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Re 2), you should make sure your salary is at market-level and more or less ignore equity. Chances are you'll be let go or the company will collapse before it'

by saryant 12y ago

Re 2), you should make sure your salary is at market-level and more or less ignore equity. Chances are you'll be let go or the company will collapse before it's worth anything. If you have a reasonable salary, equity is just a cherry on top, but if an employer tries to get you to trade cash today for a startup lottery ticket, say no. This is especially important early in your career given the time value of money. An extra $10k/year in the first five years of your career, properly saved, could add north of $600k to your retirement when you get to that stage in life. That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity.

L_Rahman 12y ago
Excellent point and I will heed your advice. I'm well aware that: a. Startup equity is a lottery b. As an early employee and the accompanying biases, I'm especially ill equipped to judge it's value. With that in mind, I'm negotiating salary first. Equity with a vesting schedule is something I would treat purely as an incentive for continuing to stay with the company and not as a replacement for salary.
- thruflo 12y ago
  This sounds very sensible. I would note though that equity % points are much easier to negotiate early on. If you have an opportunity to secure options at a low valuation now, even with a great big cliff / vesting term, take them in case the company is a success and use the cliff / vesting to persuade the current owners that it's a win win.
yitchelle 12y ago
> That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity. This is excellent advice. Cold hard cash is much, much better than a bet of the startup you are working for will take off.
IkmoIkmo 12y ago
Great insights, can definitely recommend not taking big equity gambles in your earlier years. Although perhaps north of $600k is a bit too optimistic, you'd need a solid 6.4% inflation & fee free ROI on that. In any case it's important to look at it in 'today's dollars'. For example, the S&P 500 did 20x in the past 40 years (roughly the length of a solid full-time professional career), so $10k could have turned into $400k if following that index. But in the 80s inflation went up to 15% causing devaluation, that 1975 dollar is worth about $4.5 today, meaning that $10k turned into perhaps 9x more purchasing power. Of course that's before all the fees get involved. Even if you'd get $600k by your retirement age, it likely will be the equivalent of less than $200k today. But yeah 6% per year isn't crazy. If you manage to scrape together $50k in your fund by age 25 and work until 65, 500k is very doable, north of 600k perhaps optimistic but who knows what we can expect. Perhaps we'll see gigantic returns once we get 4 billion people on cheap mobile computing, free wifi in the sky, access to modern education, 3d printers, drone deliveries, digital money and a graphene industry haha. But historically speaking $600k is tricky! Either way, doesn't change the fact this is great advise.
- saryant 12y ago
  You're right, those numbers were simplified and don't take into account fees or taxes. As you say, the basic assumption still holds: 50k saved in the next five years will be worth significantly more 40 years from now when you retire. Whether that's 500k or 600k is immaterial to the central point: sacrificing salary early in your career means sacrificing huge financial gains over the course of your life.
beambot 12y ago
Since L_Rahman didn't mention "startup" per se.... The Equity / RSU package from many big (publicly-traded) tech firms can be as much as 30% of total compensation. I generally account for this portion the same as "cash with a discount" -- when negotiating for my current role, I used a 30% discount on the present share price. For startups... it's a mixed bag (as saryant mentions).
- L_Rahman 12y ago
  Most comments have responded assuming that it is a startup, and it was a correct assumption. But it's helpful to know that large publicly traded tech companies can offer as much as 30%. If or when I do choose to work for one, I'll keep that in mind.
- saryant 12y ago
  L_Rahman may not have used the word "startup,", but he did say "first hire" so it's reasonable to assume we're discussing a startup. Obviously the negotiation will go differently if we're talking about, say, RSUs at ExxonMobil which are as good as cash once they vest.
dcosson 12y ago
Agree this is good advice a lot of the time. But just to offer an alternative possibility, there are other things that can affect the equation too. For instance, if you end up at the right startup you might learn a lot more than you would in the same amount of time at the alternative company. If you gave up $20k over 2 years by making, say, $100 instead of $110k at the startup, but then are able to jump to a job making $200k (which would have taken you much longer to work up to at the alternative company), you're a lot better off. It still comes with some risk obviously, the startup could end up not going anywhere and you not learning much. But it's not nearly the risk of rolling the dice on equity.
- saryant 12y ago
  I agree in broad strokes, in that I did exactly that with my last company. My first full-time programming job was as hire #1 as a tech startup (I was fired last month after two years) and while I'm now consulting, the full-time offers I'm receiving amount to a 50% pay raise, partly because I was able to build up so much experience in hot areas like Akka and Docker.

by saryant 12y ago

L_Rahman 12y ago

Excellent point and I will heed your advice. I'm well aware that: a. Startup equity is a lottery b. As an early employee and the accompanying biases, I'm especially ill equipped to judge it's value. With that in mind, I'm negotiating salary first. Equity with a vesting schedule is something I would treat purely as an incentive for continuing to stay with the company and not as a replacement for salary.

thruflo 12y ago
This sounds very sensible. I would note though that equity % points are much easier to negotiate early on. If you have an opportunity to secure options at a low valuation now, even with a great big cliff / vesting term, take them in case the company is a success and use the cliff / vesting to persuade the current owners that it's a win win.

yitchelle 12y ago

> That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity. This is excellent advice. Cold hard cash is much, much better than a bet of the startup you are working for will take off.

IkmoIkmo 12y ago

Great insights, can definitely recommend not taking big equity gambles in your earlier years. Although perhaps north of $600k is a bit too optimistic, you'd need a solid 6.4% inflation & fee free ROI on that. In any case it's important to look at it in 'today's dollars'. For example, the S&P 500 did 20x in the past 40 years (roughly the length of a solid full-time professional career), so $10k could have turned into $400k if following that index. But in the 80s inflation went up to 15% causing devaluation, that 1975 dollar is worth about $4.5 today, meaning that $10k turned into perhaps 9x more purchasing power. Of course that's before all the fees get involved. Even if you'd get $600k by your retirement age, it likely will be the equivalent of less than $200k today. But yeah 6% per year isn't crazy. If you manage to scrape together $50k in your fund by age 25 and work until 65, 500k is very doable, north of 600k perhaps optimistic but who knows what we can expect. Perhaps we'll see gigantic returns once we get 4 billion people on cheap mobile computing, free wifi in the sky, access to modern education, 3d printers, drone deliveries, digital money and a graphene industry haha. But historically speaking $600k is tricky! Either way, doesn't change the fact this is great advise.

saryant 12y ago
You're right, those numbers were simplified and don't take into account fees or taxes. As you say, the basic assumption still holds: 50k saved in the next five years will be worth significantly more 40 years from now when you retire. Whether that's 500k or 600k is immaterial to the central point: sacrificing salary early in your career means sacrificing huge financial gains over the course of your life.

beambot 12y ago

Since L_Rahman didn't mention "startup" per se.... The Equity / RSU package from many big (publicly-traded) tech firms can be as much as 30% of total compensation. I generally account for this portion the same as "cash with a discount" -- when negotiating for my current role, I used a 30% discount on the present share price. For startups... it's a mixed bag (as saryant mentions).

L_Rahman 12y ago
Most comments have responded assuming that it is a startup, and it was a correct assumption. But it's helpful to know that large publicly traded tech companies can offer as much as 30%. If or when I do choose to work for one, I'll keep that in mind.
saryant 12y ago
L_Rahman may not have used the word "startup,", but he did say "first hire" so it's reasonable to assume we're discussing a startup. Obviously the negotiation will go differently if we're talking about, say, RSUs at ExxonMobil which are as good as cash once they vest.

dcosson 12y ago

Agree this is good advice a lot of the time. But just to offer an alternative possibility, there are other things that can affect the equation too. For instance, if you end up at the right startup you might learn a lot more than you would in the same amount of time at the alternative company. If you gave up $20k over 2 years by making, say, $100 instead of $110k at the startup, but then are able to jump to a job making $200k (which would have taken you much longer to work up to at the alternative company), you're a lot better off. It still comes with some risk obviously, the startup could end up not going anywhere and you not learning much. But it's not nearly the risk of rolling the dice on equity.

saryant 12y ago
I agree in broad strokes, in that I did exactly that with my last company. My first full-time programming job was as hire #1 as a tech startup (I was fired last month after two years) and while I'm now consulting, the full-time offers I'm receiving amount to a 50% pay raise, partly because I was able to build up so much experience in hot areas like Akka and Docker.