7 ms·

Unless you're a founder, startups do not pay out

75 points by tkone 13y ago

aaronbrethorst 13y ago
Yep, what he said. That said, there are other good reasons to work for a startup. It's just that "I'm going to get rich as employee #10" is not one of them*. That is, of course, unless you happen to work for the next Google. But let's be honest, you aren't working for the next Google. Doesn't matter who founded it or who's bankrolling it. You're not working for The Next Big Thing. Someone is, sure, but you're more likely to be struck by lightning than be that guy.
ef4 13y ago
Or just don't accept below-market salary. The competition for good people is fierce, there's no reason you need to accept low pay.
- yekko 13y ago
  You actually need above market salary at startup since there is no bonus or anything else. A 15% bonus + 401k match + ESPP + yearly stock grant can easily equal 40k+ for a junior (1-3 year exp) employee.
- pmorici 13y ago
  What is market salary these days in the valley?
sxtxixtxcxh 13y ago
i like the random `git co` after the first sentence. go go gadget multitasker!
jaredsohn 13y ago
> You've got some decent stock, say, like, 200,000 options. You vest over four years and your strike is $1/share (which is WAY too high for an early employee, but you feel "good" about this one.) You're making 50k under market value. >That means in four years, your stock is going to have to NET (taxes are a healthy 20%, plus you've got fees, so it's gotta be pretty high...) you a $1 a share in order to be worth it, assuming you never recieve a raise or a bonus at your new job, and you don't count your 401(k) match, health benefits, less-stressful working conditions and shorter hours. Pretty horrid that the post makes judgements ("decent stock", "WAY too high"), about options based on the quantity and price per share without considering what portion of the company the shares represent (and the initial valuation of the company.)
- eropple 13y ago
  Percentage doesn't matter to this calculation, though. You'll factor it into your estimation of whether it can net you $1/share, but he obviously can't.
  - jaredsohn 13y ago
    >but he obviously can't. This is his hypothetical example; he obviously can. (i.e. he can say that the company is worth $1 million now so it needs to be worth $x million to make up for the lost pay.) Doing so would do a better job of communicating his message to the reader.
    - tkone 13y ago
      and would also be against my confidentiality agreement. These are hypothetical numbers. Lets say it's .5% at $0.30 -- the numbers are variables, doesn't change what the outcome is.
      - jaredsohn 13y ago
        >and would also be against my confidentiality agreement. This whole thing isn't that important but why would it be against your confidentiality agreement to write a hypothetical example in one way versus another? I am assuming all of the numbers are fake in the first place. My original point (again, not very important) is that I think it is more effective communication to say that a company is worth $1 million now and needs to grow to be $10 million for you to make back your lost salary via stocks, rather than talking about number of shares and strike prices (which you can't easily compare against other companies), since those values can easily be manipulated.
bryanlarsen 13y ago
If you're getting equity in lieu of pay, make sure it's a real amount of equity. Real amounts of equity are expressed as percentages of the company and are not two orders of magnitude different than what the founders have. Real amounts of equity are given outright or have really low strike prices. If you sold your equity the day after it was given to you, would it bring your salary up to a reasonable level? That's the benchmark. If not, ask for more equity, or more salary.
Pwnguinz 13y ago
I'm curious about how equity/options vesting work in the general silicon valley startup (I'm sure details will vary). Actually, I'm curious how it works generally, period. But most people reading HN is probably more familiar with SV startups than, say, New Delhi startups. Say I'm granted 10 shares of options in a company (for the sake of the example, say this is 10% pre-dilution. So there are 100 shares currently). This vests over 4 years. Are you 'granted' these shares, or do you have to purchase them? Presumably, you purchase them at the 'strike' price? Is this something determined when you are hired and sign the employment contract? Or when the equity starts vesting? In other words, if I'm getting this correctly, you have to pay to own a portion of the company, despite the fact that you're an early employee? Do the founders have to do the same? If the strike price is $1/share, then you have to pay out $10 to own that 10% over the course of 4 years? Or will the 'strike' price change over time?
- gibybo 13y ago
  You do have to pay to own a portion of the company. The founders did not have to do this. The strike price is set when they give you the options. If they vest over 4 years, the strike price is decided when they are issued, before they vest. The strike price is usually set to the value of the common stock at the time of issuance, so they have a value of $0 (as far as the IRS is concerned) when they are issued. If the company IPOs before you exercise your options, you generally won't have to provide the capital to purchase the shares, as any brokerage will be able to cover that for you (by subtracting it from the sale proceeds).
  - outericky 13y ago
    While the founders may not have had to do this, in all likelihood they did self fund at least some of the startup, and/or put in a lot more legwork initially.
- saalweachter 13y ago
  Stock options are pretty much the norm in my experience. The usual explanation for this is taxes. When you are granted stocked, it is taxed as income upon being granted. Since the stock is illiquid because the company is a startup, there is no way to sell it to pay the taxes, so granting stock just reduces your already meager salary. You can usually exercise your options any time after they vest. However, most people don't and this is sometimes discouraged. If the company is sold for cash money, you may not ever formally exercise your options: the lawyers and the accountants will automatically exercise them for you, deduct the strike price from the sale price, and just deposit the net in your bank account.
zsiddique 13y ago
I gave it a quick once over but the thing that already made me think this auther does not know what he is talking about is this line: > You've got some decent stock, say, like, 200,000 options. You vest over four years and your strike is $1/share What startup is that? If it has a $1/share valuation its already near the end of its "start up" runway. And if your getting 200k in shares then its either really earl on or the strike price is really low. I have had offers from YC-Backed companies in the past and its one or the other, not both.
nrser 13y ago
if you can work at a large non-technical company as a technical person, you should. my last company was bought by Viacom. i've been there, i know what it is.
saalweachter 13y ago
If you get options equal to 10% of The Company when it is worth $1 million, and there is a 10% chance of the company selling for $10 million, the expected value of your stock options is $90,000, before taxes. If the stock vests over four years, that's $22,500 / year, pre-tax. You could almost beat that working full-time at minimum wage in some states. And this is an optimistic, above-average outcome.
- sliverstorm 13y ago
  this is an optimistic, above-average outcome 10% chance of the company selling for $10 million This isn't just optimistic, this is a wild fever dream in a summer heat.
- unreal37 13y ago
  No "employee" is ever ever ever going to get 10% of the company in options. If you are employee #10, you probably get 0.01% of your $10MM example, which works out to $1,000 if it ever cashes out assuming no dilution through investor rounds.
  - chubot 13y ago
    Hm that sounds way too low... I think it would be more like 0.1%, or $10K. A $10M exit is kind of small for say a 20 person company. It seems like most acqui-hires are more than $1M / employee (which of course doesn't mean the employee gets anywhere close to $1M).
- chubot 13y ago
  Those numbers seem pretty off. No employee gets 10%; I'd be surprised if any got 1%. From what I can tell it's closer to 0.1 or 0.2% when you're past say the first 10 engineers. The "acqui-hire" exits seem to be around $50M; a really good case is $100M. In that case, you have some chance of making $50K to $200K over 4 years or so, or $12.5 - $50K a year. If you say the chance is 10%, which is indeed wildly optimistic, then you come out to $1.25K to $5K a year, which is essentially negligible. It's nothing compared to a virtually guaranteed bonus at a large company. So I'm not disagreeing with you, just providing what I think are more realistic numbers.
jconley 13y ago
Based on the OP's story, I'm going to assume this was an early stage startup. It is foolish to join an early stage startup as an employee if it's all about the Benjamins from an exit. Hopefully this is common knowledge. However, being an employee in an early stage startup is a great way to jumpstart your career, whether you have entrepreneurial aspirations or not. In an early stage startup you are going to be rubbing noses with investors, working on interesting/tough problems with very smart people, taking on huge amounts of responsibility, getting in way over your head every day, and generally beefing up your resume. Think of it as an investment in yourself. You will build character, and you will build varied skills that will carry forward for the rest of your life, and someone has paid you for that privilege.
- jasonjackson 13y ago
  I think this is particularly true if you want to ever become CEO or VP of a much larger company. How else do you prove you're fit to lead a company or division except by a start-up betting it's future on you. I don't know what the stats are but I've seen a lot of higher ups come from start-ups (in particular acquisitions) as oppose to people slowly getting promoted and climbing the corporate ladder.
  - warmwaffles 13y ago
    It's politics and hustling that get you to those positions. You aren't going to be simply granted VP or CEO or lead in a division simply because you participated in a start up for so long. Results will get you there along with some serious hustling.
- deleted 13y ago
  [deleted]
- saalweachter 13y ago
  Early stage startups are also more willing to overlook weak resumes. A company with tens of thousands of applicants can afford to throw away good candidates with bad resumes because they have loads more good candidates with good resumes. An early stage startup might have three applicants, and if the only one who can program didn't finish college and has never had a job, well, beggars can't be choosers.
Mc_Big_G 13y ago
#duh
mdrcode 13y ago
If your definition of 'pay out' is 'deliver cash compensation at or beyond market rate with very high probability and consistency over a period of years' then yes, most definitely, working at an early stage startup is a poor choice. When you step back, this is really inescapable: large, established companies are more stable and predictable than small, unproven companies. Accordingly, the forces of the market will provide the large/established companies with greater compensatory resources in exchange for that confidence and predictability (some way or another, we are all willing to pay extra for a guarantee, or as close to a guarantee as the market allows). There are exceptions, of course... but the general pattern is clear. But indirectly, you raise an important point: many early stage employees (especially 'kids') do not fully understand how equity or funding works ... and they end up believing in the false idol of their basis points and wasting many years of their lives. I've never met anyone working as early stage employee who had a get-rich-on-liquidation mindset and did not end up burnt out or extremely frustrated in the long run (my own experience very much included). To survive (even /enjoy/) early stage, you must build a personal satisfaction model that's more than just cash (learning? networking? friends? intellectual stimulation? fun?). It's very possible, but it's a huge shift in perspective if you're coming from a golden-handcuffing big tech co...
SurfScore 13y ago
I've never understood the subtle negative attitude towards the fact that founders get most of the equity. It's like everything else in the world from investing to gambling (some would say they're the same). The higher the risk, the higher the reward. If you're getting a salary you simply aren't taking that much risk. This isn't to say early employees shouldn't be compensated fairly, they should. But you can't just be in it for the money. Being an early-stage employee is great for your personal development and puts you on a fast track to a C-level position should the company survive. You simply won't get that at BigCo.
- sliverstorm 13y ago
  So founders don't pay themselves a salary?
  - bkanber 13y ago
    My co-founder and I only just started paying ourselves this year, and we've been paying our employees good wages ever since they started, last year. So yes, some founders will forego a salary (like us). Others won't. We pay ourselves when the company can afford to pay us, but we always pay our employees first.
    - tkone 13y ago
      You're a crazy man. I've not gotten paid before because we had no money, but that didn't stop our founder from vacationing in France. (Different startup than this last one).
  - codex 13y ago
    Usually they do. The founder that forgoes a salary is a myth.
    - SurfScore 13y ago
      You're right they do, but the concept of "market value" salary is laughable until after Series A at least.
brudgers 13y ago
There's an ancient memory of secretaries getting rich from the Microsoft IPO and the legend of the Google chef. But unless the company gets to that size, a small slice of employee equity won't make you rich. Here's my Fuck You Money Calculator: http://fumoney.kludgecode.com/default.aspx http://fumoney.kludgecode.com/default.aspx
- jamiequint 13y ago
  The 'Outside Investment' number here in the 'Optional' section actually only matters if (A) the equity is participating preferred [1] or (B) the company sells for less than the preference would normally receive on a pro-rata basis. In 99.9% of the situations where a non-founder gets 'FU Money' (B) will not be the case, and (A) is increasingly rare. [1] http://www.startupcompanylawyer.com/2007/06/15/what-is-the-difference-between-non-participating-preferred-stock-and-participating-preferred-stock/ http://www.startupcompanylawyer.com/2007/06/15/what-is-the-d...
  - brudgers 13y ago
    I made the tool after a succession of "Ask HN: Is this a good deal" where equity was in the low single digits. It's crude. The optional numbers were included because the way deals have and will be structured matters. Most people don't ask about these things before they post a question to HN. Deals are structured all kinds of ways. How many times has someone posted about getting rid of a partner whose equity vested immediately? Even the article talks about 200,000 shares as if that means something. It could be 20% ownership. It could be 0.02%.
electic 13y ago
I think this article is quite narrow minded. If all you care about is base salary, sure you can go to Cisco and sit in there. But: * You will have a specialized job at a big company. * You will not be able to try new things and expand your skill set at a big company. * You will never build anything big that defines you at a big company. * There are very few "big" companies that work on exciting things. You will likely working on something boring. Yes, Conde Nast is boring. Thus: * No one is going to make you a VP. You've never proven yourself or taken any risks. * There are many startups that have 'made it' and those risk takers who came on early, made a lot of cash. * You will wonder for the rest of your life if that could have been you. So if you feel that base salary and low risk is you, Cisco, Juniper, eBay, etc, all have your name on it. Please go there.
- codex 13y ago
  This might have been true in the past, but companies like Google and Facebook are now run like a conglomeration of small startups--in part to retain talent. Google's 20 percent time is a good example.
  - SurfScore 13y ago
    I've heard many times that Google's 20 percent time is going the way of the dodo. Don't work at Google or anything, just heard you really have to push to get it now.
- unreal37 13y ago
  Allow me to respectfully disagree. Everyone's experience is different, and I don't know what yours is, but I have had several jobs at BIG companies that defy your rules. I have designed and developed several big multi-million dollar systems at enterprise scale. I am always able to try new things and expand my skills. Almost every company works on "exciting things" (although maybe you define exciting as a web-based project management system and I define exciting as highly-configurable e-commerce platform). This comment is quite narrow minded, actually. Lots of companies, of various sizes, offer exciting and interesting projects with lots of freedom and control to the individual. If yours doesn't, keep looking.
optimusclimb 13y ago
I know it's very un-hacker news like to make such a comment, but...inb4 michaelochurch comment :)
nugget 13y ago
The Right Startup > The Right Big Company > The Wrong Big Company > The Wrong Startup
- yekko 13y ago
  Probability wise, picking the right startup is a crap shot, even people who are expert at it can't do it. Picking the right big company is VERY EASY..., picking the wrong startup is almost assured, 95%+ chance.
  - eli 13y ago
    I don't think the working for the "right" startup necessarily means the one that results in a big exit some years down the line... I don't think it's that hard to find a startup founded by cool people doing stuff you find interesting.
    - yekko 13y ago
      That reminds me, a couple of my former co-worker at Microsoft founded their own startup. Was pretty nifty. I really think government should have a program to fund say 1 million startups, I'll do one myself :)
yekko 13y ago
This has been my experience as well. Late stage startup is a lot better, since they can pay well + give you stock options that MIGHT work out if they IPO WITHIN 1.5 years of you joining. Timing is really important here, keep in mind the 4 year vesting. If they did not IPO within the time frame, find another one.
deleted 13y ago
[deleted]
MojoJolo 13y ago
Question, is this also the case if I'm part of the founding team? I'm not a founder but I'm their first employee. On another note, the learnings, experience, and connections I gain in the startup compensate the low salary I'm getting. This is my first real job. And I think I'm getting a lot of knowledge in terms of technology and management side.
teeja 13y ago
The rewards of working on spec (like those of volunteering) have alway been ... speculative. Promises and manufactured illusions can be difficult to distinguish. The ability to listen to your heart and gut may prove invaluable.
realrocker 13y ago
Also, finding out the hard way is not a good approach. It's physically and emotionally draining.
whiddershins 13y ago
Here's a question: If 8 hour work days get maximal productivity out of a worker (according to several studies I've read through links made available on this board), and startups are all about getting the most out of their employees and getting ahead quickly, why are they all described as having long hours (one of the reasons it "sucks" to work at a startup) ?? I can understand if a very large organization has so much organizational overhead you somehow work really long hours, but for a smaller team that shouldn't be a factor ... right?
jonathanjaeger 13y ago
I know someone who took a salary cut early on in a startup that hit it big. I always heard about the great things coming from the company, not "omg, look how much my shares are worth!" I think it's horrible when startup founders prey on ill-informed employees who they see as gullible, promising the world with no caution. However, what happened to wanting to work for a startup because you care about the mission? People take smaller salaries to become teachers, some become touring musicians, some forego healthy salaries to travel the world more, and some people work at startups. Just because not every situation is ideal (fun startup + high equity + cushy lifestyle), that doesn't mean it's not the right decision for some. Do what will make you happy and fulfilled rather than something to check off on a list for making a successful career. Edit: Plus you don't have to stick around for four years at a below market salary. If you're pulling your weight and the company gets traction, you should expect a reasonable salary (not $50K below market rate for four years in a row like the article implies).
- jrochkind1 13y ago
  I certainly agree that there's nothing wrong with prioritizing other things (like interesting work, for just one, there are others) over maximizing your money. What's galling is when someone ELSE makes big bucks off your hard work, and you don't. Then you often feel taken advantage of. That isn't generally happening when you take a smaller salary to become a teacher or a touring musician or to travel the world more. And when it DOES happen (say, to touring musicians, sure), the person it happens to generally feels exploited. Even if they had done the same thing for the same money _without_ someone else profiting big time off their work, they would have felt good about it. But if you decide you don't mind someone else trying to make huge bucks off your hard work, without sharing them with you, because you enjoy the thing you're working hard on that much and it's all cool... I guess I've got no reason to say there's anything wrong with that, if that's your thing. But in reality, it's the difference between working at a startup with equity on the same order of magnitude as the founders, but the startup doesn't end up succeeding (Oh well, it was worth a shot, and I still made enough to pay rent and live comfortably, and I found it rewarding) vs working at a startup that is VERY succesful and the founders are rich... but you wound up with much less money than you could have had working somewhere else, perhaps with just as interesting work. How likely are you to find the latter one rewarding, after it shakes out?
codex 13y ago
Like many animals which hunt in packs (e.g. wolves) humans obey a dominance hierarchy. The leader is at the top of the pyramid and is entitled to most of the spoils of the kill, while those beneath the alpha settle for relative scraps. This has been self-evident though most of human history, but exists even today--witness the modern power law distributions of wealth even in advanced economies. Founders, in essence, reject the pyramids of established companies and try to create their own (the new company) with themselves at the top. This is why the myth of the startup was created by founders and investors--they need submissive employees to work at below market wages (initially) at the lower levels of the pyramid in order to support them at the pinnacle. Note that the purported benefits of working at a startup are always intangible and hard to quantify (read: things which don't cost the company any cash)--but the opportunity cost of working as an early employee at a startup is readily quantifiable and quite large: a huge loss in earning power in the short term, with only a lottery ticket's chance of winning in the long term.
maxcan 13y ago
tl;dr OP bought a lottery ticket that didn't pan out and isn't happy about it.
tsmith 13y ago
The thesis of the article is mostly correct, though there are plenty of exceptions in the valley - the Facebook and Google IPOs made 100s of instant millionaires. This part bugged me though: "Lets put it this way. You're working at a start-up. You've got some decent stock, say, like, 200,000 options. You vest over four years and your strike is $1/share (which is WAY too high for an early employee, but you feel "good" about this one.) You're making 50k under market value." Number of options and strike price are almost meaningless without context - specifically, number of shares outstanding + ESOP pool. PPS is derivative of the number of shares outstanding, and strike price will typically be the PPS at the last round of financing, so whether it's $1 or $10 or $0.10 is _completely_ determined by the valuation of the company divided by the number of shares outstanding. The number of shares outstanding (+ those allocated to the ESOP) is the meaningful number here. 200k options could represent a significant stake in the company (up to 99.9995% of the company, for example, if the company has only a single share outstanding and no other options issued!) or an insignificant stake in the company (for example, if the company has 1 trillion shares outstanding). The only thing the 200k options / $1 strike price tells you is that if the company doubles in value, you will have made $200k (less taxes & tip). Triples in value, $400k. Multiples by X, $200Xk. If you don't think the company is going to double/triple/10X in value during your time there, don't play the game.

75 points by tkone 13y ago

Yep, what he said. That said, there are other good reasons to work for a startup. It's just that "I'm going to get rich as employee #10" is not one of them*. That is, of course, unless you happen to work for the next Google. But let's be honest, you aren't working for the next Google. Doesn't matter who founded it or who's bankrolling it. You're not working for The Next Big Thing. Someone is, sure, but you're more likely to be struck by lightning than be that guy.

ef4 13y ago

Or just don't accept below-market salary. The competition for good people is fierce, there's no reason you need to accept low pay.

yekko 13y ago
You actually need above market salary at startup since there is no bonus or anything else. A 15% bonus + 401k match + ESPP + yearly stock grant can easily equal 40k+ for a junior (1-3 year exp) employee.
pmorici 13y ago
What is market salary these days in the valley?

sxtxixtxcxh 13y ago

i like the random `git co` after the first sentence. go go gadget multitasker!

jaredsohn 13y ago

> You've got some decent stock, say, like, 200,000 options. You vest over four years and your strike is $1/share (which is WAY too high for an early employee, but you feel "good" about this one.) You're making 50k under market value. >That means in four years, your stock is going to have to NET (taxes are a healthy 20%, plus you've got fees, so it's gotta be pretty high...) you a $1 a share in order to be worth it, assuming you never recieve a raise or a bonus at your new job, and you don't count your 401(k) match, health benefits, less-stressful working conditions and shorter hours. Pretty horrid that the post makes judgements ("decent stock", "WAY too high"), about options based on the quantity and price per share without considering what portion of the company the shares represent (and the initial valuation of the company.)

eropple 13y ago
Percentage doesn't matter to this calculation, though. You'll factor it into your estimation of whether it can net you $1/share, but he obviously can't.
- jaredsohn 13y ago
  >but he obviously can't. This is his hypothetical example; he obviously can. (i.e. he can say that the company is worth $1 million now so it needs to be worth $x million to make up for the lost pay.) Doing so would do a better job of communicating his message to the reader.
  - tkone 13y ago
    and would also be against my confidentiality agreement. These are hypothetical numbers. Lets say it's .5% at $0.30 -- the numbers are variables, doesn't change what the outcome is.
    - jaredsohn 13y ago
      >and would also be against my confidentiality agreement. This whole thing isn't that important but why would it be against your confidentiality agreement to write a hypothetical example in one way versus another? I am assuming all of the numbers are fake in the first place. My original point (again, not very important) is that I think it is more effective communication to say that a company is worth $1 million now and needs to grow to be $10 million for you to make back your lost salary via stocks, rather than talking about number of shares and strike prices (which you can't easily compare against other companies), since those values can easily be manipulated.

bryanlarsen 13y ago

If you're getting equity in lieu of pay, make sure it's a real amount of equity. Real amounts of equity are expressed as percentages of the company and are not two orders of magnitude different than what the founders have. Real amounts of equity are given outright or have really low strike prices. If you sold your equity the day after it was given to you, would it bring your salary up to a reasonable level? That's the benchmark. If not, ask for more equity, or more salary.

Pwnguinz 13y ago

I'm curious about how equity/options vesting work in the general silicon valley startup (I'm sure details will vary). Actually, I'm curious how it works generally, period. But most people reading HN is probably more familiar with SV startups than, say, New Delhi startups. Say I'm granted 10 shares of options in a company (for the sake of the example, say this is 10% pre-dilution. So there are 100 shares currently). This vests over 4 years. Are you 'granted' these shares, or do you have to purchase them? Presumably, you purchase them at the 'strike' price? Is this something determined when you are hired and sign the employment contract? Or when the equity starts vesting? In other words, if I'm getting this correctly, you have to pay to own a portion of the company, despite the fact that you're an early employee? Do the founders have to do the same? If the strike price is $1/share, then you have to pay out $10 to own that 10% over the course of 4 years? Or will the 'strike' price change over time?

gibybo 13y ago
You do have to pay to own a portion of the company. The founders did not have to do this. The strike price is set when they give you the options. If they vest over 4 years, the strike price is decided when they are issued, before they vest. The strike price is usually set to the value of the common stock at the time of issuance, so they have a value of $0 (as far as the IRS is concerned) when they are issued. If the company IPOs before you exercise your options, you generally won't have to provide the capital to purchase the shares, as any brokerage will be able to cover that for you (by subtracting it from the sale proceeds).
- outericky 13y ago
  While the founders may not have had to do this, in all likelihood they did self fund at least some of the startup, and/or put in a lot more legwork initially.
saalweachter 13y ago
Stock options are pretty much the norm in my experience. The usual explanation for this is taxes. When you are granted stocked, it is taxed as income upon being granted. Since the stock is illiquid because the company is a startup, there is no way to sell it to pay the taxes, so granting stock just reduces your already meager salary. You can usually exercise your options any time after they vest. However, most people don't and this is sometimes discouraged. If the company is sold for cash money, you may not ever formally exercise your options: the lawyers and the accountants will automatically exercise them for you, deduct the strike price from the sale price, and just deposit the net in your bank account.

zsiddique 13y ago

I gave it a quick once over but the thing that already made me think this auther does not know what he is talking about is this line: > You've got some decent stock, say, like, 200,000 options. You vest over four years and your strike is $1/share What startup is that? If it has a $1/share valuation its already near the end of its "start up" runway. And if your getting 200k in shares then its either really earl on or the strike price is really low. I have had offers from YC-Backed companies in the past and its one or the other, not both.

nrser 13y ago

if you can work at a large non-technical company as a technical person, you should. my last company was bought by Viacom. i've been there, i know what it is.

saalweachter 13y ago

If you get options equal to 10% of The Company when it is worth $1 million, and there is a 10% chance of the company selling for $10 million, the expected value of your stock options is $90,000, before taxes. If the stock vests over four years, that's $22,500 / year, pre-tax. You could almost beat that working full-time at minimum wage in some states. And this is an optimistic, above-average outcome.

sliverstorm 13y ago
this is an optimistic, above-average outcome 10% chance of the company selling for $10 million This isn't just optimistic, this is a wild fever dream in a summer heat.
unreal37 13y ago
No "employee" is ever ever ever going to get 10% of the company in options. If you are employee #10, you probably get 0.01% of your $10MM example, which works out to $1,000 if it ever cashes out assuming no dilution through investor rounds.
- chubot 13y ago
  Hm that sounds way too low... I think it would be more like 0.1%, or $10K. A $10M exit is kind of small for say a 20 person company. It seems like most acqui-hires are more than $1M / employee (which of course doesn't mean the employee gets anywhere close to $1M).
chubot 13y ago
Those numbers seem pretty off. No employee gets 10%; I'd be surprised if any got 1%. From what I can tell it's closer to 0.1 or 0.2% when you're past say the first 10 engineers. The "acqui-hire" exits seem to be around $50M; a really good case is $100M. In that case, you have some chance of making $50K to $200K over 4 years or so, or $12.5 - $50K a year. If you say the chance is 10%, which is indeed wildly optimistic, then you come out to $1.25K to $5K a year, which is essentially negligible. It's nothing compared to a virtually guaranteed bonus at a large company. So I'm not disagreeing with you, just providing what I think are more realistic numbers.

jconley 13y ago

Based on the OP's story, I'm going to assume this was an early stage startup. It is foolish to join an early stage startup as an employee if it's all about the Benjamins from an exit. Hopefully this is common knowledge. However, being an employee in an early stage startup is a great way to jumpstart your career, whether you have entrepreneurial aspirations or not. In an early stage startup you are going to be rubbing noses with investors, working on interesting/tough problems with very smart people, taking on huge amounts of responsibility, getting in way over your head every day, and generally beefing up your resume. Think of it as an investment in yourself. You will build character, and you will build varied skills that will carry forward for the rest of your life, and someone has paid you for that privilege.

jasonjackson 13y ago
I think this is particularly true if you want to ever become CEO or VP of a much larger company. How else do you prove you're fit to lead a company or division except by a start-up betting it's future on you. I don't know what the stats are but I've seen a lot of higher ups come from start-ups (in particular acquisitions) as oppose to people slowly getting promoted and climbing the corporate ladder.
- warmwaffles 13y ago
  It's politics and hustling that get you to those positions. You aren't going to be simply granted VP or CEO or lead in a division simply because you participated in a start up for so long. Results will get you there along with some serious hustling.
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saalweachter 13y ago
Early stage startups are also more willing to overlook weak resumes. A company with tens of thousands of applicants can afford to throw away good candidates with bad resumes because they have loads more good candidates with good resumes. An early stage startup might have three applicants, and if the only one who can program didn't finish college and has never had a job, well, beggars can't be choosers.

Mc_Big_G 13y ago

#duh

mdrcode 13y ago

If your definition of 'pay out' is 'deliver cash compensation at or beyond market rate with very high probability and consistency over a period of years' then yes, most definitely, working at an early stage startup is a poor choice. When you step back, this is really inescapable: large, established companies are more stable and predictable than small, unproven companies. Accordingly, the forces of the market will provide the large/established companies with greater compensatory resources in exchange for that confidence and predictability (some way or another, we are all willing to pay extra for a guarantee, or as close to a guarantee as the market allows). There are exceptions, of course... but the general pattern is clear. But indirectly, you raise an important point: many early stage employees (especially 'kids') do not fully understand how equity or funding works ... and they end up believing in the false idol of their basis points and wasting many years of their lives. I've never met anyone working as early stage employee who had a get-rich-on-liquidation mindset and did not end up burnt out or extremely frustrated in the long run (my own experience very much included). To survive (even /enjoy/) early stage, you must build a personal satisfaction model that's more than just cash (learning? networking? friends? intellectual stimulation? fun?). It's very possible, but it's a huge shift in perspective if you're coming from a golden-handcuffing big tech co...

SurfScore 13y ago

I've never understood the subtle negative attitude towards the fact that founders get most of the equity. It's like everything else in the world from investing to gambling (some would say they're the same). The higher the risk, the higher the reward. If you're getting a salary you simply aren't taking that much risk. This isn't to say early employees shouldn't be compensated fairly, they should. But you can't just be in it for the money. Being an early-stage employee is great for your personal development and puts you on a fast track to a C-level position should the company survive. You simply won't get that at BigCo.

sliverstorm 13y ago
So founders don't pay themselves a salary?
- bkanber 13y ago
  My co-founder and I only just started paying ourselves this year, and we've been paying our employees good wages ever since they started, last year. So yes, some founders will forego a salary (like us). Others won't. We pay ourselves when the company can afford to pay us, but we always pay our employees first.
  - tkone 13y ago
    You're a crazy man. I've not gotten paid before because we had no money, but that didn't stop our founder from vacationing in France. (Different startup than this last one).
- codex 13y ago
  Usually they do. The founder that forgoes a salary is a myth.
  - SurfScore 13y ago
    You're right they do, but the concept of "market value" salary is laughable until after Series A at least.

brudgers 13y ago

There's an ancient memory of secretaries getting rich from the Microsoft IPO and the legend of the Google chef. But unless the company gets to that size, a small slice of employee equity won't make you rich. Here's my Fuck You Money Calculator: http://fumoney.kludgecode.com/default.aspx http://fumoney.kludgecode.com/default.aspx

jamiequint 13y ago
The 'Outside Investment' number here in the 'Optional' section actually only matters if (A) the equity is participating preferred [1] or (B) the company sells for less than the preference would normally receive on a pro-rata basis. In 99.9% of the situations where a non-founder gets 'FU Money' (B) will not be the case, and (A) is increasingly rare. [1] http://www.startupcompanylawyer.com/2007/06/15/what-is-the-difference-between-non-participating-preferred-stock-and-participating-preferred-stock/ http://www.startupcompanylawyer.com/2007/06/15/what-is-the-d...
- brudgers 13y ago
  I made the tool after a succession of "Ask HN: Is this a good deal" where equity was in the low single digits. It's crude. The optional numbers were included because the way deals have and will be structured matters. Most people don't ask about these things before they post a question to HN. Deals are structured all kinds of ways. How many times has someone posted about getting rid of a partner whose equity vested immediately? Even the article talks about 200,000 shares as if that means something. It could be 20% ownership. It could be 0.02%.

electic 13y ago

I think this article is quite narrow minded. If all you care about is base salary, sure you can go to Cisco and sit in there. But: * You will have a specialized job at a big company. * You will not be able to try new things and expand your skill set at a big company. * You will never build anything big that defines you at a big company. * There are very few "big" companies that work on exciting things. You will likely working on something boring. Yes, Conde Nast is boring. Thus: * No one is going to make you a VP. You've never proven yourself or taken any risks. * There are many startups that have 'made it' and those risk takers who came on early, made a lot of cash. * You will wonder for the rest of your life if that could have been you. So if you feel that base salary and low risk is you, Cisco, Juniper, eBay, etc, all have your name on it. Please go there.

codex 13y ago
This might have been true in the past, but companies like Google and Facebook are now run like a conglomeration of small startups--in part to retain talent. Google's 20 percent time is a good example.
- SurfScore 13y ago
  I've heard many times that Google's 20 percent time is going the way of the dodo. Don't work at Google or anything, just heard you really have to push to get it now.
unreal37 13y ago
Allow me to respectfully disagree. Everyone's experience is different, and I don't know what yours is, but I have had several jobs at BIG companies that defy your rules. I have designed and developed several big multi-million dollar systems at enterprise scale. I am always able to try new things and expand my skills. Almost every company works on "exciting things" (although maybe you define exciting as a web-based project management system and I define exciting as highly-configurable e-commerce platform). This comment is quite narrow minded, actually. Lots of companies, of various sizes, offer exciting and interesting projects with lots of freedom and control to the individual. If yours doesn't, keep looking.

optimusclimb 13y ago

I know it's very un-hacker news like to make such a comment, but...inb4 michaelochurch comment :)

nugget 13y ago

The Right Startup > The Right Big Company > The Wrong Big Company > The Wrong Startup

yekko 13y ago
Probability wise, picking the right startup is a crap shot, even people who are expert at it can't do it. Picking the right big company is VERY EASY..., picking the wrong startup is almost assured, 95%+ chance.
- eli 13y ago
  I don't think the working for the "right" startup necessarily means the one that results in a big exit some years down the line... I don't think it's that hard to find a startup founded by cool people doing stuff you find interesting.
  - yekko 13y ago
    That reminds me, a couple of my former co-worker at Microsoft founded their own startup. Was pretty nifty. I really think government should have a program to fund say 1 million startups, I'll do one myself :)

yekko 13y ago

This has been my experience as well. Late stage startup is a lot better, since they can pay well + give you stock options that MIGHT work out if they IPO WITHIN 1.5 years of you joining. Timing is really important here, keep in mind the 4 year vesting. If they did not IPO within the time frame, find another one.

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MojoJolo 13y ago

Question, is this also the case if I'm part of the founding team? I'm not a founder but I'm their first employee. On another note, the learnings, experience, and connections I gain in the startup compensate the low salary I'm getting. This is my first real job. And I think I'm getting a lot of knowledge in terms of technology and management side.

teeja 13y ago

The rewards of working on spec (like those of volunteering) have alway been ... speculative. Promises and manufactured illusions can be difficult to distinguish. The ability to listen to your heart and gut may prove invaluable.

realrocker 13y ago

Also, finding out the hard way is not a good approach. It's physically and emotionally draining.

whiddershins 13y ago

Here's a question: If 8 hour work days get maximal productivity out of a worker (according to several studies I've read through links made available on this board), and startups are all about getting the most out of their employees and getting ahead quickly, why are they all described as having long hours (one of the reasons it "sucks" to work at a startup) ?? I can understand if a very large organization has so much organizational overhead you somehow work really long hours, but for a smaller team that shouldn't be a factor ... right?

jonathanjaeger 13y ago

I know someone who took a salary cut early on in a startup that hit it big. I always heard about the great things coming from the company, not "omg, look how much my shares are worth!" I think it's horrible when startup founders prey on ill-informed employees who they see as gullible, promising the world with no caution. However, what happened to wanting to work for a startup because you care about the mission? People take smaller salaries to become teachers, some become touring musicians, some forego healthy salaries to travel the world more, and some people work at startups. Just because not every situation is ideal (fun startup + high equity + cushy lifestyle), that doesn't mean it's not the right decision for some. Do what will make you happy and fulfilled rather than something to check off on a list for making a successful career. Edit: Plus you don't have to stick around for four years at a below market salary. If you're pulling your weight and the company gets traction, you should expect a reasonable salary (not $50K below market rate for four years in a row like the article implies).

jrochkind1 13y ago
I certainly agree that there's nothing wrong with prioritizing other things (like interesting work, for just one, there are others) over maximizing your money. What's galling is when someone ELSE makes big bucks off your hard work, and you don't. Then you often feel taken advantage of. That isn't generally happening when you take a smaller salary to become a teacher or a touring musician or to travel the world more. And when it DOES happen (say, to touring musicians, sure), the person it happens to generally feels exploited. Even if they had done the same thing for the same money _without_ someone else profiting big time off their work, they would have felt good about it. But if you decide you don't mind someone else trying to make huge bucks off your hard work, without sharing them with you, because you enjoy the thing you're working hard on that much and it's all cool... I guess I've got no reason to say there's anything wrong with that, if that's your thing. But in reality, it's the difference between working at a startup with equity on the same order of magnitude as the founders, but the startup doesn't end up succeeding (Oh well, it was worth a shot, and I still made enough to pay rent and live comfortably, and I found it rewarding) vs working at a startup that is VERY succesful and the founders are rich... but you wound up with much less money than you could have had working somewhere else, perhaps with just as interesting work. How likely are you to find the latter one rewarding, after it shakes out?

codex 13y ago

Like many animals which hunt in packs (e.g. wolves) humans obey a dominance hierarchy. The leader is at the top of the pyramid and is entitled to most of the spoils of the kill, while those beneath the alpha settle for relative scraps. This has been self-evident though most of human history, but exists even today--witness the modern power law distributions of wealth even in advanced economies. Founders, in essence, reject the pyramids of established companies and try to create their own (the new company) with themselves at the top. This is why the myth of the startup was created by founders and investors--they need submissive employees to work at below market wages (initially) at the lower levels of the pyramid in order to support them at the pinnacle. Note that the purported benefits of working at a startup are always intangible and hard to quantify (read: things which don't cost the company any cash)--but the opportunity cost of working as an early employee at a startup is readily quantifiable and quite large: a huge loss in earning power in the short term, with only a lottery ticket's chance of winning in the long term.

maxcan 13y ago

tl;dr OP bought a lottery ticket that didn't pan out and isn't happy about it.

tsmith 13y ago

The thesis of the article is mostly correct, though there are plenty of exceptions in the valley - the Facebook and Google IPOs made 100s of instant millionaires. This part bugged me though: "Lets put it this way. You're working at a start-up. You've got some decent stock, say, like, 200,000 options. You vest over four years and your strike is $1/share (which is WAY too high for an early employee, but you feel "good" about this one.) You're making 50k under market value." Number of options and strike price are almost meaningless without context - specifically, number of shares outstanding + ESOP pool. PPS is derivative of the number of shares outstanding, and strike price will typically be the PPS at the last round of financing, so whether it's $1 or $10 or $0.10 is _completely_ determined by the valuation of the company divided by the number of shares outstanding. The number of shares outstanding (+ those allocated to the ESOP) is the meaningful number here. 200k options could represent a significant stake in the company (up to 99.9995% of the company, for example, if the company has only a single share outstanding and no other options issued!) or an insignificant stake in the company (for example, if the company has 1 trillion shares outstanding). The only thing the 200k options / $1 strike price tells you is that if the company doubles in value, you will have made $200k (less taxes & tip). Triples in value, $400k. Multiples by X, $200Xk. If you don't think the company is going to double/triple/10X in value during your time there, don't play the game.