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I worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little

I worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little upside. They would offer 500 options, or 1000 options, or 30,000 options -- but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! Secondly, they wont share the cap table, so you dont know what the denominator is. 30,000 shares of What!? No one would tell you. You should run. Third, the VCs installed a buddy from SV as CEO who was creative with revenue. Great -- so they make their bonuses based on creative revenue, but the company gets saddled with VC rounds they have to dig out of w/o showing real revenue growth. Once you get SV insiders being placed into the company, often with their entourage of cousins and neighbors' kids as Director of HR or Director of Finance -- RUN FAST. The company is being strip-mined for cash, while Engineers slave away trying to code their way out of the wreckage left by locusts. The C-Suite operated in a separate tier of the company with a heads-i-win-tails-you-lose setup. You could tell -- no way you are all driving Tesla Plaid on a "startup salary" -- the "startup salary" was for suckers, engineers, and those not in the VC-back-scratch loop. My advice to everyone -- if you want risk, be a founder. Not Engineer #1 or #10. If you want balanced risk, go to a Series C or D company where you dont have the risk of fake accounting. If you want money, go to a public company with real accounting rules, visible revenue, visible liabilities, and more accountability.

djbusby 2y ago
If you are early and they not sharing the cap-table it's a red-flag.
- kelnos 2y ago
  No company I've worked at has showed me their cap table, so I don't think that's a red flag (though I also didn't ask, so maybe they would have). But it's definitely a red flag if they don't answer questions about the cap table that are material to your decision to accept or reject the offer, such as asking them to tell you the number of shares outstanding.
pragma_x 2y ago
> but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! I was in a company when my options were "purchased" from me at the strike price, when the company itself was sold. We never made it to IPO. I've learned to not overvalue options and phantom stock, and just chalk it up to another bonus down the road. The real money is, or already has been, made elsewhere. What really steams my biscuits is when I figured out how the payout was worth less than the unpaid overtime (never more than 50 hours a week), weekend support time, and travel time spent in my years there.
- kelnos 2y ago
  The big bummer about acquisitions is that they can change the terms of the deal however they want, including devaluing or even outright cancelling all the common stock. IPOs seem much safer in that regard, but obviously a rank-and-file employee has no say in which direction the company goes. To be fair, though, the bad deals the employees see at acquisition aren't necessarily always due to sketchy exploitation bullshit. Sometimes a bad deal for employees is the only one the board can make, with the alternative being bankruptcy and everyone losing their jobs. It does sting that institutional investors and founders will sometimes get a decent return on their investment/time in those cases, while employees get table scraps, though.
randerson 2y ago
My experience was similar, right down to the $10,000 worth of options. Eventually the company went public and those options would have been worth $5M if I'd had the foresight (and cash) to exercise them (which I didn't). The co-founders did not have exercise costs or AMT of course. It is an unfair system indeed. I'd encourage those seeking to be early engineers to go work at a FAANG for a few years before joining a startup so that you have the cash reserves to take the risk.
- davedx 2y ago
  Wait, you couldn’t find the 10k cash to exercise 5m worth of options?
  - xnx 2y ago
    You typically don't know what they're worth when you exercise the options. Often it turns out to be nothing.
  - randerson 2y ago
    The paper value was far lower during the exercise window & no guarantee it would ever be liquid. The AMT would also have dwarfed the 10k.
  - hylaride 2y ago
    What they likely meant was that the options would eventually be worth $5m, but not when they left the company and could exercise them.
  - sshconnection 2y ago
    The options were likely 10k when he was issued them at hiring. When leaving the company, he would need to purchase those options (likely within 90 days if it's a shitty policy). Then, the real kicker is that he would have to pay taxes on the on-paper gains between the 10k and the current valuation. So lets say the company was worth half of what it was at IPO, he would now own 2.5m of stock, owe taxes on 2.49m of income, and have to pay that off with early engineer salary and no liquidity on his equity.
zenlikethat 2y ago
Even if you don’t see the cap table, any company you talk to should be clear and consistent in disclosure of facts like number of shares outstanding, including viewing it in tools like Carta. You are basically describing the abusive version of a startup and then saying all startups are bad. I actually think going to a Series C or D is not the ideal play. It’s better to join an early company, with good leadership, reasonable if not mind blowing salary and cheap shares. Then, work hard, but not brutally hard. Somewhere that you enjoy the people, the work/product, and you can level up a lot. The options are cheap, and you can bail to FAANG at any time if you burn out. Realistically, that’s your shot at making 1% of $Xmm without completely hating your life. It will be a rare company so, yeah- be picky. I don’t know why all startups get lumped into one when there’s a lot out there for the discerning employee.
e40 2y ago
Spot on, and I say this as a founder of a company that didn’t fuck over the employees. 40 years and still going, and most people have been with us for more than 25 years. I didn’t get rich because I wanted to sleep at night, but people in my orbit (probably me in theirs?) advised me very differently.
bagels 2y ago
My early engineer story is a lot different than this. 0.7% sold shares for ~1M at the end of 4 years. There is a bit of luck, and a bit of picking the right one to join. Don't join the ones that don't tell you what your equity share is and what the last valuation was to start with.

djbusby 2y ago

If you are early and they not sharing the cap-table it's a red-flag.

kelnos 2y ago
No company I've worked at has showed me their cap table, so I don't think that's a red flag (though I also didn't ask, so maybe they would have). But it's definitely a red flag if they don't answer questions about the cap table that are material to your decision to accept or reject the offer, such as asking them to tell you the number of shares outstanding.

pragma_x 2y ago

> but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! I was in a company when my options were "purchased" from me at the strike price, when the company itself was sold. We never made it to IPO. I've learned to not overvalue options and phantom stock, and just chalk it up to another bonus down the road. The real money is, or already has been, made elsewhere. What really steams my biscuits is when I figured out how the payout was worth less than the unpaid overtime (never more than 50 hours a week), weekend support time, and travel time spent in my years there.

kelnos 2y ago
The big bummer about acquisitions is that they can change the terms of the deal however they want, including devaluing or even outright cancelling all the common stock. IPOs seem much safer in that regard, but obviously a rank-and-file employee has no say in which direction the company goes. To be fair, though, the bad deals the employees see at acquisition aren't necessarily always due to sketchy exploitation bullshit. Sometimes a bad deal for employees is the only one the board can make, with the alternative being bankruptcy and everyone losing their jobs. It does sting that institutional investors and founders will sometimes get a decent return on their investment/time in those cases, while employees get table scraps, though.

randerson 2y ago

My experience was similar, right down to the $10,000 worth of options. Eventually the company went public and those options would have been worth $5M if I'd had the foresight (and cash) to exercise them (which I didn't). The co-founders did not have exercise costs or AMT of course. It is an unfair system indeed. I'd encourage those seeking to be early engineers to go work at a FAANG for a few years before joining a startup so that you have the cash reserves to take the risk.

davedx 2y ago
Wait, you couldn’t find the 10k cash to exercise 5m worth of options?
- xnx 2y ago
  You typically don't know what they're worth when you exercise the options. Often it turns out to be nothing.
- randerson 2y ago
  The paper value was far lower during the exercise window & no guarantee it would ever be liquid. The AMT would also have dwarfed the 10k.
- hylaride 2y ago
  What they likely meant was that the options would eventually be worth $5m, but not when they left the company and could exercise them.
- sshconnection 2y ago
  The options were likely 10k when he was issued them at hiring. When leaving the company, he would need to purchase those options (likely within 90 days if it's a shitty policy). Then, the real kicker is that he would have to pay taxes on the on-paper gains between the 10k and the current valuation. So lets say the company was worth half of what it was at IPO, he would now own 2.5m of stock, owe taxes on 2.49m of income, and have to pay that off with early engineer salary and no liquidity on his equity.

zenlikethat 2y ago

Even if you don’t see the cap table, any company you talk to should be clear and consistent in disclosure of facts like number of shares outstanding, including viewing it in tools like Carta. You are basically describing the abusive version of a startup and then saying all startups are bad. I actually think going to a Series C or D is not the ideal play. It’s better to join an early company, with good leadership, reasonable if not mind blowing salary and cheap shares. Then, work hard, but not brutally hard. Somewhere that you enjoy the people, the work/product, and you can level up a lot. The options are cheap, and you can bail to FAANG at any time if you burn out. Realistically, that’s your shot at making 1% of $Xmm without completely hating your life. It will be a rare company so, yeah- be picky. I don’t know why all startups get lumped into one when there’s a lot out there for the discerning employee.

e40 2y ago

Spot on, and I say this as a founder of a company that didn’t fuck over the employees. 40 years and still going, and most people have been with us for more than 25 years. I didn’t get rich because I wanted to sleep at night, but people in my orbit (probably me in theirs?) advised me very differently.

bagels 2y ago

My early engineer story is a lot different than this. 0.7% sold shares for ~1M at the end of 4 years. There is a bit of luck, and a bit of picking the right one to join. Don't join the ones that don't tell you what your equity share is and what the last valuation was to start with.