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I have a friend that has given up on options. Even if he were to be #10 somewhere he would take any extra pay over any options. Stories like this show the wisdo

I have a friend that has given up on options. Even if he were to be #10 somewhere he would take any extra pay over any options. Stories like this show the wisdom of that. Are there really that many success stories for people other than for VCs and (maybe) founders out there anymore? Even if your options (eventually) get you 200k, how much did they cost you in years of lower pay. Even with a payout, considering interest on that missing pay was it worth it?

Analemma_ 3y ago
It's not just your friend: a lot of people have given up on options. Obviously they're underrepresented here on HN because this is a startup-focused forum, but I know many, many people who have concluded "options have an EV of zero, startups pay options in lieu of market-rate salary, therefore startups are a raw deal; I will only go to FAANGs". They're sort of a dark matter universe since they are only visible in their absence here, but I do think that startups don't have access to the same talent pool as they used to, and sooner or later this will catch up with the ecosystem.
- yieldcrv 3y ago
  it looks like bi-modal distribution of compensation in tech, where there are tech startups paying one amount and options, and FAANG paying another amount plus liquid shares but crypto organizations have added another wrench for more than half a decade, leaving the other startups aside, they are startups paying one amount, and skipping the options and paying their employees RSUs of their liquid crypto tokens, competing directly with FAANGs on compensation as employees can sell those tokens just as - or even more easily - than they can sell shares in a brokerage account I'm saying it as if its news because the crowd here relies on people they respect saying the same thing to believe it in the absence of public and common knowledge, and that likely hasn't happened in the topic of anything crypto/web3 industry here
- yieldcrv 3y ago
  > startups pay options in lieu of market-rate salary this is true but this is largely due to an unworkable tax treatment of giving out illiquid shares to employees that rely on employment for money, and the longstanding tax regime would seek to tax employees that have higher value shares even if they can't get cash to pay for it. so this has left private companies in an uncompetitive situation with options as the poor workaround, analogous to chemotherapy where it hurts everyone in the absence of a better treatment, but you might come out ahead
- pfooti 3y ago
  This is me. I work at a FAANG, about half of my very good compensation is in RSUs. All the startup companies I've talked to (I don't turn down recruiters out of hand) seem to like my skill set, but cannot really meet my comp requirements without valuing options as if they were 100% guaranteed to convert at the current high valuation. It's a bummer - startups do a lot of really cool stuff, but I'm at a point in my career where I can no longer really gamble that the options will pay out. I need the stability and mortgage paying power of actual comp.
  - Xcelerate 3y ago
    I wouldn’t discount startups altogether. I was previously at a FANG company when a startup doing some exciting work in a really interesting space offered to match my total comp in cash, plus the equivalent in options based on their recent valuation. All fully remote. At the time, the company I was at seemed to be going downhill quickly, and they began mass layoffs for the first time shortly after I left. What happened since then? Well, the startup options have very likely gone to zero. And my previous company’s stock price, which had been dropping quickly over the course of my last year there, made a hard U-turn right after I left and has been skyrocketing ever since (my family likes to joke that I caused the change of course at both companies). Was it really a bad decision though? It’s sort of hard to tell. At my previous company, my manager had put together a promotion packet, but this likely would have been cancelled with the layoffs, and there’s a chance I could have been laid off as well (as far as I can tell it was random). And then there’s the fact that for whatever weird reason, compensation for internal promos at this company heavily lagged that of external hires at the same level for many years. So at least up until now, I think I am even with or maybe slightly ahead of the counterfactual situation where I didn’t join a startup. Plus I have had new experiences, greater scope, and different types of challenges than I had previously, and I think it’s valuable to have a variety of novel experiences over a lifetime. Obviously, from this point forward my future (financial) outlook would be better off if I had stayed, but it’s hard to write off my decision to try something new. Other former coworkers also left to join startups, a few of which are likely to go public soon, so it’s not as if going from FANG to a startup always works out unfavorably, and if you join a startup that seems to be doing well at a later stage, the downside risk doesn’t seem that high actually.
- mcmoor 3y ago
  I guess this is why worker-coop would never really take off. Most people are not in position to be paid in possible future profit rather than direct compensation. There's also nothing stopping employees at a public company to convert their entire salary into stock but not many do that either.
  - meheleventyone 3y ago
    Worker-cooperatives can and do pay salaries.
- mil22 3y ago
  I'm in this category, except became an invisible solopreneur after deciding startups are a raw deal instead of going back to FAANG. Between the unfavorable tax treatment, long time to IPO, the inherently high risk of options, it's just not worth it. Perhaps a good deal for the VCs, maybe for the founders, but not for even the earliest employees. See you in the next life.
- nailer 3y ago
  Is ‘EV’ enterprise value or something else? Thanks.
  - deleted 3y ago
    [deleted]
  - ardacinar 3y ago
    Expected Value
  - stoneman24 3y ago
    I was assuming EV was expected value. “For a pocketful of mumbles such are promises” Paul Simon. Seen too many promises forgotten/diluted to really trust anything other than cash.
hamburglar 3y ago
I feel like the key is 1) don’t count on your options being worth anything at all, and 2) work for savvy founders that know how to get the employees taken care of. This means never taking more money than they need, not giving away multipliers, giving non-negligible percentages to employees, and focusing on making the business actually have intrinsic value instead of letting “how much can we raise” drive their sense of value. I feel like a lot of people (founders included) buy into the idea that the VCs should be able to walk in and screw everyone out of their equity because they hold all the cards. If you work for founders that believe this, you will definitely get screwed, partially because the founders will believe screwing you is just part of the game.
VirusNewbie 3y ago
Plenty of people made millions joining series C/D deca-corns and selling in the IPO pop.
- scarface_74 3y ago
  And plenty more made nothing. It’s survivorship bias in a nutshell. You take 10 people who worked for a public BigTech company that gave cash + RSUs and 10 people who got the same in “equity” in 10 different private companies, who do you think will be ahead in 10 years? 10 years is the average amount of time it takes for the few companies that make it to have an exit event.
  - hamburglar 3y ago
    Indeed. I consider my last startup option windfall a once in a lifetime success story, but the BigTech I’ve been at since I left the startup world has paid me roughly the same amount in RSUs when you consider all the time spent at both. And the BigTech is going to keep paying me pretty consistently.
    - deleted 3y ago
      [deleted]
  - VirusNewbie 3y ago
    I didn't say hang on for ten years, I said people joining late stage series D companies like Stripe, Databricks, SpaceX etc. Those are very likely to have multiple liquidity events before they even go public, and are known to pay more than FAANG. You're trading some liquidity and some security for a higher upside. Those are the companies that have the best luck luring away FAANG engineers with higher comp (if things go well).
    - scarface_74 3y ago
      And at a late stage, you’re not likely to see any more from your equity than working at a public BigTech company, your equity is not only locked up pre-IPO it’s also locked up post IPO. When you work for a public company, you know exactly when your RSUs are going to vest, they appear in your brokerage account and you can (and should) sell the same day and diversify.
eastbound 3y ago
> Are there really that many success stories for people other than for VCs and (maybe) founders out there anymore? I was the employee around #300 at Atlassian, the founders didn’t dilute the employees, and my options netted $3m (minus the taxes) after working there for 3 years and waiting 6 years. Scott Farquhar and Mike Cannon-Brookes were hell-bent on being honest, fair and giving back. There are good people out there.
- mil22 3y ago
  Atlassian IPO'd in 2015... so you would have worked there 2006-2009. Congrats on the success, but that was more than a decade and a half ago... I'm not sure it counts as a recent example.
- wtgthrow 3y ago
  As we are now down-under I will mention: Wisetech Global. I was too late to make anything meaningful over 3 years there, but it was transparent and very generous, and they made it as tax efficient as legally possible in Australia. If you joined in say 2009, grabbed some shares for 3 years you would probably be in the high 100ks at IPO, and millions if you held until now (but you could have also made those millions as a retail investor using your super or something too!). I sold too early :-( Also $currrent_company which I wont reveal. Run as well as Wisetech in terms of growth focus. Got some options. Learnt lesson. HODLing these fuckers to zero or "very interesting" levels lol!
thenoblesunfish 3y ago
The first time I was strongly considering a startup I had to essentially treat the options as worthless. Both because of the usual fact that most startups fail, but because of stuff like in the article: I couldn't convince myself in any way that there wouldn't be people ahead of me in the line if the company was sold, despite the fact that the founders themselves seemed totally honest.
jackcosgrove 3y ago
I don't think startup compensation has yet to account for the wage gains in big tech since Facebook started bidding up comp. They are still operating as if it's 2009. We'd also need a new technology as big as the PC and the Internet to open up lanes for new entrants. As it is the incumbents have locked up most of the market so that's where the money is.
- chihuahua 3y ago
  If startups are able the hire the quantity and quality of employees they want, then it appears that they are paying enough. If it's not a good deal for employees, then it's the employees that are making a mistake.
sb8244 3y ago
I think it's worth it still. Depending a lot on the company: * Ask questions to founders if they raise on participating preferred (the worst). Don't take a job if they do or if they won't answer * Find a place with early exercise of options * Find a place with a healthy company culture. (I believe this correlates) I made a lot off of options, while having a good salary. I know others that did the same.
- onion2k 3y ago
  I made a lot off of options.. Note the past tense. The way startups operated a decade ago is quite different to the way they operate now. The tricks to get the most from employees without giving away much equity are more widely known now. I have no doubt that there are still some moral and ethical startups about, but I also think there are many, many more who give out stock with absolutely no intention of it becoming valuable in the future these days.
  - sb8244 3y ago
    I think this is a pessimistic view of the situation and I don't subscribe to it being the norm today. I run a (still small, 1.5M ARR) tech startup and we treat our employees fairly. Low / clean investment table, early exercise for employees that make early employee risk effectively 0, upfront about how to deal with options, alongside market salaries. But maybe I am not the norm and it's more common for people to get screwed over. However, I have several friends at startups that have similar recent stories with their options.
- ramraj07 3y ago
  What does “raise on participating preferred” mean? How is it so hard for people like me who are good engineers to still not be at the bottom of all these terms lol.
  - sb8244 3y ago
    I asked lots of questions to the founder of the company I was at. He was very nice in always answering me and helping me understand what's good / bad. I try to pass it on but I'm not sure how to proactively get the knowledge other than reading something like "All about VC fundraising" (fake post, I'm sure it exists) and hoping it's there. Participating preferred = investor invests 50M on 1x participating preferred and company sells for 100M. The investor makes 50M + their % share of the company. Common stock makes % share of 50M. They participate in the % sales ON TOP OF their preferred stocks liquidation preference (money in = money out before common stock value is considered) Now here's where it gets nasty. 2x participating preferred = investor invests 50M and company sells for 100M. Investor makes 100M and common stock makes $0. Or if the company sold for 150M, investor makes 100M and participates in the % stock value from 50M. It's a bit confusing, but the short is participating preferred is the absolute worst terms for common stock holders (founders included.)
ragnot 3y ago
Had a friend who was employee number 15 at a startup that was acquired for a large amount. Net result was that he earned approximately the same as a FAANG engineer over the same time period (7 years - total comp). He was able to parlay that startup build-to-acquisition experience into better positions in startups after and seems relatively happy about it.

Analemma_ 3y ago

It's not just your friend: a lot of people have given up on options. Obviously they're underrepresented here on HN because this is a startup-focused forum, but I know many, many people who have concluded "options have an EV of zero, startups pay options in lieu of market-rate salary, therefore startups are a raw deal; I will only go to FAANGs". They're sort of a dark matter universe since they are only visible in their absence here, but I do think that startups don't have access to the same talent pool as they used to, and sooner or later this will catch up with the ecosystem.

yieldcrv 3y ago
it looks like bi-modal distribution of compensation in tech, where there are tech startups paying one amount and options, and FAANG paying another amount plus liquid shares but crypto organizations have added another wrench for more than half a decade, leaving the other startups aside, they are startups paying one amount, and skipping the options and paying their employees RSUs of their liquid crypto tokens, competing directly with FAANGs on compensation as employees can sell those tokens just as - or even more easily - than they can sell shares in a brokerage account I'm saying it as if its news because the crowd here relies on people they respect saying the same thing to believe it in the absence of public and common knowledge, and that likely hasn't happened in the topic of anything crypto/web3 industry here
yieldcrv 3y ago
> startups pay options in lieu of market-rate salary this is true but this is largely due to an unworkable tax treatment of giving out illiquid shares to employees that rely on employment for money, and the longstanding tax regime would seek to tax employees that have higher value shares even if they can't get cash to pay for it. so this has left private companies in an uncompetitive situation with options as the poor workaround, analogous to chemotherapy where it hurts everyone in the absence of a better treatment, but you might come out ahead
pfooti 3y ago
This is me. I work at a FAANG, about half of my very good compensation is in RSUs. All the startup companies I've talked to (I don't turn down recruiters out of hand) seem to like my skill set, but cannot really meet my comp requirements without valuing options as if they were 100% guaranteed to convert at the current high valuation. It's a bummer - startups do a lot of really cool stuff, but I'm at a point in my career where I can no longer really gamble that the options will pay out. I need the stability and mortgage paying power of actual comp.
- Xcelerate 3y ago
  I wouldn’t discount startups altogether. I was previously at a FANG company when a startup doing some exciting work in a really interesting space offered to match my total comp in cash, plus the equivalent in options based on their recent valuation. All fully remote. At the time, the company I was at seemed to be going downhill quickly, and they began mass layoffs for the first time shortly after I left. What happened since then? Well, the startup options have very likely gone to zero. And my previous company’s stock price, which had been dropping quickly over the course of my last year there, made a hard U-turn right after I left and has been skyrocketing ever since (my family likes to joke that I caused the change of course at both companies). Was it really a bad decision though? It’s sort of hard to tell. At my previous company, my manager had put together a promotion packet, but this likely would have been cancelled with the layoffs, and there’s a chance I could have been laid off as well (as far as I can tell it was random). And then there’s the fact that for whatever weird reason, compensation for internal promos at this company heavily lagged that of external hires at the same level for many years. So at least up until now, I think I am even with or maybe slightly ahead of the counterfactual situation where I didn’t join a startup. Plus I have had new experiences, greater scope, and different types of challenges than I had previously, and I think it’s valuable to have a variety of novel experiences over a lifetime. Obviously, from this point forward my future (financial) outlook would be better off if I had stayed, but it’s hard to write off my decision to try something new. Other former coworkers also left to join startups, a few of which are likely to go public soon, so it’s not as if going from FANG to a startup always works out unfavorably, and if you join a startup that seems to be doing well at a later stage, the downside risk doesn’t seem that high actually.
mcmoor 3y ago
I guess this is why worker-coop would never really take off. Most people are not in position to be paid in possible future profit rather than direct compensation. There's also nothing stopping employees at a public company to convert their entire salary into stock but not many do that either.
- meheleventyone 3y ago
  Worker-cooperatives can and do pay salaries.
mil22 3y ago
I'm in this category, except became an invisible solopreneur after deciding startups are a raw deal instead of going back to FAANG. Between the unfavorable tax treatment, long time to IPO, the inherently high risk of options, it's just not worth it. Perhaps a good deal for the VCs, maybe for the founders, but not for even the earliest employees. See you in the next life.
nailer 3y ago
Is ‘EV’ enterprise value or something else? Thanks.
- deleted 3y ago
  [deleted]
- ardacinar 3y ago
  Expected Value
- stoneman24 3y ago
  I was assuming EV was expected value. “For a pocketful of mumbles such are promises” Paul Simon. Seen too many promises forgotten/diluted to really trust anything other than cash.

hamburglar 3y ago

I feel like the key is 1) don’t count on your options being worth anything at all, and 2) work for savvy founders that know how to get the employees taken care of. This means never taking more money than they need, not giving away multipliers, giving non-negligible percentages to employees, and focusing on making the business actually have intrinsic value instead of letting “how much can we raise” drive their sense of value. I feel like a lot of people (founders included) buy into the idea that the VCs should be able to walk in and screw everyone out of their equity because they hold all the cards. If you work for founders that believe this, you will definitely get screwed, partially because the founders will believe screwing you is just part of the game.

VirusNewbie 3y ago

Plenty of people made millions joining series C/D deca-corns and selling in the IPO pop.

scarface_74 3y ago
And plenty more made nothing. It’s survivorship bias in a nutshell. You take 10 people who worked for a public BigTech company that gave cash + RSUs and 10 people who got the same in “equity” in 10 different private companies, who do you think will be ahead in 10 years? 10 years is the average amount of time it takes for the few companies that make it to have an exit event.
- hamburglar 3y ago
  Indeed. I consider my last startup option windfall a once in a lifetime success story, but the BigTech I’ve been at since I left the startup world has paid me roughly the same amount in RSUs when you consider all the time spent at both. And the BigTech is going to keep paying me pretty consistently.
  - deleted 3y ago
    [deleted]
- VirusNewbie 3y ago
  I didn't say hang on for ten years, I said people joining late stage series D companies like Stripe, Databricks, SpaceX etc. Those are very likely to have multiple liquidity events before they even go public, and are known to pay more than FAANG. You're trading some liquidity and some security for a higher upside. Those are the companies that have the best luck luring away FAANG engineers with higher comp (if things go well).
  - scarface_74 3y ago
    And at a late stage, you’re not likely to see any more from your equity than working at a public BigTech company, your equity is not only locked up pre-IPO it’s also locked up post IPO. When you work for a public company, you know exactly when your RSUs are going to vest, they appear in your brokerage account and you can (and should) sell the same day and diversify.

eastbound 3y ago

> Are there really that many success stories for people other than for VCs and (maybe) founders out there anymore? I was the employee around #300 at Atlassian, the founders didn’t dilute the employees, and my options netted $3m (minus the taxes) after working there for 3 years and waiting 6 years. Scott Farquhar and Mike Cannon-Brookes were hell-bent on being honest, fair and giving back. There are good people out there.

mil22 3y ago
Atlassian IPO'd in 2015... so you would have worked there 2006-2009. Congrats on the success, but that was more than a decade and a half ago... I'm not sure it counts as a recent example.
wtgthrow 3y ago
As we are now down-under I will mention: Wisetech Global. I was too late to make anything meaningful over 3 years there, but it was transparent and very generous, and they made it as tax efficient as legally possible in Australia. If you joined in say 2009, grabbed some shares for 3 years you would probably be in the high 100ks at IPO, and millions if you held until now (but you could have also made those millions as a retail investor using your super or something too!). I sold too early :-( Also $currrent_company which I wont reveal. Run as well as Wisetech in terms of growth focus. Got some options. Learnt lesson. HODLing these fuckers to zero or "very interesting" levels lol!

thenoblesunfish 3y ago

The first time I was strongly considering a startup I had to essentially treat the options as worthless. Both because of the usual fact that most startups fail, but because of stuff like in the article: I couldn't convince myself in any way that there wouldn't be people ahead of me in the line if the company was sold, despite the fact that the founders themselves seemed totally honest.

jackcosgrove 3y ago

I don't think startup compensation has yet to account for the wage gains in big tech since Facebook started bidding up comp. They are still operating as if it's 2009. We'd also need a new technology as big as the PC and the Internet to open up lanes for new entrants. As it is the incumbents have locked up most of the market so that's where the money is.

chihuahua 3y ago
If startups are able the hire the quantity and quality of employees they want, then it appears that they are paying enough. If it's not a good deal for employees, then it's the employees that are making a mistake.

sb8244 3y ago

I think it's worth it still. Depending a lot on the company: * Ask questions to founders if they raise on participating preferred (the worst). Don't take a job if they do or if they won't answer * Find a place with early exercise of options * Find a place with a healthy company culture. (I believe this correlates) I made a lot off of options, while having a good salary. I know others that did the same.

onion2k 3y ago
I made a lot off of options.. Note the past tense. The way startups operated a decade ago is quite different to the way they operate now. The tricks to get the most from employees without giving away much equity are more widely known now. I have no doubt that there are still some moral and ethical startups about, but I also think there are many, many more who give out stock with absolutely no intention of it becoming valuable in the future these days.
- sb8244 3y ago
  I think this is a pessimistic view of the situation and I don't subscribe to it being the norm today. I run a (still small, 1.5M ARR) tech startup and we treat our employees fairly. Low / clean investment table, early exercise for employees that make early employee risk effectively 0, upfront about how to deal with options, alongside market salaries. But maybe I am not the norm and it's more common for people to get screwed over. However, I have several friends at startups that have similar recent stories with their options.
ramraj07 3y ago
What does “raise on participating preferred” mean? How is it so hard for people like me who are good engineers to still not be at the bottom of all these terms lol.
- sb8244 3y ago
  I asked lots of questions to the founder of the company I was at. He was very nice in always answering me and helping me understand what's good / bad. I try to pass it on but I'm not sure how to proactively get the knowledge other than reading something like "All about VC fundraising" (fake post, I'm sure it exists) and hoping it's there. Participating preferred = investor invests 50M on 1x participating preferred and company sells for 100M. The investor makes 50M + their % share of the company. Common stock makes % share of 50M. They participate in the % sales ON TOP OF their preferred stocks liquidation preference (money in = money out before common stock value is considered) Now here's where it gets nasty. 2x participating preferred = investor invests 50M and company sells for 100M. Investor makes 100M and common stock makes $0. Or if the company sold for 150M, investor makes 100M and participates in the % stock value from 50M. It's a bit confusing, but the short is participating preferred is the absolute worst terms for common stock holders (founders included.)

ragnot 3y ago

Had a friend who was employee number 15 at a startup that was acquired for a large amount. Net result was that he earned approximately the same as a FAANG engineer over the same time period (7 years - total comp). He was able to parlay that startup build-to-acquisition experience into better positions in startups after and seems relatively happy about it.