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I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be p

I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be part of what my friends and I were building. Had I had the chance to 'de-risk my life' with some equity to replenish my empty bank account, which was empty from taking an early employee salary, I may have been able to stay but in the end I had to get out. Getting out for an early employee after funding rounds is expensive because buying options can hit you with massive tax bills on top of the cost of buying the options. Worse, the stats aren't great for a chance on return. Your lotto ticket gets expensive and risky as soon as you decide to leave. Articles like this one hammer home more and more to me how little VCs actually value early employees. Paying out founders to stay is a strategic move. Keeping them is worth it because they are the face of the company and turmoil at that level hurts their payout. Burning out early employees is not a concern because you can just swap them without drama. In fact, with the way options are structured and the 'industry wisdom' to hold off purchasing, it feels like a strategic move to burn out early employees since many employees that are forced out often can't even buy their options. They are left with nothing after all that work and risk. From a purely cynical view this is a great thing for VCs since now the company got all the benefit of an early employee and just lost all the costs. I don't know about the other three points, but I can guarantee you point 1 of 'right sizing perceptions' is wrong.

FlyingSnake 2y ago
I’m really sorry to hear about your burnout, I hope you’ve made a recovery and are at a better place now. I thought it was the prevailing wisdom here on HN that being the first employee almost always is bad for the employee. You’re right, the cards are stacked against them
- jmward01 2y ago
  Much better now actually, thank you.
CalChris 2y ago
If you were early, why didn't you purchase your options and file an 83b?
- yieldcrv 2y ago
  requires having cash to tie up indefinitely, privilege alert we did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS the election was beautiful.
  - novok 2y ago
    If your early enough (like seed stage), it's like $300 for %5.
- throwawaythekey 2y ago
  I'm not the GP but was one of the first engineering hires in a startup. In my case I got caught in the cross-fire of one of the co-founders backstabbing the other which meant that by the time we closed the series A I had been diluted by 80%. To 'make this up to me' the company gave me a new grant that would counter the dilution. The downsides were that this restarted the vesting clock and the new options would cost a year worth of savings to exercise - this was much more than the few hundred dollars my original grant cost. Fast forward four years of toil with multiple cycles of doubling and then halving headcount as well as endless leadership changes. We are now on our fourth CTO in as many years. On the upside things are starting to look up! The newest sales team have worked out how to sell the original product we built, not the bells and whistles we pivoted to on the wisdom of the overpaid CPO. We can now celebrate as we have about a year's worth of runway and can confidently project being cash flow positive in about six months. The new ex-FAANG CTO earning three times as much as anyone in the original team has great news! As a result of the positive development we are now able to hire an extra development team in South America! This shouldn't cost us too much and they can start on the next greenfield effort. The existing developers need not worry about being replaced as the existing team has all of the experience with the money making side of the business, and besides the new devs will be working on a parallel offering anyway. Four weeks later and we've onboarded two offshore devs. The VCs have demanded we cut our burn rate and my position is being made redundant. I have 90 days to exercise but my options are underwater, both when compared to the funds we raised a few months ago and also the FMV. Essentially to buy them now I would be worse off than someone walking straight off the street.
lumost 2y ago
This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.
- xandrius 2y ago
  What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?
  - halgir 2y ago
    If the salary is market rate for that person, I suppose it's by definition a fair deal. I've seen startups hire "founding xyz" two years after they started. Looks to be a vanity title in many cases.
    - dchftcs 2y ago
      Total comp needs to be market rate, not just salary. And non-preferred shares should be valued lower than preferred stock. Lumping non-preferred shares with prefereed shares is one of the bigger lies startups tell employees.
  - jonathankoren 2y ago
    Yes. Because you’re literally the same as the founder, but getting waaaay less equity. First employee is always a sucker
    - xandrius 2y ago
      But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that. So I am not sure it's that easy. Of course, the idea is to keep the same work/life balance one would have at a more established company.
jahewson 2y ago
90 day exercise window is a big part of the problem here.
- gafferongames 2y ago
  If you're certain the stock is worth something, just take some risk and exercise.
chermanowicz 2y ago
I can also guarantee you points 2 & 3 are pretty wrong as well. Funny (and also sad) how different peoples realities can be. I have been worn out sitting on both sides of the table to tell you the truth. (One thing I will say is that within VC, the vast majority of the folks actually doing the work are sympathetic and helpful to companies, working with early/senior employees, but it gets lost up the food chain so to speak and there's usually just one or two people making decisions at the end of the day about a particular deal or a whole portfolio- and these people are generally very self-interested.)
inhumantsar 2y ago
the lottery ticket analogy doesn't quite hit the mark imho. I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people. even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that. with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket. I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you'll walk out worse off than you were when you walked in. if a startup or VC truly gave a shit about anyone outside the c-suite, they'd have an employee ownership program of some form and assign actual equity, not just options. I've yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.
- xandrius 2y ago
  What would you suggest to someone who wants to work at interesting (non-evil) companies, wants a decent comp ($200k+) and doesn't mind being one of the first to lay the foundation with the possibility of upward mobility in the future?
  - inhumantsar 2y ago
    be a founder or a consultant, not a founding engineer. build up a set of specialized skills in something you love doing, network your face off, keep lifestyle inflation under control, and keep a large amount of your savings liquid(ish). if the right people and opportunity comes along, be ready to tap those savings and live off them for at least a year while you build the company or be selective about your next consulting job. like the old cliche says, luck is where opportunity meets preparation. if you're not that ambitious and simply want to live comfortably, then go to those early stage startups and negotiate for higher cash comp and a smaller slice of the options. you can make great money as a SWE, but there's a massive leap between that rung on the income ladder and the ones above it. it takes a dedicated effort to get there.
jjav 2y ago
> Getting out for an early employee after funding rounds is expensive Early exercise and 83(b) is a must, or forget about it. When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it'll be after board approval but as soon as that happens). If they don't allow that or if the price is too high for your comfort level, don't join that startup.
- deepGem 2y ago
  Every startup CEO must demystify 83(b) for their employees. If you don't have cash on hand to pay for early taxes, the company can pay a signing bonus or something for those who elect 83(b) to pay for the upfront taxes. OR Just pay market salaries and leave the choice to employees to do whatever they want with cash. You want to buy our company stock great here's the grant. You want to put your money in S&P index go ahead. The employee equity part needs a lot more simplification. I don't know why it is not as simple as Here are 2 options for you Salary 200K OR Salary 100K Equity 100K If equity 100K exercise 83(b) - pay taxes at 200K income OR defer taxes for the subsequent exercise dates. (Could land a huge tax bill) OR defer the exercise date for a liquidity event/secondary sale. Those who value risk will take the last option and those who don't will stick to full salary. 83(b) exercise, when presented like this, doesn't seem all that rosy. There could be some legalities that I am unaware of, but broadly this should work.
onion2k 2y ago
The irony of being an early engineering employee (and any engineer really) is that the better job you do the easier it is to replace you with someone who can maintain what you built. Accepting a below market salary and then doing a great job is a huge risk.
- repomies69 2y ago
  > Accepting a below market salary and then doing a great job is a huge risk. By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.
- aorloff 2y ago
  Sure, in startups that don't grow. In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren't so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales. And if the startup is not growing, you can stop worrying about the equity package
ZhadruOmjar 2y ago
In my experience there has never been a good time to be a founding engineer even in companies that have later made it. It's much better to join the company 1-3 years prior to IPO/Sale where you get many of the benefits but significantly less stress. If I had worked at startups I would have been taking a 30-40% pay cut compared to the roles I did work and none of those startups have gone anywhere with most crashing and burning.
- bambataa 2y ago
  I’ve heard this a few times. Could you elaborate why? Surely at that point, less you are hired to a very senior role, you are going to get a very small equity % and a lot of the capitalisation growth has already been priced in? In exchange it is far less risky. Do you just go for the market salary and treat the equity as a minor plus?
palata 2y ago
> how little VCs actually value early employees Do they even pretend that they care about anything other than money? Like... ever? Maybe to family and friends (not even sure), but I mean professionally?

FlyingSnake 2y ago

I’m really sorry to hear about your burnout, I hope you’ve made a recovery and are at a better place now. I thought it was the prevailing wisdom here on HN that being the first employee almost always is bad for the employee. You’re right, the cards are stacked against them

jmward01 2y ago
Much better now actually, thank you.

CalChris 2y ago

If you were early, why didn't you purchase your options and file an 83b?

yieldcrv 2y ago
requires having cash to tie up indefinitely, privilege alert we did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS the election was beautiful.
- novok 2y ago
  If your early enough (like seed stage), it's like $300 for %5.
throwawaythekey 2y ago
I'm not the GP but was one of the first engineering hires in a startup. In my case I got caught in the cross-fire of one of the co-founders backstabbing the other which meant that by the time we closed the series A I had been diluted by 80%. To 'make this up to me' the company gave me a new grant that would counter the dilution. The downsides were that this restarted the vesting clock and the new options would cost a year worth of savings to exercise - this was much more than the few hundred dollars my original grant cost. Fast forward four years of toil with multiple cycles of doubling and then halving headcount as well as endless leadership changes. We are now on our fourth CTO in as many years. On the upside things are starting to look up! The newest sales team have worked out how to sell the original product we built, not the bells and whistles we pivoted to on the wisdom of the overpaid CPO. We can now celebrate as we have about a year's worth of runway and can confidently project being cash flow positive in about six months. The new ex-FAANG CTO earning three times as much as anyone in the original team has great news! As a result of the positive development we are now able to hire an extra development team in South America! This shouldn't cost us too much and they can start on the next greenfield effort. The existing developers need not worry about being replaced as the existing team has all of the experience with the money making side of the business, and besides the new devs will be working on a parallel offering anyway. Four weeks later and we've onboarded two offshore devs. The VCs have demanded we cut our burn rate and my position is being made redundant. I have 90 days to exercise but my options are underwater, both when compared to the funds we raised a few months ago and also the FMV. Essentially to buy them now I would be worse off than someone walking straight off the street.

lumost 2y ago

This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.

xandrius 2y ago
What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?
- halgir 2y ago
  If the salary is market rate for that person, I suppose it's by definition a fair deal. I've seen startups hire "founding xyz" two years after they started. Looks to be a vanity title in many cases.
  - dchftcs 2y ago
    Total comp needs to be market rate, not just salary. And non-preferred shares should be valued lower than preferred stock. Lumping non-preferred shares with prefereed shares is one of the bigger lies startups tell employees.
- jonathankoren 2y ago
  Yes. Because you’re literally the same as the founder, but getting waaaay less equity. First employee is always a sucker
  - xandrius 2y ago
    But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that. So I am not sure it's that easy. Of course, the idea is to keep the same work/life balance one would have at a more established company.

jahewson 2y ago

90 day exercise window is a big part of the problem here.

gafferongames 2y ago
If you're certain the stock is worth something, just take some risk and exercise.

chermanowicz 2y ago

I can also guarantee you points 2 & 3 are pretty wrong as well. Funny (and also sad) how different peoples realities can be. I have been worn out sitting on both sides of the table to tell you the truth. (One thing I will say is that within VC, the vast majority of the folks actually doing the work are sympathetic and helpful to companies, working with early/senior employees, but it gets lost up the food chain so to speak and there's usually just one or two people making decisions at the end of the day about a particular deal or a whole portfolio- and these people are generally very self-interested.)

inhumantsar 2y ago

the lottery ticket analogy doesn't quite hit the mark imho. I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people. even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that. with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket. I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you'll walk out worse off than you were when you walked in. if a startup or VC truly gave a shit about anyone outside the c-suite, they'd have an employee ownership program of some form and assign actual equity, not just options. I've yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.

xandrius 2y ago
What would you suggest to someone who wants to work at interesting (non-evil) companies, wants a decent comp ($200k+) and doesn't mind being one of the first to lay the foundation with the possibility of upward mobility in the future?
- inhumantsar 2y ago
  be a founder or a consultant, not a founding engineer. build up a set of specialized skills in something you love doing, network your face off, keep lifestyle inflation under control, and keep a large amount of your savings liquid(ish). if the right people and opportunity comes along, be ready to tap those savings and live off them for at least a year while you build the company or be selective about your next consulting job. like the old cliche says, luck is where opportunity meets preparation. if you're not that ambitious and simply want to live comfortably, then go to those early stage startups and negotiate for higher cash comp and a smaller slice of the options. you can make great money as a SWE, but there's a massive leap between that rung on the income ladder and the ones above it. it takes a dedicated effort to get there.

jjav 2y ago

> Getting out for an early employee after funding rounds is expensive Early exercise and 83(b) is a must, or forget about it. When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it'll be after board approval but as soon as that happens). If they don't allow that or if the price is too high for your comfort level, don't join that startup.

deepGem 2y ago
Every startup CEO must demystify 83(b) for their employees. If you don't have cash on hand to pay for early taxes, the company can pay a signing bonus or something for those who elect 83(b) to pay for the upfront taxes. OR Just pay market salaries and leave the choice to employees to do whatever they want with cash. You want to buy our company stock great here's the grant. You want to put your money in S&P index go ahead. The employee equity part needs a lot more simplification. I don't know why it is not as simple as Here are 2 options for you Salary 200K OR Salary 100K Equity 100K If equity 100K exercise 83(b) - pay taxes at 200K income OR defer taxes for the subsequent exercise dates. (Could land a huge tax bill) OR defer the exercise date for a liquidity event/secondary sale. Those who value risk will take the last option and those who don't will stick to full salary. 83(b) exercise, when presented like this, doesn't seem all that rosy. There could be some legalities that I am unaware of, but broadly this should work.

onion2k 2y ago

The irony of being an early engineering employee (and any engineer really) is that the better job you do the easier it is to replace you with someone who can maintain what you built. Accepting a below market salary and then doing a great job is a huge risk.

repomies69 2y ago
> Accepting a below market salary and then doing a great job is a huge risk. By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.
aorloff 2y ago
Sure, in startups that don't grow. In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren't so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales. And if the startup is not growing, you can stop worrying about the equity package

ZhadruOmjar 2y ago

In my experience there has never been a good time to be a founding engineer even in companies that have later made it. It's much better to join the company 1-3 years prior to IPO/Sale where you get many of the benefits but significantly less stress. If I had worked at startups I would have been taking a 30-40% pay cut compared to the roles I did work and none of those startups have gone anywhere with most crashing and burning.

bambataa 2y ago
I’ve heard this a few times. Could you elaborate why? Surely at that point, less you are hired to a very senior role, you are going to get a very small equity % and a lot of the capitalisation growth has already been priced in? In exchange it is far less risky. Do you just go for the market salary and treat the equity as a minor plus?

palata 2y ago

> how little VCs actually value early employees Do they even pretend that they care about anything other than money? Like... ever? Maybe to family and friends (not even sure), but I mean professionally?