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The economics for a non-founder in a startup are drastically different than they are for a founder; however, the risk is only slightly better than the founders.

The economics for a non-founder in a startup are drastically different than they are for a founder; however, the risk is only slightly better than the founders. It is among the worst risk/reward tradeoffs I can think of. The two reasons to do it are (1) some people love the opportunity for responsibility/growth or environment and/or (2) the poor risk/reward is actually an investment in themselves, so that they can gain the skills to become a founder. For founders, I don't believe it's relevant that the median startup doesn't make money: the more you found, the better you become; a diligent and intelligent founder is bound to ultimately make quite a bit of money, but it may be a good number of tough years and failed startups before that happens.

gamble 17y ago
Totally agree. For the average employee, their potential upside is pretty small unless the company experiences Google-like levels of success. And if it fails, they aren't even likely to get respect from potential employers for the attempt. After all, a startup that doesn't take off is just another small company. If you're going to work for a startup, you need a better reason than the money.
tptacek 17y ago
Your reasoning here is tainted by survivorship bias. Yes, founders and employees share similar levels of risk in a startup that has reached the point where it can hire FT employees. But before the startup hit that point, it endured a period of drastically higher risk, which the employees never saw, and which the founders are being compensated for.
- mediaman 17y ago
  The only conditions that must be true in my reasoning is that (1) an early non-founding employee faces substantially higher risk than a corporate job, (2) at lower pay and with substantially less equity than would compensate for that risk. That the risk was higher for the founders prior to the FTE is certainly true, but irrelevant, because we are not comparing whether an FTE has a good risk/reward tradeoff relative to an opportunity to join earlier in the startup under the same terms, but rather relative to a corporate job.

gamble 17y ago

Totally agree. For the average employee, their potential upside is pretty small unless the company experiences Google-like levels of success. And if it fails, they aren't even likely to get respect from potential employers for the attempt. After all, a startup that doesn't take off is just another small company. If you're going to work for a startup, you need a better reason than the money.

tptacek 17y ago

Your reasoning here is tainted by survivorship bias. Yes, founders and employees share similar levels of risk in a startup that has reached the point where it can hire FT employees. But before the startup hit that point, it endured a period of drastically higher risk, which the employees never saw, and which the founders are being compensated for.

mediaman 17y ago
The only conditions that must be true in my reasoning is that (1) an early non-founding employee faces substantially higher risk than a corporate job, (2) at lower pay and with substantially less equity than would compensate for that risk. That the risk was higher for the founders prior to the FTE is certainly true, but irrelevant, because we are not comparing whether an FTE has a good risk/reward tradeoff relative to an opportunity to join earlier in the startup under the same terms, but rather relative to a corporate job.