they seek 10x return on their investment because most of their investments fail. If you know that most investments fail, then you should really be compensated at a risk-adjusted amount of equity (ie: you should get waaay more equity at the current valuation than the discrepancy with the market rate to compensate you for the risk that the equity will be worth 0.) Additionally, there is the chance that after starting employment you discover the personality fit isn't there or you otherwise have to leave before the first year is up; if you don't reach your one year anniversary you take a 100% loss on the income discrepancy because you have no equity. To add insult to injury, you ARE NOT BEING GIVEN THE AMOUNT OF STOCK IN YOUR PACKAGE; an "option" is just the right to purchase at a set price. So really, people are "paying" you the difference between the current valuation of the company and its future growth, so you are getting a much worse deal than the last round of investors.

emmett 15y ago
Equity is not a sure thing, by any means, but it's worth something. And that something means that on average startups will pay less salary than big companies.