12 ms·

The problem here I think is the disparity between being the last cofounder (15-30% equity before dilution typically) and being the first employee (1-2%) vs work

by cletus 14y ago

The problem here I think is the disparity between being the last cofounder (15-30% equity before dilution typically) and being the first employee (1-2%) vs working for a more established company. If you compare the compensation for being an early employee in such a startup with working for an established company (eg Google, Facebook) then I think you'll find the employee of the latter will be better off in the long term 95% of the time and by a significant margin (disclaimer: I work for Google). Now some people and some ideas can genuinely attract people to work for peanuts. I remember hearing about Square, then valued at $40m with their first round of funding (IIRC) and thinking "man I'd give anything to work for them" given the idea and the track record (Jack Dorsey basically). The problem I think is that many startups think they have this kind of cachet just because they worked for Facebook in 2006. Social proof counts for something but it doesn't make you a great entrepreneur. Being a great entrepreneur makes you a great entrepreneur and that means running some kind of company that had some kind of impact (and, ideally, some significant exit). Startups aren't for financial security. They are for the frontiermen who are hoping to strike it rich in the gold rush. Most don't but some do. To the OP: you make very valid points and given your circumstances and preferences (and mine FWIW), I agree: working for an established company will give you a far better expected financial outcome at lower risk. EDIT: I should clarify that there are of course non-financial reasons to work for a small startup. Less bureaucracy, it can be exciting, variety of work, degree of impact and so on. A lot of people are willing to make those tradeoffs and sacrifice some financial return for the privilege. This isn't unique to the startup world. Games programmers, for example, typically get paid crap (until you get to be the lead developer on a big title and get a % of the revenue, etc). All of this is simply supply and demand. That all being said, living without health insurance in the US is incredibly risky. Generally only large employers have the clout to negotiate good plans with providers for reasonable premiums. The other stuff (extra PTO, conferences especially, etc) are more luxuries than necessities but they do of course contribute to the overall financial outcome.

rohern 14y ago
> Startups aren't for financial security. They are for the frontiermen who are hoping to strike it rich in the gold rush. Most don't but some do. I think you mean "Founding a startup is for the frontiermen..." Being an employee is not. Being an employee is a losing proposition far more often than the 95% you cited.
- guptaneil 14y ago
  It's a losing proposition, financially speaking. But it sure is a lot more fun and satisfying working at a startup than a large corporation. Although there aren't tangible or financial benefits for working at a startup, there are definitely benefits that a large company simply can't provide, like experience and independence. For someone in their early 20's straight out of college, those benefits can outweigh the financial benefits of a big company.
  - hkmurakami 14y ago
    The 2009 post by Mark Sussman, "Is it Time for You to Earn or Learn?" comes to mind (I think it was recently reposted to HN) [1] http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for-you-to-earn-or-to-learn/ http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for...
  - Q6T46nT668w6i3m 14y ago
    It's a losing proposition, financially speaking. But it sure is a lot more fun and satisfying working at a startup than a large corporation. Maybe. However, I think most us know people that love working for Apple, Facebook, Microsoft, Google, et al. Frankly, I think your independence claim is overstated—financial support is crucial. Shigeru Miyamoto emphasized this perspective in a 2012 New Yorker profile: “There’s a big difference between the money you receive personally from the company and the money you can use in your job.” http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_paumgarten?currentPage=all http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_... There’re many reasons to found a startup, very few to work for one.
    - michaelochurch 14y ago
      There’re many reasons to found a startup, very few to work for one. There are good startups out there. I'm almost notorious for startup-bashing because so many of them have awful cultures, but there are decent small/new companies out there. You'll probably have to look outside of VC-istan. VC-istan seems to appeal to the Clueless (see: MacLeod hierarchy) young who will jump at the chance to work "at a startup!" without discrimination. I know someone who's actually looking at building a startup without equity. He will hold 100% of the stock, at least at first. Variable pay will be profit-sharing. He wants this company to last 20+ years without acquisition, so instead of putting the focus on a future cash-out, he wants people to be rewarded continually for good work.
llimllib 14y ago
> working for an established company will give you a far better expected financial outcome at lower risk. Tiny, tiny nit: that final phrase is redundant. Calculating an expected financial outcome includes the risk. Agree with everything you're saying.
- mikeash 14y ago
  The risk also needs to be considered separately, though. For example, which of these is better compensation? $100,000/year or Each year, there is a 0.1% chance that you will be paid $1 billion. Simple math tells us that the second one has a 10x higher expected financial outcome. But few people would actually consider that to be better compensation. Lower risk is better, to an extent that can outweigh a higher expected financial outcome. If you get both a better expected outcome and lower risk, that's two benefits, not just one.
  - dchichkov 14y ago
    I'm sorry, but there is a 0% chance that an employee will be paid $1 billion. An employee is just a hired hand and has zero control and zero information about how money is being distributed. Once that kind of money is on the table, there would certainly be some way for people controlling the company to change that outcome, so an employee will never see that kind of money. And it will be done. Just business. Nothing personal.
    - mikeash 14y ago
      That sort of thing is called a "hypothetical". It's not intended to be a realistic scenario.
      - PeterisP 14y ago
        Well that's the whole point - the realistic numbers are more like a choice where you (A) receive $100k now; or (B) receive a 1% chance of 5 million; where the (B) option is worse in all aspects, both higher risk and lower expected value.

by cletus 14y ago

rohern 14y ago

> Startups aren't for financial security. They are for the frontiermen who are hoping to strike it rich in the gold rush. Most don't but some do. I think you mean "Founding a startup is for the frontiermen..." Being an employee is not. Being an employee is a losing proposition far more often than the 95% you cited.

guptaneil 14y ago
It's a losing proposition, financially speaking. But it sure is a lot more fun and satisfying working at a startup than a large corporation. Although there aren't tangible or financial benefits for working at a startup, there are definitely benefits that a large company simply can't provide, like experience and independence. For someone in their early 20's straight out of college, those benefits can outweigh the financial benefits of a big company.
- hkmurakami 14y ago
  The 2009 post by Mark Sussman, "Is it Time for You to Earn or Learn?" comes to mind (I think it was recently reposted to HN) [1] http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for-you-to-earn-or-to-learn/ http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for...
- Q6T46nT668w6i3m 14y ago
  It's a losing proposition, financially speaking. But it sure is a lot more fun and satisfying working at a startup than a large corporation. Maybe. However, I think most us know people that love working for Apple, Facebook, Microsoft, Google, et al. Frankly, I think your independence claim is overstated—financial support is crucial. Shigeru Miyamoto emphasized this perspective in a 2012 New Yorker profile: “There’s a big difference between the money you receive personally from the company and the money you can use in your job.” http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_paumgarten?currentPage=all http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_... There’re many reasons to found a startup, very few to work for one.
  - michaelochurch 14y ago
    There’re many reasons to found a startup, very few to work for one. There are good startups out there. I'm almost notorious for startup-bashing because so many of them have awful cultures, but there are decent small/new companies out there. You'll probably have to look outside of VC-istan. VC-istan seems to appeal to the Clueless (see: MacLeod hierarchy) young who will jump at the chance to work "at a startup!" without discrimination. I know someone who's actually looking at building a startup without equity. He will hold 100% of the stock, at least at first. Variable pay will be profit-sharing. He wants this company to last 20+ years without acquisition, so instead of putting the focus on a future cash-out, he wants people to be rewarded continually for good work.

llimllib 14y ago

> working for an established company will give you a far better expected financial outcome at lower risk. Tiny, tiny nit: that final phrase is redundant. Calculating an expected financial outcome includes the risk. Agree with everything you're saying.

mikeash 14y ago
The risk also needs to be considered separately, though. For example, which of these is better compensation? $100,000/year or Each year, there is a 0.1% chance that you will be paid $1 billion. Simple math tells us that the second one has a 10x higher expected financial outcome. But few people would actually consider that to be better compensation. Lower risk is better, to an extent that can outweigh a higher expected financial outcome. If you get both a better expected outcome and lower risk, that's two benefits, not just one.
- dchichkov 14y ago
  I'm sorry, but there is a 0% chance that an employee will be paid $1 billion. An employee is just a hired hand and has zero control and zero information about how money is being distributed. Once that kind of money is on the table, there would certainly be some way for people controlling the company to change that outcome, so an employee will never see that kind of money. And it will be done. Just business. Nothing personal.
  - mikeash 14y ago
    That sort of thing is called a "hypothetical". It's not intended to be a realistic scenario.
    - PeterisP 14y ago
      Well that's the whole point - the realistic numbers are more like a choice where you (A) receive $100k now; or (B) receive a 1% chance of 5 million; where the (B) option is worse in all aspects, both higher risk and lower expected value.