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Hackers with no equity in company: good or bad?
Does YC frown upon applicants who have hackers on their team but hold not equity stake? How should they be included in the application.
- cperciva 19y agoI'd list such people under "suckers". YC doesn't provide enough money to pay anyone a decent salary, so anyone who isn't getting equity is being short-changed.
- prime0196 19y agoThey are being compensated, not looking for YC to do that.
- rms 19y agoWould it hurt to throw them a couple percent?
- prime0196 19y agoWhat would be the reason for "throwing" them an equity stake? Many people believe this makes a person more dedicated to the company, which is absolutely false.
- rms 19y agoMake it vest and you've got nothing to lose...
- pg 19y agoThen why do you think startups have such a thing as options? Do you think everyone else is just mistaken in believing that equity matters in startups?
- prime0196 19y agoEquity should be given to individuals who are critical to the success of your company, individuals who are indispensable. Too many companies give equity to individuals who can be replaced once the company becomes self-sustaining. Equity shouldn't be given to "good" coders just because they contributed in the beginning. Equity should be saved for the "great/exceptional" coders that you may attract as your business grows.
- pg 19y agoThe empirical evidence suggests startups don't work that way. All the most successful startups had great techical people from the beginning. If you don't have good technical people at the start, you never reach the point where you attract them.
- prime0196 19y agoI don't dispute that. What if you have great technical people in the beginning who happen to have no equity stake? A talented developer is a talented developer (regardless of how they are compensated)...equity doesn't make them any better, does it?
- pg 19y agoIf they're de facto cofounders and they have no equity, then either you're cheating them (and they don't know they should have equity) or they don't have much faith in the project (and prefer salary to equity).
- nostrademons 19y agoI was in this position in my last startup (they offered me a fat salary instead of equity), and it's a terrible position to be in, both for the employee and for the startup. Here's why (bear with me on this, there's a lot of setup): Economists like to divide all spending into two categories: consumption and investment. Consumption is spending for things you'd like to have now, that'll give you an immediate benefit. Investment is spending for tomorrow, in the hopes that you will gain more benefits later. Technology organizations face the same tradeoff, but with time rather than money. Developers can work on features that immediately benefit users and pad the bottom line (consumption). Or they can work on refactoring, infrastructure and tools that will make it easier to add features in the future (investment). There's always a tradeoff. If you spend too much time on investment, you're customers will wonder why you haven't done anything for them recently and stop giving you money. If you spend too much time on consumption, you'll wonder why it suddenly starts taking 10 times as long to implement each feature, why the system is grinding to a halt, and why your developers have no clue what's causing your latest dozen bugs. In my experience, the best developers spend 80-90% of their time on investment and 10-20% on consumption. They'll apparently do nothing for 3 months and then crank out an app in a week (for an extreme example, check out PG's On Lisp: he writes a whole book on building up tools, and then in the very last chapter, he's like "Oh, by the way, here's a Prolog interpreter. In 50 lines. Done"). The worst programmers reverse that - they'll spend 80-90% of their time implementing your feature requests and only 10-20% cleaning things up, moving common code into functions, etc. So here's your problem: under U.S. law, all "investment" that an employee creates is owned by their employer. Meanwhile, their salary is dependent upon how good you think they are, which depends upon how much they've done to improve the bottom line. In other words, they have every incentive to "consume" (push out quick features for the boss) and no incentive to "invest" (clean up code, setup infrastructure, build tools). The only way to rectify this is to make them part of the company's capital structure, so that they are effectively part-owners of the code they build. You might think that you know better and can compensate people based on how well they actually do, but in practice it's virtually impossible. Ask yourself: how would you feel if your development team did nothing for 3 months. Because that's what it'll look like if they're doing their jobs properly. You say that you've got a terrific programmer who's working for no equity, but you're seeing him at his best. It's easy to crank out impressive stuff on a small green-field project; it's much harder to keep it working as the project grows. The choices he makes now will determine the future development of your software, even if you fire him and get someone else later. Don't do this to your startup. If you're a tech company, spend your equity getting a top-notch tech person, then give him the discretion he needs to do things right. Otherwise (assuming you've gotten all the marketing/PR/idea stuff right), I can predict the path your startup will take. You'll get lots of buzz and lots of users, and they'll love you for cranking out features quickly. You'll dominate the market. Then, about 1-2 years in, you'll hit a brick wall, and every feature you add will result in lots of mysterious bugs. Fixing these will result in dozens of new bugs, and you won't be able to add any new features at all. Competitors will arise and start catching up to you. You'll fire your tech team, thinking that they must be incompetent. You'll start a rewrite-from-scratch project, which you'll abandon when your investors come calling. Then you go out of business. I've gone through it once and probably would've gone through it a second time had I not just left my last employer. It's not pretty.
- german 19y agoWhy do you think that is false?
- prime0196 19y agoThere are too many other factors that come into play when it comes to selecting a good co-founder/equity holder. Things such as vision, rapport, dedication, etc. Equity/options are too compensate someone that you want in your company when you don't have the financing to pay them what they are worth.
- deleted 19y ago[deleted]
- gscott 19y agoIf you are paying someone to work an 8 hour day, no problem just paying the programmer. But if you want someone to work a practically unlimited number of hours as is most often the case then you are going to either need to pay the person to work two 8 hour shifts, hire additional programers, or give the programmer some equity in the business.
- prime0196 19y agoThey are paid based on a milestone. Milestone is spec'd out and they are paid based on attaining that goal. So technically I do get unlimited hours.
- Zak 19y ago>Milestone is spec'd out and they are paid based on attaining that goal. Hacking doesn't work that way; software engineering does. If you don't understand the difference, your startup is in trouble.
- gscott 19y agoThe only way I see this as possible is if you sit down with a "front end" graphics guy and create every page. Then have the programmer put the code behind it. But beware the code that is written it will be hard for another programmer to pick up on. Everyone writes code differently and it is just suprising in one language how many different ways there is to create a solution.
- nanijoe 19y agoA word of caution...100% of zero = zero. If you spend so much effort trying not to share equity with anyone, you may end up owning all of nothing.
- sama 19y agoyou will not get accepted.
- anamax 19y agoI trust that you're not going to complain if they quit your project for a project that does offer them equity. FWIW, no one is indespensible in a startup; some are merely harder to replace than others. I'll bet that "original idea" guys are getting equity even though they cease to be indespensible.
- hga 19y ago"no one is indespensible in a startup" I have been in too many startups that died because they lost or failed to recruit one particular person---or in the case of LMI survived (for a while) because I recruited one indispensable classmate who made their LAMBDA processor work---to believe this. A reverse example would be the receiving clerk at Intel who single-handily almost killed them as mentioned in Chringley's book. In my experience, just about every founder of a startup is "indispensable" after you shake things out a bit---make a single mistake with any of them, and you're not likely to survive.
- anamax 19y agoThe fact that a startup dies when someone leaves doesn't imply that said person was indespensible.
- hga 19y agoI am relying on "inside information". I suppose that means this is an "appeal to authority", but, still, if a person critical to making software work is gone, and the company fails specifically because they can't make their software work, what else am I to assume? (Needless to say, sometimes I've been that person.)
- anamax 19y agoI'll buy that a company can be set up so it is dependent. Outside of some special cases (subset of technology and relationships), I think that doing so is usually unnecessary and the "indespensable" label is typically untrue, especially when it comes to biz folk.
- electric 19y agoI think hackers are a critical component of technical teams and therefore should be rewarded with equity/options.
- davidw 19y agoThe verdict: "bad" - but what did you expect from this site?