Secondary at Series A is very rare. Part of the reason more early employees don't get included in secondary sales is because of the Securities Exchange Act of 1934 14e-2. If you have more than 10 sellers involved, the transaction can be considered a tender offer, which triggers additional regulatory requirements and disclosures.
> As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR in two years) to become a founder and that is when it clicked - I expected to feel stressed, pressured, and the weight of all of the risk I was taking.
Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!
The bigger secret is that stock sold in secondary sales by founders and employees is usually common stock, and the purchasers will often get the right to convert this to preferred stock. This means that the company is instantly encumbered with a greater liquidation preference, without the increase in balance sheet to offset it.
How is that legal and not considered self-dealing and unjust enrichment? If I was a minority common stock owner in a business I assume I would have standing to sue for damages if a majority owner or officer made my position materially worse while enriching themselves in such a manner? Are you sure such a right is typically granted? I mean even the gap between 409A valuations and preferred valuations, as well as a huge amount of precedent, give a different material value to preferred and common stock. Giving that right out of thin air in a sale by an insider is effectively theft from common holders and I have trouble believing what you’re saying as I’m not sure how that could be kosher, if perhaps infrequently litigated. But is it really standard like you make it sound? That would be a very dirty secret and I expect would and should lead to litigation.
Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away.
Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really want. You might have foregone your shot at a partner to build a company to mostly profit someone else who did nothing but write you a check. If you do have kids, you'll be old as hell raising them. All you'll have is extra stuff hardly anyone cares about - except maybe you - if you're the type of person chasing down a decimillion net worth.
I hope these people truly enjoy their boats and their third homes in Aspen! It sure is a lot of work to get them.
You’re obviously overstating the FAANG SWE lifestyle.
But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.
The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.
As an aside, when people think SWEs don’t need unions/ professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.
Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.
>while your peers are all making ~$1M per year working 6 hour days at FAANG
I highly doubt ALL your peers are making that much. And I think the people making $1M per year at FAANG tend to work much more than 6 hour days. You have to be very productive to get $1M per year.
You are completely detached from the real world. Even in super rich countries like the US there are a lot of people without savings, living paycheck to paycheck. Most/all software engineers outside the US can only dream of ever earning that much money. And yet here you are, worrying that you'll end up only slightly richer than people earning ~$1M per year.
Yeah I feel like successful founders natural ambition and optimism is sort of weaponized against them by the VC industry here. From a VC perspective it's worth playing the odds for moonshots. As a founder though, if you can create a $100M company that you own 30% of, you can probably create a $20M company you own 70% of with a much more realistic and sustainable growth targets.
I can't help but feel this would be better for the founders, the employees and the customers of the company. It just doesn't make as much sense for the investors.
"mostly profit someone else who did nothing but write you a check"
There is quite a bit of work involved in reaching the point where you write a check for a Series A round. Also, the better VCs spend significant time with their portfolio companies.
Yes but that's still better than early employees who share a lot of the stress and responsibility of company building, with at best 10% of the upside, but more likely around 0.1% - 1% of the upside that the founder has.
Sir if you live in USA and do not take a dip into the VC money swimming pool, you are stupid, because crazy people with stupid ideas routinely get to $100 Million valuations, like no other place on earth.
Its like going to Disney Land and saying "Oh i'll just sit at the coffee shop". Some people are here for the ride. Some people like the 9 to 5. Like you, obviously. Why dont you go start corporate-drone-news.org, this board is for hackers and founders.
> Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!
Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs.
If you start a real business you can expect to take on debt, and you'll be personally guaranteeing it because nobody cares about equity in your boutique ice cream parlour. Plus a 5-year lease (which you will also personally guarantee).
The most common endgame for a startup is slowly running into the ground until the money runs out and you eventually shut the doors. Failing your way into a happy acquisition isn’t really something to expect as a contingency, I don’t think.
Sure, if you magic up a startup with VC funds you suddenly have it easier than a small, bootstrapped business.
Startups almost never start with a round of VC though. There are almost always months or years of the same experience as a bootstrapped business (ie: extreme uncertainty, no money to pay yourself, etc).
Most startups don't manage to raise VC, and most startups that raise VC fail with no acquihire.
Running with VC funds? Oh god, that would be cakewalk compared to even just figuring out how to ensure there's food if you spend money on some necessities for prototype...
> Honestly VC-funded startups seem like a cake walk compared to actually starting a small business.
Make this about any brick/mortar businesses and the stresses multiply by another factor. If they're in a federally regulated biz (compliance) or an insurance dominated state (rates, inspections), then multiply again.
I don't know why you are trying to make this a me vs them situation. Both situations are difficult in different ways and they are all real businesses.
"Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque." - Sounds like you are trolling or alternatively incredibly naive.
"If you start a real business you can expect to take on debt". ... Real business? Come on.
No one in this thread is saying starting a business is easy - ice cream business is debt funded because you have a very definitive range of outcomes. Venture funding is completely different animal - failing to see that limits the value of your comment significantly.
I often hear about these SEC rules that explain why individual contributors get fucked, as if that's a good excuse. Either the requirements and disclosures should be fulfilled and more than 10 sellers allowed, or the rules should change, or both.
I didn’t comment on whether it was a good reason or not. My comment was just highlighting some of the complexities in what the blog author was hoping to achieve.
Correct me if I’m wrong, but my perception of most startups at series A is that they’re not usually more than ten-ish employees, and even then, you’d expect more balanced comp packages for employee number 11+, no?
Where would the stress come from? You get a paycheck and there is no personal downside except opportunity cost (and perhaps reputation). You don’t lose any money if your startup fails.
I tend to have large stress in startups, more than in established companies. I won't get into some of the occasional toxic-element sources that can happen anywhere, but some reasons that happen more in startups:
1. Caring about the mission -- the real-world positive impact -- and potentially able to make or break that. Not just taking a shot at making money, for some opportunity cost that I could evaluate quantitatively on a napkin, and walk away from as soon as an option with a higher expected dollars number came along.
2. Livelihoods and investments of time&effort by colleagues hinge to a large degree on decisions I make, ideas I have, and things I have to pull off, and not wanting to let them down. (A bit similar with money investors, but I care more about personal connections, and involvements where it's not just someone buying lots of lottery tickets.)
3. Low "paychecks" for my HCOLA, at that startup and earlier, so personally needing a big win financial exit, and the startup is what I decided to invest my time&energy into. If that fails, it's starting over, and a lot of wading through various startup ickiness to get another good opportunity (or doing FAANG interview BS, and then their promotion-chasing BS).
Hiring, firing, layoffs, making the wrong decisions with limited information and not finding out they were wrong until years later, huge shifts in the tech market around you undermining your business, competitor actions wrecking your business, pressure from investors, pressure from your family to earn more money, uncertainty about whether the business will ever succeed, and an endless list of other things.
> You don’t lose any money if your startup fails.
Except all the money you lost by not having a proper job along the way. Also it’s not uncommon for founders to float the company at early stage until investment is raised, and they don’t always get a refund for this.
Starting a company myself, I took 6 months with no salary. After we raised, my salary was massively cut from where it was (30-40% of what I made the year prior). Then you have the fact I gave up guaranteed raises & promotions (to the tune of hundreds of thousands in RSUs).
There’s a pretty large risk to family security. By year two of the startup I have made 15-20% the cash I could have made elsewhere. I have stock that I trust will be worth more in the future (so imo worth it). However, I can see liquidity events being useful if you’re tight on cash after that run
A lot of people (esp people that performed extremely well in school and in corporate environment) find "failing" and "losing reputation" very stressful.
I mean if you don't care about the company mission (if it's mission based), you don't compare about your employees, your word, you don't care about your time or care that you sold people that you were going to take their money to build something... then yes there might be no "personal" downside.
Though if you don't care about anything in the first place what are you doing trying to build a company?
The best startups have a concept which is summed up thusly:
“We all go to the pay window at the same time.”
It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird.
I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all ride, and sometimes that works out, but for most people, having a little bit of financial security while you’re trying to change the world is necessary.
The best startups figure out how to manage liquidity through financing in a way that aligns incentives, keeps the goalposts at the mission, while allowing their teams to thrive.
It’s about alignment. If everyone is pulling in the same direction you’re going to execute the vision. Whether you win in the startup lottery is up to the threads of fate, but alignment is the straightest path towards a result.
I have seen a lot of companies, a lot of rounds. I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees). I love the idea of your universe, though.
All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.
I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.
I more recently interviewed with a pre-series A company and they said that they'd include me in a liquidity event when I brought up compensation.
This assumes that the founders are aware of, or offered, the option. If anything this is an argument for why founders should be represented by a banker or lawyer at the closing of every investment round. Let the founders do the negotiating, but once it comes time to sign the papers, bring in the sharks.
A: I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out.
B: I have known zero founders who have turned down an option to take money off the table [...] I love the idea of your universe, though.
Fortunately, our universe is massive with varied different views. Even OP implied that they have experienced both sides firsthand.
> I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees).
Have seen companies offer this to employee's
And companies that let employee's take money off the table at series A are also likely to be generous with meaningless titles; that is they will let early employee's call themselves founders.
VCs will go along with or sometimes even encourage founders to take a little bit out, but employees rarely don’t have the same level of bargaining power.
I’m sorry, I think the era of “change the world” motivation in tech was eclipsed by “make 42 tons of money” about a decade ago.
Along that line, I would be very surprised that there are founders who don’t seek an opportunity to set aside their nest egg to “de-risk”.
You say you have seen such guileless dedication to the founding first hand, can you share what industry or type of company? Perhaps I’m just exposed to the wrong crowd.
It's not in the interest of the VC that the founders have financial security. Well at least the type of VC's that have come up in since the dot com boom where it was not about building viable businesses but getting sold to the highest bidder when the founder is under financial pressure to sell they can strong arm him into easily compared to a founder that is financially secure and interested in building and running a business
It’s not binary. Enough financial security that they don’t care what their investors think, no. Enough that they’re thinking of how to grow the company rather than how they’re going to pay their mortgage, yes.
> It's not in the interest of the VC that the founders have financial security.
It's also not in the interest of the VC that the founders are worried about making their rent or mortgage payments, or paying off the credit cards they maxed out paying their AWS bills in the early stages of their company.
The VCs want their founders to be hungry for more, and see their company's growth as a vehicle for that. But they don't want founders to be stressing over basic human needs, either.
Any VC that would refuse to let you take some liquidity in these situations is not a VC you want to make a deal with. And if you can only find VCs like that, your company is probably doing poorly enough that you might want to rethink what you're doing.
Assymetry makes a certain amount of sense. Employees don’t take $0 for a long time and generally aren’t having as large a pay cut as founders afterwards. Most of the founders I’ve worked with have had the seniority to justify the top salary in the company and have typically had pay at or near the bottom. Someone operating at that extreme getting to trade equity doesn’t necessarily mean that everyone should get to.
Asymmetry is common in startups, though. Consider one of the complaints from the article, and discussed here: founders get to keep several tens of percent ownership of their companies (at least initially), while early employees get a small fraction of a percent. Founders are generally not taking two orders of magnitude more risk, or doing two orders of magnitude more work.
I think giving founders liquidity but not employees is maybe ok for series A: the founders may have been working for $0 for a couple years at that point, and may have taken out a second mortgage or ran up a bunch of credit card debt to keep things going. An early employee is not going to do any of that once they join, even if they're getting paid a below market rate salary. That is definitely an asymmetry! Getting some liquidity at the series A allows the founders to pay down debt and replenish their savings, financial issues that are probably directly related to their time working on their company.
But after the series A, founders should be able to pay themselves a livable salary. The founders and employees should be on much more equal (or at least comparable) footing when it comes to their regular income. By the time the series B comes along, if the founders are going to get some (more) liquidity, the employees should get some too. That only seems fair.
>>It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird.
Yeah, if the founders don't do this I wouldn't want to work for them (not that I'm the target demographic anyway).
That's not quite how it works. Certain people are required (or strongly encouraged) to sell on a 10b5-1 plan. These plans can trade outside of open trading windows, but they have a meaningful cooldown period before they go into effect and can only be entered into during open trading windows. So it's not necessarily "better."
That’s really about not falling foul of insider trading laws. Regular employees are free to set up limit orders within their trading windows (eg sell if stock hits $200) if they want. Can’t subsequently cancel it though! It makes way more sense to just sell on the day of vesting and then trade shares that you’re not restricted from trading. No tax or other reason not to do this.
(1) The opportunity cost to the founder of taking early liquidity:
If a founder cashes out 10% of their position for $500k @ $25M Series A valuation, that de-risks a lot of their personal life. But when the startup ends up selling for $250M, that $500k of 'early' selling would have been worth $5M (less any dilution between rounds) - hard not to regret the choice in that case even if hedging is going to be the correct choice 99% of the time.
(2) Meaningful vs. not-meaningful amounts:
From my prev example, the founder sells 10% of their position for $500k. Well, if all employees were allowed to sell up to 10% of their positions too, would that even matter to them? If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k. Not really enough to de-risk your life although still might be welcome (and employees would appreciate having the choice).
(3) Sellers need buyers:
In order for there to be a seller of shares, there needs to be a buyer. The founder is effectively choosing his buyer and future business partner by taking investment and choosing to give that buyer more control over the corp by selling him even more shares (his personal shares). The buyer wants to make the founder happy and de-risk their downside so they can be more aggressive or big-picture or whatever, plus is happy to own more of the company assuming it's a hot round.
But what does the buyer want to achieve by purchasing the employees shares? Just to own a little bit more % of the corp? For amounts that might not even matter for the employees and may de-incentivize them?
It's all very complicated and perhaps there are nuances that make every situation unique.
> If a founder cashes out 10% of their position for $500k @ $25M Series A valuation, that de-risks a lot of their personal life. But when the startup ends up selling for $250M, that $500k of 'early' selling would have been worth $5M (less any dilution between rounds) - hard not to regret the choice in that case even if hedging is going to be the correct choice 99% of the time.
IMHO, it's very easynot to regret, with those particular numbers.
I'd take $500K now plus possibly $45M later -- over $0 now and possibly $50M later.
I'd take that deal even if "possibly" were "guaranteed".
(Who might regret that is a founder who was otherwise already wealthy.)
Exactly. About 15 years ago I was offering equity in a good little startup. I didn't take it because I just wanted to go somewhere with a higher salary.
When they finally sold about a decade later I ran the numbers and determined it would have been about $40,000 based on the actual sale price.
Exactly. As a former founder who dealt with hospitalization and thousands of dollars a year in medical bills on the sh!t insurance startups can afford, I too would rather have 500K now than 50M later. There's also a good chance I could turn 500K into 5M-20M in 10 years with reasonably low risk investments.
Plus, setting 100K aside for medical bills and even throwing the 400K into Bitcoin is a far less risky investment than me NOT being in a FAANG and accumulating 401K money which is absolutely critical if you want to keep up with the rising cost of life through retirement. When everyone else who joined Google or Meta out of college and now has a 10 million net worth at 40, that defines the cost of living in the area, and that's the bar you have to keep up with if you want to still live here at 40, 50, 60. Chipotle will cost $50 in a few years. A 1 bedroom apartment will cost $5000 in a few years. UberEats was $15 when it started, already costs $50 for lunch in my area, and at this rate, it will be $200 in a few years. Because those people can afford it, so greedy owners and greedy landlords will up their prices, so I will have to pay not just my $5000 rent, but also the Chipotle worker's rent, and the Chipotle franchise's rent, in order for their prices to stay profitable. The cost of living in the bay has tracked the S&P500, not the CPI. YOU will be priced out if you didn't have liquidity at a younger age to throw into some investments.
I'm at a large company right now. Being compensated enough to be able to afford life in the bay area now, having enough income to afford a mold-free modern apartment in a place where I don't need to worry about getting mugged, and hedge the risks of all the crap that's going on in the world was a big part of my reason to join one. If I had enough saved to "feel safe", I would absolutely be doing a startup again.
Just to clarify about taking the $500K rather than even guaranteed additional $5M ($50M vs. $45M) years later...
$500K is an immediate big quality of life boost for most people.
For example: a condo/house downpayment, which lets you move out of cruddy ramen apartment, to routinely get a good night's sleep. And/or that relieves some of the various other startup salary level money stresses on your family.
I think this can also be aligned with the goals of the startup. You don't want people so "hungry" that the stress is hurting their health and their home lives. You want them motivated by the mission, the work, the environment, and the possible big liquidity windfall in the future -- but not by desperation.
Not to mention that in reality there is no guarantee you'd end up selling for $250m. $500k now would look pretty damm good if the whole thing tanks and the other 90% of your shares become worthless.
Yep; for the vast majority of people, the difference between $45M and $50M is not going to change their lives in any meaningful way. With that amount, you can live a fairly lavish lifestyle and still see the number in your brokerage account go up every year.
I actually kinda think a founder that was otherwise already wealthy wouldn't mind this too much, either: say they already have $50M in the bank; the difference between $95M and $100M feels even less of a big deal than $45M and $50M. Granted, the founder with $50M already in the bank probably wouldn't bother with the $500k in the first place, though, especially if they believed in the likelihood (or guarantee, in your hypothetical) of a future larger exit.
When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.
Regret is perhaps too strong of a word. But $5M is $5M even if you have $45M. Sure, it won't change your life since you have the $45M, but the incremental investing / philanthropy / estate / family help etc that it allows you is real in absolute terms.
The other thing I've noticed is that for people on the other side of this transaction, it's not like "smaller numbers" all of a sudden become immaterial. $1M is still $1M. $5M is still $5M.
Again, I'm with you, I don't think it's regret exactly. But post hoc you might choose differently, even if it's the rationale choice at the time.
If you can't handle "regret" in these cases, then you probably shouldn't be in a position where you're deriving the vast majority of your income/weatlh from investments (which is fundamentally what a CEO does).
It's astounding how many ICs can't wrap their heads around the concept that holding onto your RSUs make absolutely no financial sense. With rare exceptions, this doesn't make sense for anyone. And yet, fear for "regret" keeps people holding.
But it's not shocking that even in tech many ICs are not good at reasoning financially. But if you want to be a co-founder, and hold a lot of your wealth in investments it's essentially that you learn to reason, plan and accept outcomes accordingly. Otherwise you're more-or-less a professional gambler.
I’m going to rebound on that and explain why it doesn’t make sense to hold on to RSUs.
Disclaimer: I’m an IC myself.
I worked for my 1st company for 15 years. Held to their RSUs most of the time. Then moved to another (public) company and stayed there for a year before leaving. Now in a startup with a lower salary and no immediate liquidity on my stock options.
When you work at a public company, you have multiple exposures to the company’s growth: the RSUs that have already vested, the RSUs that haven’t vested yet and through your own career growth and salary increase that goes with a successful company. If you were early enough, you also get market cred for having made the company successful. If the companies goes under (or shrinks, or lays people off), all those assets are at risk.
Usually, one has more in granted stocks than in vested stocks. If your company just went public, you might have a lote more sellable than in your pipeline, but even that is unusual. Usually, you’ll still have more in the pipeline than you’ve already vested.
If your company has been public for a while, you should get frequent refreshes, which means you still have a significant numbers of unvested shares.
Regardless, you should sell as soon as you can, because of the remaining exposure through unvested equity. Use the proceeds to place in an ETF, or in a high-yield savings account, or some more aggressive investment strategy. Or use it for the downpayment on your house, or fund your kid’s college funds, whatever floats your boat.
Anyways, keep in mind that you still have a significant exposure to the growth of the company through your unvested equities. If you’re worried about short-term cap gain, don’t be. If you sell immediately, there’s no growth between cost basis and selling price, so no cap gain. Another upside to selling is that you’re not bound by the blackout periods, so your assets are much more liquid. And remember you still have exposure
I believe in diversification and index funds for most people, but this seems overdone.
The issue here is that sometimes if you procrastinate about diversifying, it pays off very well. As a Google employee (who joined after IPO), it was by far my best investment and funded my retirement.
I guess that's accidental gambling. I did have other investments.
I'll agree that it's not super common that holding onto RSUs makes sense, but I think it's more common than "rare exceptions".
Ultimately it's an investing decision. If you believe the stock price is going up at a rate faster than the rest of the market, and are willing to accept the risk that a concentrated position like that entails, then that can make financial sense.
For people who want to hold their RSUs but still want to diversify to some extent, my usual recommendation is to pick some percent of the shares that vest every quarter to sell immediately, and hold the rest. And -- critically -- to stick with that commitment every single quarter, and not fall into the trap of thinking "oh, the stock seems to be doing so well, I'll skip the sale this quarter". (Of course, a measured re-evaluation of the plan is a reasonable and good thing to do every so often.)
I think the most interesting part of the discussion is that the early employees almost always get the worst end of the deal:
Going in they have a lower salary than if they work for a more established company.
Then, either their shares end up being worthless, or at the final exit, they make less money than if they worked for a more established company the entire time. IE: Being an early employee in a startup is a lose-lose situation.
This is something founders need to understand when recruit their early employees: These are often the most critical hires for the business, and therefore it needs a high probability of upside.
IMO: A series of retention bonuses, and/or guaranteed bonuses at acquisition / funding events is a good solution. It's how I've sidestepped the equity issue when I was employed during an exit event.
I'm curious why you think these employees -- who are getting the worst end of the deal -- are working for startups in the first place?
Either they have the skills to be a founder themselves or to work at BigTech... or they are financially ignorant/disinterested enough to not understand how equity in corporations work? Or is the charming and misleading founder who is to blame?
My point is that considering the high avg intelligence of the typical startup employee, there must be something else going on.
Clearly, people like working at smaller companies that have potential to grow - maybe that's because there's more interesting work, less bureaucracy, smaller teams, more of a sense of a journey, etc. Easy to devalue these things, but what else explains the fact that even when there's more risk and likely poorer financial outcomes these otherwise very intelligent people still choose to work at these companies?
I find that it sometimes easier to accept this as this is just how life is when I read people with experience write about this. If this is true for you as well:
> Whether or not you make money, you have regrets! If you profited, you could have made more. If you lost money, you shouldn’t have made the trade at all. Like death and taxes, you can’t avoid adverse selection.
The simplest strategy is to buy index funds and hold. I never look at the price of any stock every day. I don't plan to sell any index funds either until I retire.
None of this is very good justification for founders being the only employee that have the option to sell part of their stake.
> If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k.
It obviously depends on your financial situation, but having the option vs not will certainly matter to some employees. Not to mention that the stake could well be worth $0 in the future.
I don't think it needs any justification, really. The investor decides, whom to sell to and how much. If the founder doesn't want to organize a sale for employees, then he doesn't do that. He would probably have to pitch it and include it in to an already complicated funding round.
I totally understand why a typical founder doesn't want to do that. If for you as an employee it is a deal breaker, then you can complain about it, change company or whatever. It is not like the founder owes anything to the employees (unless he has promised that). Everyone in the equation are adults and have to decide themselves, if the position they are in makes sense for them with the terms they have.
Also bake in the fact in your calculations that 9/10 startups will not see the kind of success you are talking about. And the authors point still stands.. the founder made some money at liquidity event at round A vs … making even more money later if he doesnt sell?
The strongly diminishing marginal utility of money after $10M for most people makes that first $500k much more impactful than $5M would be after you have $45M.
> If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k. Not really enough to de-risk your life although still might be welcome (and employees would appreciate having the choice).
$20k would be a life changing amount of money for me right now
Regarding your point (1), there's more to it than just the dollar amounts now and later. If we believe the over-leveraged founder story where that founder has mortgaged their home and maxed out their credit cards, being able to sell that equity at series A for $500k could mean the founder is able to pay those debts, and doesn't end up losing their home and being hounded by creditors. (Even if it doesn't get that bad, having that debt over your head is stressful, and running a small startup is already stressful enough.)
If we also believe that founders are important to a company's success as it grows from a small startup into something more mature, I'm pretty sure that unfortunate financial (and housing) situation would drastically reduce the chances that the company would make it to that $250M exit later.
So taking that $500k may increase the chances that the startup later gets sold for $250M, rather than, say, $50M... or just failing entirely, returning whatever small amount of money is left to investors.
Another consideration is that employees are much less conscious of the real value of their stock than founders, and you don’t want to make the (lack of) value of their shares too obvious in the early stages.
If you tell them the value of their stock is $200k, and 90% of that is imaginary, then they might start thinking about that job offer with a 500k stock grant at a listed company.
This is basically arguing "It's good to deceive your early employees about the value of their compensation"
This is morally repugnant to me, and I hope you're not an executive at a company. If you are, I would not work for you.
Great points... as to #3, investors are often happy to be buyers. They are buying shares anyways that would otherwise have to be created. Allowing founders and employees to sell shares lowers dilution vs. creation of new shares... usually this is not a large effect, but still not bad for current & future investors.
I mean it effectively means that the amount of cash going into the business is less than it otherwise would have been. The company wanted $5M of cash. With the owner selling $500k worth of shares it means they had to find $5.5M to be invested.
The only reason it happens is that the founder is negotiating both on behalf of the business and a bit for themselves.
to put it bluntly asf, you're being poor (and I'm being insensitive). what's $500k going to do for you if you come from a rich family? you already have your rent paid for until you die, and vacations paid for. all you have to do to do is put up with your annoying family, which isn't the worst if you've been through therapy. your mom or dad's abusive? if you've been through enough family therapy, that's not a problem.
if you ask you mom or dad, whichever believes in you, they have enough money to fund your dreams (if you care enough to ask) of joining or starting a startup to become an (x) CEO/salesman/builder/marketer/whatever for whatever you want to build, and that includes signing onto some startup that won't pay you a living wage until it fail-exists for $5 million and everyone goes to burning man/Berlin/ibiza on the founders dime (including rent for everyone N months).
Yes, if $500k doesn't move the needle on your life then the question is moot anyways. Most first-time founders will be closer to the poor end of the spectrum than the wealthy side.
There are people reading this for which $20k will change their life (which in my example was the 'shouldn't matter' amount instead of the $500k).
Many companies don’t get to Series A and very few companies get to Series B. Even if they do get to Series A or B, they won’t be able to raise the amounts you see in the news and have heavy dilution.
Very few founders have double digits percent ownership by Series B and Series C.
Liquidity of $400k or more is a lot and isn’t available for many founders.
All of this after 7 to 10 years of working 80+ hours week, no social life, loosing family, sacrificing health, taking less than $100k/year salary, constant worry of failure, dealing with ups and downs of employees, being a support system of everyone in the company while not being one for their own families, and no guarantee of success. All of this for seeing their dream come true because failure would be worse.
I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.
Also 20% option pool and exercising options up to 10 years are not uncommon.
> All of this after 7 to 10 years of working 80+ hours week, no social life, loosing family, sacrificing health, taking less than $100k/year salary
If you are taking less than $100k/year salary for 7 to 10 years while also absolutely no-lifing then that’s on you.
It’s true that early on you prob take ramen salary, but that’s for one or two years. You can prob scale to 200k by year 3 if your thing is viable. No-lifing when your startup is in year 5 is just a personal choice. If by year 5 you aren’t on a path of unicorn then prob it’s time to evaluate if it’s worth so much sacrifice or if you should run it as a lifestyle business (or just go do something else).
> I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.
Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.
> Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.
Have you been a founder? If not, I'm not sure you fully realize what goes into the job. Everyone wants to be a founder, but nobody wants to _be_ a founder.
I often think about how if more people understood the median cap table life cycle from Seed to Acquisition/Shut-down/IPO, there'd be half as many VC-funded companies and twice as many bootstrapped companies every year. Thank you for sharing your experience towards that goal.
Unless you're doing some niche b2b thing where you have no personal connections (in which case, why are you doing it at all?), the differential financial returns of going with VC are often negative, if not neutral. The main diff is you can "fail up" into the investor class if you prove your worth but the business goes sideways. But even that is a dissatisfying career for most founder-type people.
To whoever needs to read this: start your own company, avoid raising money.
I think a part of the problem is that if you've chosen a market where VCs do want to invest, and you decide not to take their money, someone else is going to take it, build and grow faster than you, and out-compete you into the ground.
Sure, maybe their longer-term trajectory is unsustainable growth and disappointing surprises for founders and employees, but by that point your bootstrapped company has already shut down.
But, by all means, find a market where there's scant VC money to be found, and you can probably bootstrap for quite some time without funding. And maybe you will eventually decide to take on funding, but instead of giving 60% of your company away to get it, you only have to give away 30%. Or you decide that giving away 60% is fine, in return for 10x as much investment as you might otherwise get at an earlier stage.
I know a non-zero number of people who have gone that route, and it's worked for them. If I were to start a company, I'd aim for this model myself. But I would have to be very careful choosing my product and market.
After the Series B for my last company the three founders owned something like 45% of the outstanding shares, and when they sold took out something like 40% of the price. What were the rounds like that led to less than 10% after 3ish rounds?
> exercising options up to 10 years are not uncommon
10 year expiration is the standard, yes, but only if you stay with the company. Most still kill your options 90 days after you quit or are laid off or fired. There's been a small but noticeable trend of companies not pulling this garbage, including the article author.
> I think the OP should work on his company for more than 4 months and have more than 10 employees
Yeah, I thought it was funny that the author seemed to be speaking so authoritatively after so little experience as a founder. I've never been a founder myself, but I would put much more weight behind the words of founders who have been doing it for years and decades.
Look, I've worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn't going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively.
My first startup I walked with a paltry sum and the owners suddenly went from being doctors with a side hustle to private investors. That was my first warning sign and really drove home the need to invest in myself because it certainly wasn't going to be someone else doing it, despite the talk of changing the world. It was really, really obvious that the payouts were stacked in one direction and it certainly wasn't on the side of employees, early or not. I still enjoy working for small companies, but the hype and bullshit are really tiring and so very cultish. I'd really suggest treating the startup life like a scratch lottery ticket, because that is all it is. If you win, you're gonna get paid but it won't be life altering money, just like a scratch lottery ticket. Plan around it being worth zero and go in eyes wide open.
I've joined two startups now as the 2nd and 4th engineer. I went into both expecting nothing from options or shares, and knowingly accepted a lower than market salary because I liked the teams and projects.
I couldn't be happier. Neither panned out for me with regards to stocks, and I definitely didn't get rich in the process, but I very much enjoyed the jobs and when I decided to leave it was only because the business direction wasn't a fit for what I wanted to spend my time on.
It sure sounds like a privledged position, but it more came down to us living cheaply compared to our income and having the breathing room to trade a higher salary for work that I really enjoyed. I hope more people can make that tradeoff, it's much more fulfilling in my opinion
I've seen it repeated multiple times, and in the past have even repeated it myself. But these days I'm not so sure. I think you should go into it being ok with the possibility that it'll be worth zero, but I don't think you should plan for it to be worth zero. Put another way, I don't think you should evaluate competing startup offers completely discounting the equity comp. A company that offers $200k and 0.05% of itself is not automatically worse than a company that offers $250k and 0.01% of itself. Hell, that's still true even if they're both offering the same equity ownership percent.
> the owners suddenly went from being doctors with a side hustle to private investors.
Did the owners sell the company or get some sort of payout? I'd imagine if they were making decent money they'd have kept the business alive, right? Would you be okay sharing the name of the place?
I think that was the entire point the GP was trying to make. The founders were doctors that decided to start a side hustle, and then one day, boom, they got a huge payout and suddenly stopped "working" and became private investors. (And meanwhile, their employees didn't get all that much out of that "boom".)
I've worked for six companies, won the lottery once, and it was life-changing. I'm not bringing this up to brag or to suggest that it's common, but to point out that it is possible.
And frankly I think as time goes on it has become and will become more possible for more people. In part because of people like you who bring up all-too-common stories of how their founders got big payouts, but their employees only saw breadcrumbs. As more and more employees become educated on this stuff, the more pressure it puts on companies to offer better deals to their employees. We have a loooong way to go before my experience is common -- if we do ever get there -- but I do think it's possible that we could get there.
In my 20s I joined a couple startups as "early engineer" or "founding engineer".
I quickly realized those are the absolute worst positions to be in. You take almost as much risk as the founders but almost none of the upside. One startup died, the other one sold for 100m$. Out of that I saw 400k$ as an exit. Not too bad but even with that exit I ended up making way less than if I joined a FAANG. In both cases the founders made millions (through the exit or through liquidity)
Now I'm a realist. Either you create/found a startup or it's not worth joining one as an employee. You have way more upside at a FAANG/pre-IPO mid-life startup that already found a great product market fit.
Essentially, founders are pushing a crazy narrative of Startups being worth it to early employees because they need them. It was sometimes fun but I wish I just joined a FAANG like most of my friends, I would have a couple millions by now if I did.
I second this. I took a large salary cut to be 1/2 of an engineering team at a seed stage startup for ~1.25%. After 2 years of pretty grueling work I left to go back to big tech for 3x the pay. I wouldn't call it a total waste of time in the sense that it made me a better engineer, but it certainly wasn't worth it financially. The company still exists and has had a relatively successful series A and "A extension" but I don't think my equity will ever be worth anything.
I really wouldn't recommend anyone work as an engineer at an early stage startup unless you're getting ~5% or more (this would be unprecedented) because the risk is barely less than the founders and the pay is generally terrible. Series B or later (growth stage) may be a sweet spot where the salaries are decent and there is still significant equity upside without the insane hours.
Founding engineers are so underpaid relative to founders. I’ve seen it be founding CTO with 40% and founding engineer with 1%. It’s ridiculous and we should not accept it as the standard.
A few good early hires can be just as valuable as good founders.
Is it? If founders were getting only 10% of ownership which would be further diluted in following funding rounds, how many of them would take the risk of starting a company? On the other hand, if early employees were not getting any equity, how many of them would apply anyway because they need the job / or want to gain experience and build their network with limited risk? (not saying that they should not be getting equity). If 1% seems unfair, they can start their own company, then they would quickly find out that the difficulty / risk / stress / responsibility is an order of magnitude larger and equity reflects that.
> Either you create/found a startup or it's not worth joining one as an employee. You have way more upside at a FAANG/pre-IPO mid-life startup that already found a great product market fit.
I'm glad you mention the pre-IPO mid-life startup and not solely trot out the usual "work for a FAANG instead and make $600k/yr out the gate" nonsense. There are quite a few pre-IPO mid-life (or even vaguely-but-not-super-early) startups out there that are doing well, growing more or less sustainably, will pay you a market-rate (or even above) base salary, and give you a solid equity package that has a much higher likelihood of being worth something than those early-stage startup options have. You might not make $600k/yr at a FAANG, but most people at a FAANG aren't making that, and many smart, talented people won't pass a FAANG interview anyway.
I worked at a preseed company recently. Here's my experience:
- Work 9 to 7 everyday. 6 days a week.
- People are working 9 am - 5 am in crunch time. Then joining again at 10 am.
- Monetary Comp is exactly market average.
- Equity Comp is even more paltry since founders raised at a huge valuation.
- Founders make unrealistic promises. Eg: It took a competitor with 7 people, 3 months to make a product. The founder told us Saturday that he wanted it built by Monday (with 3 total devs).
- Founders message you 24 x 7. If you don't reply, there's a "serious discussion" to be had next time.
- Non Accomodating of anything because "It's a startup".
I left the place after 10 weeks. I saw 3 people leaving the 6 person company in these 10 weeks. The ones who stayed were under heavy financial stress or had drank the kool aid.
it's important to figure out where to set your own boundaries. people out to exploit you will seek to see how far they can push. congratulations for leaving.
one thing that catches out some junior folks is that they may believe this kind of behaviour from bosses is normal and unavoidable as they have only worked for exploitative bosses at places with toxic cultures. you can do better, you're worth it. get out. find a more mature company with professional managers, where it's normal to leave the office on time and turn off all your work comms and leave all work-related messages unanswered until you're back in the office and getting paid to think about work again.
People don't like to say "no" or "can't do it in that timeline" and other permutations of these statements. If you can't even challenge or disagree with anything, then you're doing something wrong, or you're in the wrong environment, or both.
20 years into my career and still practicing this.
One hack: I can't respond when I'm asleep! So, I head to bed pretty early (9:30-10 EST).
> Founders message you 24 x 7. If you don't reply, there's a "serious discussion" to be had next time.
You drop them a bunch of messages to get signoff for the thing that absolutely had to go live on Thrusday and dont hear from them till Sunday because they are tripping on Ayahuasca in the desert.
There's a "serious discussion" to be had next time about your work ethic.
Honest question: do people with young kids do these jobs well, or at all?
I'm sure the answer is sometimes, yes. But, as a 41-yr-old father of two kids (6, 2) and a wife in PE, the pace and stress strike me as contradictory to being present in a marriage, being present with my kids, managing my health, etc.
I'd love to hear how the people with families manage (or fail) this pace?
I expect not really? I'm 42, married, but no kids. I can't imagine joining an early stage startup. Not just for the kinds of reasons you mention (being present in a marriage), but just because it sounds so exhausting. When I was 30 I could pull an all-nighter and still have a somewhat productive next full day at work until I could finally get some sleep that evening. But these days I'll be a passed-out wreck by 10am, at best, assuming I even make it through the night, and will feel like shit for a couple days afterward.
There's a reason why people in their 20s or early 30s, and/or without a partner or kids, are over-represented in early startups. When I was deepest in my startup work as an employee, I had no time to date, and didn't bother to try. My friends barely saw me; most of the little socializing I did was with my co-workers, and that socializing often felt more like work than play, as we were usually discussing (or complaining about) work.
I do know people our (current) age, with families, who have done it, but I frankly have no idea how, and I'm sure it put a strain on their marriage and on their relationship with their kids.
On the flip side, as someone who has no kids (and doesn't intend to have any), I have noticed a lot more tolerance for missing work / missing meetings / ducking out for a while when it's for childcare than for any other reason. But a childless employee is seen as having no excuse for needing time out of the office here and there for whatever reason. (I suppose this is true to some degree of both startups and established companies, though.)
I've worked for a startup similar to that, though it was series A when I joined. It was gross. I stayed there for nearly a year and a half because I did genuinely enjoy the work and my peers, but ultimately the founders ruined the experience for me with their evasiveness and lies, and their creepy later-on focus on "loyalty" when the company's prospects started to go downhill. The last straw was when I was told by another often-in-the-know employee (whom I trusted) that one of the founders had found out I was interviewing at another company, and he called someone he knew there and told them not to hire me. Obviously I don't know for a fact that's what happened, but it sounded believable based on the founder's other behavior, coupled with the seemingly-fantastic interview experience I had.
That hurt, but I realized I had to do a better job of treating interviews as a two-way street. The company was interviewing me, sure, but I also needed to interview them, and learn what I could about the kind of people the founders and my peers were. I also needed to understand up-front what would be expected of me, and how flexible they could be with my time. The next startups I worked for were much better, and I never felt exploited.
Sorry if founders already raised a huge valuation, why didn't they hire more devs?
I'm sure what can be done with 996 style slave labor with 3 devs can be done with 6 devs working 9 to 5. It's not like they couldn't afford the salaries (and you mentioned they weren't paying that much anyways).
because they are cheap ass people. Pivoted 3 times since 2021 to the latest hype, currently building another generic AI app. They still have 5-6 years of runway left with current burn-rate.
If they go all out in 12 months, they would actually be considered a winner/failure. Purgatory is comfortable.
I recently left a long career in FANG to roll the dice on an early startup. I was pretty surprised by the uneven terms between founders and early employees. From what I could tell the early employees takes more risk than the founders because they don't get that magic token dollar turning into their share of the founding equity event and have to pay the fictional valuation of the seed to convert their options. Depending on how hot your startup is that can be a lot of money.
Anyway that ended in tears, but I got what I was looking for from it. A look under the covers of the hot VC backed startup roller coaster. I may be getting old and cynical, but it looked considerably more exploitative than what I saw at Google. Obviously depends on the character of the founders and leaders, but the structure seems to be setup for toxicity.
I worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little upside. They would offer 500 options, or 1000 options, or 30,000 options -- but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?!
Secondly, they wont share the cap table, so you dont know what the denominator is. 30,000 shares of What!? No one would tell you. You should run.
Third, the VCs installed a buddy from SV as CEO who was creative with revenue. Great -- so they make their bonuses based on creative revenue, but the company gets saddled with VC rounds they have to dig out of w/o showing real revenue growth. Once you get SV insiders being placed into the company, often with their entourage of cousins and neighbors' kids as Director of HR or Director of Finance -- RUN FAST. The company is being strip-mined for cash, while Engineers slave away trying to code their way out of the wreckage left by locusts.
The C-Suite operated in a separate tier of the company with a heads-i-win-tails-you-lose setup. You could tell -- no way you are all driving Tesla Plaid on a "startup salary" -- the "startup salary" was for suckers, engineers, and those not in the VC-back-scratch loop.
My advice to everyone -- if you want risk, be a founder. Not Engineer #1 or #10. If you want balanced risk, go to a Series C or D company where you dont have the risk of fake accounting. If you want money, go to a public company with real accounting rules, visible revenue, visible liabilities, and more accountability.
Even if you don’t see the cap table, any company you talk to should be clear and consistent in disclosure of facts like number of shares outstanding, including viewing it in tools like Carta. You are basically describing the abusive version of a startup and then saying all startups are bad.
I actually think going to a Series C or D is not the ideal play. It’s better to join an early company, with good leadership, reasonable if not mind blowing salary and cheap shares. Then, work hard, but not brutally hard. Somewhere that you enjoy the people, the work/product, and you can level up a lot. The options are cheap, and you can bail to FAANG at any time if you burn out. Realistically, that’s your shot at making 1% of $Xmm without completely hating your life. It will be a rare company so, yeah- be picky. I don’t know why all startups get lumped into one when there’s a lot out there for the discerning employee.
My experience was similar, right down to the $10,000 worth of options. Eventually the company went public and those options would have been worth $5M if I'd had the foresight (and cash) to exercise them (which I didn't). The co-founders did not have exercise costs or AMT of course. It is an unfair system indeed. I'd encourage those seeking to be early engineers to go work at a FAANG for a few years before joining a startup so that you have the cash reserves to take the risk.
> but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?!
I was in a company when my options were "purchased" from me at the strike price, when the company itself was sold. We never made it to IPO. I've learned to not overvalue options and phantom stock, and just chalk it up to another bonus down the road. The real money is, or already has been, made elsewhere.
What really steams my biscuits is when I figured out how the payout was worth less than the unpaid overtime (never more than 50 hours a week), weekend support time, and travel time spent in my years there.
My early engineer story is a lot different than this. 0.7% sold shares for ~1M at the end of 4 years. There is a bit of luck, and a bit of picking the right one to join. Don't join the ones that don't tell you what your equity share is and what the last valuation was to start with.
Spot on, and I say this as a founder of a company that didn’t fuck over the employees. 40 years and still going, and most people have been with us for more than 25 years.
I didn’t get rich because I wanted to sleep at night, but people in my orbit (probably me in theirs?) advised me very differently.
I did a similar thing to you. However, I do feel like cutting your teeth as a "founding engineer" at an early startup has 2 major benefits:
1. You get to see what it's like under the covers, as you said. It's not nearly as glamorous as it looks from the outside. And yes, as an early engineer, you share in a lot of the downside without nearly an equal share of the upside.
2. You get to leave. Unfortunately, the startup I joined entered a tailspin. But, my name wasn't attached to the company, and I didn't have a fiduciary obligation to our investors. I had a lot of "stake" myself after putting in years of 12-hour days, nights and weekends, but at a certain point I saw that my career was actively being harmed by staying. That "founding engineer" role on my resume got me the job I'm at now, at a level that skews higher than my YOE.
Do those two points mean you should get a fraction of the equity (or rather, a fraction of the options) as the founder? Honestly... maybe. I've now seen a few founders fail. It can really be a career-killer.
> Do those two points mean you should get a fraction of the equity (or rather, a fraction of the options) as the founder? Honestly... maybe. I've now seen a few founders fail. It can really be a career-killer.
And I have seen a few founders fail and enter bigger companies at a pretty high position. Not sure I would relate that to how much money they should get in case their startup is one of the lucky ones.
Getting to leave is so underrated. Nothing keeps your head above the doom and gloom like knowing you aren’t shackled to the thing, and the world’s your oyster if you need to move on. We live in a weird world if people don’t think a gig with $160K salary, 2% of the company, where you can work hard but not 24/7, and _leave any time you want_ is a bad gig. That 0.25-0.5% after one year that you get is PERMANENTLY gone for them even if you just fuck off after a year. Years later it could be worth millions.
But anyway, as founding engineer you get to set the systems, culture, language etc. maybe some people don’t want the responsibility but for others it’s an opportunity to build things out in our own image and learn a lot.
There was an oft-repeated response back in the day (but gladly rarer now) when you dig too deep into employee benefits at startups: "If you're offered a seat on a rocket ship, don't ask what seat!"
To this, I usually reply "Unless the seat happens to be in a stage that gets jettisoned before reaching orbit".
As an engineer you really have a finite amount of good working years, and accepting startup salary vs big tech compensation is a bigger risk than founders are willing to generally admit.
I almost left for an ultra early startup, still running on seed money.
They offered a typical SDE2-Senior salary + 1%. I was kind of offended. I'd be inventing their core technology (which didn't exist yet and which their CTO wasn't fit to do) and probably interviewing every engineer and growing them.
Even IF they achieved a 100-300M exit, after dilution I would be compensated at best par with a FANG Senior over about 5-7y.
I was pretty excited about joining and would have been all-in. So I asked for 2-3% and was denied. Looking back, I'm glad because even 3% isn't worth it. Not when the founders are taking 10x.
Oof. The CTO not having the chops to build the core technology would have been a huge red flag for me. At a 75-person startup the CTO should transition to be more of a manager and strategy person than a builder, but at time of founding they should be doing 100% of the building. Hiring the first engineer should be a way to increase the pace of tech work, not start it.
If none of the founders are technical enough to build the MVP, none of them should take the CTO title.
> . I'd be inventing their core technology (which didn't exist yet and which their CTO wasn't fit to do) and probably interviewing every engineer and growing them.
I see this a lot in failing startups:
The CTO is a pure manager who can't do any actual engineering. The result is that the shares and salary that could have been traded for getting product to market faster & better ends up being burnt on an empty chair.
I did early employee several times because I didn't know any better, didn't have anyone around to tell me not to. I won't do that again. All the risk, none of the reward. 1% of $10-20M after 4+ years of 80hrs/wk is less than the difference between a startup salary and a good salary over that same time.
most i know who work as eng #1 (non founder), are new grads who couldn't get into FANG. So mainly just looking for experience/inflated job title to boost their resume.
So not like these startups are getting top senior talent who obv will want to get PAID.
I went this route and now have a resume of inflated titles. I learned a lot and believe I can do some things in the top 10 percentile, just not the things many companies are currently hiring for (top 10 percentile in a narrow development skillset such as ML, or a specific language, or algorithms).
Im cynical and ultimately an rebuilding my dev career around a platform that will give me opportunities for entrepreneurship AND individual contributor work as an employee (Apple Ecosystem - iOS client development + product dev/mgn).
If I were to do it over again I 100% would've avoided startups early in my career when I could lean on junior positions to grow in a more mainstream manner. I'd have more money in my pocket, less stress, and less cynicism.
--
The problem is there is objectively zero way for fresh grads to learn these lessons. Even with prominent threads like these being available to some, the bearish attitude in every other thread will be more appealing to a fresh grad.
I've worked at seed, series A, and series B startups, and I think... it just depends. Only one time (a series A) did I feel exploited. That wasn't because I was an early employee at a startup; it was because the founders were sketchy and lied to us about what was going on with the company's fundamentals.
I frankly don't mind the idea that a founder is going to see orders of magnitudes more cash from a successful exit than I will, though I do think it would be great if that gap were closed a bunch.
Ultimately I worked at startups because I thought the work would be interesting, challenging, and educational (it was), because I wanted autonomy, influence, and impact (I got those), and because didn't want to deal with bureaucracy and many layers of management (I mostly didn't have to). In contrast, working at a FAANG sounds not particularly enjoyable to me. But I've never done that, so maybe it would be more ok than I think. Then again, I did join a 50-person startup and stay until it became a 10,000-person public company, and was pretty unhappy there for the last few years of my tenure, so I think it's pretty reasonable to expect I wouldn't be happy at a FAANG.
I say this to point out that not everyone is looking for the same things out of their employment experience, and that's totally fine.
You have the current unicorns, basically anything from about the time YC started, and then you have the old school unicorns.
For comparison, Microsoft IPOed in 1986:
> The company's 1986 initial public offering (IPO) and subsequent rise in its share price created three billionaires and an estimated 12,000 millionaires among Microsoft employees.
I completely disagree on the risk. What was the opportunity cost for you in founding? Are you taking a salary comparable to your FANG comp? Usually the early employees are getting paid a lot closer to their market rate than the founders are.
Readit News
> As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR in two years) to become a founder and that is when it clicked - I expected to feel stressed, pressured, and the weight of all of the risk I was taking.
Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!
In our case, we offered all vested employees the option of selling in the same round on the same terms.
I personally don’t recall any disclosure requirements at 10 people; however, we didn’t have that many participate so perhaps it didn’t apply.
In general, Founders Preferred does layer on the preference stack but also hopefully by a relatively trivial amount to the overall funding size.
Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really want. You might have foregone your shot at a partner to build a company to mostly profit someone else who did nothing but write you a check. If you do have kids, you'll be old as hell raising them. All you'll have is extra stuff hardly anyone cares about - except maybe you - if you're the type of person chasing down a decimillion net worth.
I hope these people truly enjoy their boats and their third homes in Aspen! It sure is a lot of work to get them.
But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.
The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.
As an aside, when people think SWEs don’t need unions/ professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.
I highly doubt ALL your peers are making that much. And I think the people making $1M per year at FAANG tend to work much more than 6 hour days. You have to be very productive to get $1M per year.
I might rephrase that as you have a non-zero chance. Odds are not that high and certainly not decent.
Unless you are a manager, in which case you are working more like 12 hour a day.
I think you overestimate median pay at the FAANGs by quite a lot.
I can't help but feel this would be better for the founders, the employees and the customers of the company. It just doesn't make as much sense for the investors.
There isn't much point sweating for another person's dream, go big with your own startup or rest and vest at FAANG and live life.
There is quite a bit of work involved in reaching the point where you write a check for a Series A round. Also, the better VCs spend significant time with their portfolio companies.
Can you say more on this? I didn't realize FAANG TCO was quite that high. Maybe it's time to swallow some pride and take the adtech money after all...
Well, some founders care about their employees and their idea, and the idea of the start up failing is much more than just money.
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Its like going to Disney Land and saying "Oh i'll just sit at the coffee shop". Some people are here for the ride. Some people like the 9 to 5. Like you, obviously. Why dont you go start corporate-drone-news.org, this board is for hackers and founders.
Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs.
If you start a real business you can expect to take on debt, and you'll be personally guaranteeing it because nobody cares about equity in your boutique ice cream parlour. Plus a 5-year lease (which you will also personally guarantee).
Sure, if you magic up a startup with VC funds you suddenly have it easier than a small, bootstrapped business.
Startups almost never start with a round of VC though. There are almost always months or years of the same experience as a bootstrapped business (ie: extreme uncertainty, no money to pay yourself, etc).
Most startups don't manage to raise VC, and most startups that raise VC fail with no acquihire.
Make this about any brick/mortar businesses and the stresses multiply by another factor. If they're in a federally regulated biz (compliance) or an insurance dominated state (rates, inspections), then multiply again.
"Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque." - Sounds like you are trolling or alternatively incredibly naive.
"If you start a real business you can expect to take on debt". ... Real business? Come on.
No one in this thread is saying starting a business is easy - ice cream business is debt funded because you have a very definitive range of outcomes. Venture funding is completely different animal - failing to see that limits the value of your comment significantly.
1. Caring about the mission -- the real-world positive impact -- and potentially able to make or break that. Not just taking a shot at making money, for some opportunity cost that I could evaluate quantitatively on a napkin, and walk away from as soon as an option with a higher expected dollars number came along.
2. Livelihoods and investments of time&effort by colleagues hinge to a large degree on decisions I make, ideas I have, and things I have to pull off, and not wanting to let them down. (A bit similar with money investors, but I care more about personal connections, and involvements where it's not just someone buying lots of lottery tickets.)
3. Low "paychecks" for my HCOLA, at that startup and earlier, so personally needing a big win financial exit, and the startup is what I decided to invest my time&energy into. If that fails, it's starting over, and a lot of wading through various startup ickiness to get another good opportunity (or doing FAANG interview BS, and then their promotion-chasing BS).
> You don’t lose any money if your startup fails.
Except all the money you lost by not having a proper job along the way. Also it’s not uncommon for founders to float the company at early stage until investment is raised, and they don’t always get a refund for this.
There’s a pretty large risk to family security. By year two of the startup I have made 15-20% the cash I could have made elsewhere. I have stock that I trust will be worth more in the future (so imo worth it). However, I can see liquidity events being useful if you’re tight on cash after that run
cause if you fail you have to tell your investors you lost money
cause if you fail is a thought that’s always running through your head as you live it
Though if you don't care about anything in the first place what are you doing trying to build a company?
“We all go to the pay window at the same time.”
It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird.
I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all ride, and sometimes that works out, but for most people, having a little bit of financial security while you’re trying to change the world is necessary.
The best startups figure out how to manage liquidity through financing in a way that aligns incentives, keeps the goalposts at the mission, while allowing their teams to thrive.
It’s about alignment. If everyone is pulling in the same direction you’re going to execute the vision. Whether you win in the startup lottery is up to the threads of fate, but alignment is the straightest path towards a result.
I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.
I more recently interviewed with a pre-series A company and they said that they'd include me in a liquidity event when I brought up compensation.
Also Elon famously put 200 million of his own money into Tesla and SpaceX to keep it afloat, which is the opposite of cashing out early.
Have seen companies offer this to employee's
And companies that let employee's take money off the table at series A are also likely to be generous with meaningless titles; that is they will let early employee's call themselves founders.
Along that line, I would be very surprised that there are founders who don’t seek an opportunity to set aside their nest egg to “de-risk”.
You say you have seen such guileless dedication to the founding first hand, can you share what industry or type of company? Perhaps I’m just exposed to the wrong crowd.
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It's also not in the interest of the VC that the founders are worried about making their rent or mortgage payments, or paying off the credit cards they maxed out paying their AWS bills in the early stages of their company.
The VCs want their founders to be hungry for more, and see their company's growth as a vehicle for that. But they don't want founders to be stressing over basic human needs, either.
Any VC that would refuse to let you take some liquidity in these situations is not a VC you want to make a deal with. And if you can only find VCs like that, your company is probably doing poorly enough that you might want to rethink what you're doing.
I think giving founders liquidity but not employees is maybe ok for series A: the founders may have been working for $0 for a couple years at that point, and may have taken out a second mortgage or ran up a bunch of credit card debt to keep things going. An early employee is not going to do any of that once they join, even if they're getting paid a below market rate salary. That is definitely an asymmetry! Getting some liquidity at the series A allows the founders to pay down debt and replenish their savings, financial issues that are probably directly related to their time working on their company.
But after the series A, founders should be able to pay themselves a livable salary. The founders and employees should be on much more equal (or at least comparable) footing when it comes to their regular income. By the time the series B comes along, if the founders are going to get some (more) liquidity, the employees should get some too. That only seems fair.
Yeah, if the founders don't do this I wouldn't want to work for them (not that I'm the target demographic anyway).
(1) The opportunity cost to the founder of taking early liquidity:
If a founder cashes out 10% of their position for $500k @ $25M Series A valuation, that de-risks a lot of their personal life. But when the startup ends up selling for $250M, that $500k of 'early' selling would have been worth $5M (less any dilution between rounds) - hard not to regret the choice in that case even if hedging is going to be the correct choice 99% of the time.
(2) Meaningful vs. not-meaningful amounts:
From my prev example, the founder sells 10% of their position for $500k. Well, if all employees were allowed to sell up to 10% of their positions too, would that even matter to them? If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k. Not really enough to de-risk your life although still might be welcome (and employees would appreciate having the choice).
(3) Sellers need buyers:
In order for there to be a seller of shares, there needs to be a buyer. The founder is effectively choosing his buyer and future business partner by taking investment and choosing to give that buyer more control over the corp by selling him even more shares (his personal shares). The buyer wants to make the founder happy and de-risk their downside so they can be more aggressive or big-picture or whatever, plus is happy to own more of the company assuming it's a hot round.
But what does the buyer want to achieve by purchasing the employees shares? Just to own a little bit more % of the corp? For amounts that might not even matter for the employees and may de-incentivize them?
It's all very complicated and perhaps there are nuances that make every situation unique.
IMHO, it's very easy not to regret, with those particular numbers.
I'd take $500K now plus possibly $45M later -- over $0 now and possibly $50M later.
I'd take that deal even if "possibly" were "guaranteed".
(Who might regret that is a founder who was otherwise already wealthy.)
When they finally sold about a decade later I ran the numbers and determined it would have been about $40,000 based on the actual sale price.
There's no guarantee of a $50M exit for anybody.
Plus, setting 100K aside for medical bills and even throwing the 400K into Bitcoin is a far less risky investment than me NOT being in a FAANG and accumulating 401K money which is absolutely critical if you want to keep up with the rising cost of life through retirement. When everyone else who joined Google or Meta out of college and now has a 10 million net worth at 40, that defines the cost of living in the area, and that's the bar you have to keep up with if you want to still live here at 40, 50, 60. Chipotle will cost $50 in a few years. A 1 bedroom apartment will cost $5000 in a few years. UberEats was $15 when it started, already costs $50 for lunch in my area, and at this rate, it will be $200 in a few years. Because those people can afford it, so greedy owners and greedy landlords will up their prices, so I will have to pay not just my $5000 rent, but also the Chipotle worker's rent, and the Chipotle franchise's rent, in order for their prices to stay profitable. The cost of living in the bay has tracked the S&P500, not the CPI. YOU will be priced out if you didn't have liquidity at a younger age to throw into some investments.
I'm at a large company right now. Being compensated enough to be able to afford life in the bay area now, having enough income to afford a mold-free modern apartment in a place where I don't need to worry about getting mugged, and hedge the risks of all the crap that's going on in the world was a big part of my reason to join one. If I had enough saved to "feel safe", I would absolutely be doing a startup again.
$500K is an immediate big quality of life boost for most people.
For example: a condo/house downpayment, which lets you move out of cruddy ramen apartment, to routinely get a good night's sleep. And/or that relieves some of the various other startup salary level money stresses on your family.
I think this can also be aligned with the goals of the startup. You don't want people so "hungry" that the stress is hurting their health and their home lives. You want them motivated by the mission, the work, the environment, and the possible big liquidity windfall in the future -- but not by desperation.
I actually kinda think a founder that was otherwise already wealthy wouldn't mind this too much, either: say they already have $50M in the bank; the difference between $95M and $100M feels even less of a big deal than $45M and $50M. Granted, the founder with $50M already in the bank probably wouldn't bother with the $500k in the first place, though, especially if they believed in the likelihood (or guarantee, in your hypothetical) of a future larger exit.
When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.
[0]: https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...
The other thing I've noticed is that for people on the other side of this transaction, it's not like "smaller numbers" all of a sudden become immaterial. $1M is still $1M. $5M is still $5M.
Again, I'm with you, I don't think it's regret exactly. But post hoc you might choose differently, even if it's the rationale choice at the time.
in the scenario you outline the founder sells the remaining 90% of their position for $45MM?
I don't think many people would experience any real regret at "only" getting $45.5MM instead of $50MM, due to declining marginal utility of money
If you can't handle "regret" in these cases, then you probably shouldn't be in a position where you're deriving the vast majority of your income/weatlh from investments (which is fundamentally what a CEO does).
It's astounding how many ICs can't wrap their heads around the concept that holding onto your RSUs make absolutely no financial sense. With rare exceptions, this doesn't make sense for anyone. And yet, fear for "regret" keeps people holding.
But it's not shocking that even in tech many ICs are not good at reasoning financially. But if you want to be a co-founder, and hold a lot of your wealth in investments it's essentially that you learn to reason, plan and accept outcomes accordingly. Otherwise you're more-or-less a professional gambler.
Disclaimer: I’m an IC myself.
I worked for my 1st company for 15 years. Held to their RSUs most of the time. Then moved to another (public) company and stayed there for a year before leaving. Now in a startup with a lower salary and no immediate liquidity on my stock options.
When you work at a public company, you have multiple exposures to the company’s growth: the RSUs that have already vested, the RSUs that haven’t vested yet and through your own career growth and salary increase that goes with a successful company. If you were early enough, you also get market cred for having made the company successful. If the companies goes under (or shrinks, or lays people off), all those assets are at risk.
Usually, one has more in granted stocks than in vested stocks. If your company just went public, you might have a lote more sellable than in your pipeline, but even that is unusual. Usually, you’ll still have more in the pipeline than you’ve already vested.
If your company has been public for a while, you should get frequent refreshes, which means you still have a significant numbers of unvested shares.
Regardless, you should sell as soon as you can, because of the remaining exposure through unvested equity. Use the proceeds to place in an ETF, or in a high-yield savings account, or some more aggressive investment strategy. Or use it for the downpayment on your house, or fund your kid’s college funds, whatever floats your boat.
Anyways, keep in mind that you still have a significant exposure to the growth of the company through your unvested equities. If you’re worried about short-term cap gain, don’t be. If you sell immediately, there’s no growth between cost basis and selling price, so no cap gain. Another upside to selling is that you’re not bound by the blackout periods, so your assets are much more liquid. And remember you still have exposure
The issue here is that sometimes if you procrastinate about diversifying, it pays off very well. As a Google employee (who joined after IPO), it was by far my best investment and funded my retirement.
I guess that's accidental gambling. I did have other investments.
Ultimately it's an investing decision. If you believe the stock price is going up at a rate faster than the rest of the market, and are willing to accept the risk that a concentrated position like that entails, then that can make financial sense.
For people who want to hold their RSUs but still want to diversify to some extent, my usual recommendation is to pick some percent of the shares that vest every quarter to sell immediately, and hold the rest. And -- critically -- to stick with that commitment every single quarter, and not fall into the trap of thinking "oh, the stock seems to be doing so well, I'll skip the sale this quarter". (Of course, a measured re-evaluation of the plan is a reasonable and good thing to do every so often.)
Going in they have a lower salary than if they work for a more established company.
Then, either their shares end up being worthless, or at the final exit, they make less money than if they worked for a more established company the entire time. IE: Being an early employee in a startup is a lose-lose situation.
This is something founders need to understand when recruit their early employees: These are often the most critical hires for the business, and therefore it needs a high probability of upside.
IMO: A series of retention bonuses, and/or guaranteed bonuses at acquisition / funding events is a good solution. It's how I've sidestepped the equity issue when I was employed during an exit event.
Either they have the skills to be a founder themselves or to work at BigTech... or they are financially ignorant/disinterested enough to not understand how equity in corporations work? Or is the charming and misleading founder who is to blame?
My point is that considering the high avg intelligence of the typical startup employee, there must be something else going on.
Clearly, people like working at smaller companies that have potential to grow - maybe that's because there's more interesting work, less bureaucracy, smaller teams, more of a sense of a journey, etc. Easy to devalue these things, but what else explains the fact that even when there's more risk and likely poorer financial outcomes these otherwise very intelligent people still choose to work at these companies?
1. If I buy stock, and the stock goes down, I regret buying
2. If I buy a stock, and the stock goes up, I regret not buying more
There's no winning :-/
There is a good book review about it on SSC https://www.astralcodexten.com/p/your-book-review-the-laws-o...
> Whether or not you make money, you have regrets! If you profited, you could have made more. If you lost money, you shouldn’t have made the trade at all. Like death and taxes, you can’t avoid adverse selection.
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> If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k.
It obviously depends on your financial situation, but having the option vs not will certainly matter to some employees. Not to mention that the stake could well be worth $0 in the future.
I totally understand why a typical founder doesn't want to do that. If for you as an employee it is a deal breaker, then you can complain about it, change company or whatever. It is not like the founder owes anything to the employees (unless he has promised that). Everyone in the equation are adults and have to decide themselves, if the position they are in makes sense for them with the terms they have.
$5M when you already have $45M doesn't move the needle much.
$20k would be a life changing amount of money for me right now
If we also believe that founders are important to a company's success as it grows from a small startup into something more mature, I'm pretty sure that unfortunate financial (and housing) situation would drastically reduce the chances that the company would make it to that $250M exit later.
So taking that $500k may increase the chances that the startup later gets sold for $250M, rather than, say, $50M... or just failing entirely, returning whatever small amount of money is left to investors.
If you tell them the value of their stock is $200k, and 90% of that is imaginary, then they might start thinking about that job offer with a 500k stock grant at a listed company.
The only reason it happens is that the founder is negotiating both on behalf of the business and a bit for themselves.
s/when/in the statistically and historically very unlikely case that/g
if you ask you mom or dad, whichever believes in you, they have enough money to fund your dreams (if you care enough to ask) of joining or starting a startup to become an (x) CEO/salesman/builder/marketer/whatever for whatever you want to build, and that includes signing onto some startup that won't pay you a living wage until it fail-exists for $5 million and everyone goes to burning man/Berlin/ibiza on the founders dime (including rent for everyone N months).
Yes, if $500k doesn't move the needle on your life then the question is moot anyways. Most first-time founders will be closer to the poor end of the spectrum than the wealthy side.
There are people reading this for which $20k will change their life (which in my example was the 'shouldn't matter' amount instead of the $500k).
But they're a small minority. Not that many people meet your description here.
Perhaps not much, but most people -- even most startup founders -- don't come from a rich family.
Very few founders have double digits percent ownership by Series B and Series C.
Liquidity of $400k or more is a lot and isn’t available for many founders.
All of this after 7 to 10 years of working 80+ hours week, no social life, loosing family, sacrificing health, taking less than $100k/year salary, constant worry of failure, dealing with ups and downs of employees, being a support system of everyone in the company while not being one for their own families, and no guarantee of success. All of this for seeing their dream come true because failure would be worse.
I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.
Also 20% option pool and exercising options up to 10 years are not uncommon.
Source: 2nd time founder.
If you are taking less than $100k/year salary for 7 to 10 years while also absolutely no-lifing then that’s on you.
It’s true that early on you prob take ramen salary, but that’s for one or two years. You can prob scale to 200k by year 3 if your thing is viable. No-lifing when your startup is in year 5 is just a personal choice. If by year 5 you aren’t on a path of unicorn then prob it’s time to evaluate if it’s worth so much sacrifice or if you should run it as a lifestyle business (or just go do something else).
Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.
Have you been a founder? If not, I'm not sure you fully realize what goes into the job. Everyone wants to be a founder, but nobody wants to _be_ a founder.
Unless you're doing some niche b2b thing where you have no personal connections (in which case, why are you doing it at all?), the differential financial returns of going with VC are often negative, if not neutral. The main diff is you can "fail up" into the investor class if you prove your worth but the business goes sideways. But even that is a dissatisfying career for most founder-type people.
To whoever needs to read this: start your own company, avoid raising money.
Sure, maybe their longer-term trajectory is unsustainable growth and disappointing surprises for founders and employees, but by that point your bootstrapped company has already shut down.
But, by all means, find a market where there's scant VC money to be found, and you can probably bootstrap for quite some time without funding. And maybe you will eventually decide to take on funding, but instead of giving 60% of your company away to get it, you only have to give away 30%. Or you decide that giving away 60% is fine, in return for 10x as much investment as you might otherwise get at an earlier stage.
I know a non-zero number of people who have gone that route, and it's worked for them. If I were to start a company, I'd aim for this model myself. But I would have to be very careful choosing my product and market.
He is saying that it is sketchy that this is hidden from employees.
10 year expiration is the standard, yes, but only if you stay with the company. Most still kill your options 90 days after you quit or are laid off or fired. There's been a small but noticeable trend of companies not pulling this garbage, including the article author.
> I think the OP should work on his company for more than 4 months and have more than 10 employees
Yeah, I thought it was funny that the author seemed to be speaking so authoritatively after so little experience as a founder. I've never been a founder myself, but I would put much more weight behind the words of founders who have been doing it for years and decades.
My first startup I walked with a paltry sum and the owners suddenly went from being doctors with a side hustle to private investors. That was my first warning sign and really drove home the need to invest in myself because it certainly wasn't going to be someone else doing it, despite the talk of changing the world. It was really, really obvious that the payouts were stacked in one direction and it certainly wasn't on the side of employees, early or not. I still enjoy working for small companies, but the hype and bullshit are really tiring and so very cultish. I'd really suggest treating the startup life like a scratch lottery ticket, because that is all it is. If you win, you're gonna get paid but it won't be life altering money, just like a scratch lottery ticket. Plan around it being worth zero and go in eyes wide open.
I couldn't be happier. Neither panned out for me with regards to stocks, and I definitely didn't get rich in the process, but I very much enjoyed the jobs and when I decided to leave it was only because the business direction wasn't a fit for what I wanted to spend my time on.
It sure sounds like a privledged position, but it more came down to us living cheaply compared to our income and having the breathing room to trade a higher salary for work that I really enjoyed. I hope more people can make that tradeoff, it's much more fulfilling in my opinion
Did the owners sell the company or get some sort of payout? I'd imagine if they were making decent money they'd have kept the business alive, right? Would you be okay sharing the name of the place?
And frankly I think as time goes on it has become and will become more possible for more people. In part because of people like you who bring up all-too-common stories of how their founders got big payouts, but their employees only saw breadcrumbs. As more and more employees become educated on this stuff, the more pressure it puts on companies to offer better deals to their employees. We have a loooong way to go before my experience is common -- if we do ever get there -- but I do think it's possible that we could get there.
I quickly realized those are the absolute worst positions to be in. You take almost as much risk as the founders but almost none of the upside. One startup died, the other one sold for 100m$. Out of that I saw 400k$ as an exit. Not too bad but even with that exit I ended up making way less than if I joined a FAANG. In both cases the founders made millions (through the exit or through liquidity)
Now I'm a realist. Either you create/found a startup or it's not worth joining one as an employee. You have way more upside at a FAANG/pre-IPO mid-life startup that already found a great product market fit.
Essentially, founders are pushing a crazy narrative of Startups being worth it to early employees because they need them. It was sometimes fun but I wish I just joined a FAANG like most of my friends, I would have a couple millions by now if I did.
I really wouldn't recommend anyone work as an engineer at an early stage startup unless you're getting ~5% or more (this would be unprecedented) because the risk is barely less than the founders and the pay is generally terrible. Series B or later (growth stage) may be a sweet spot where the salaries are decent and there is still significant equity upside without the insane hours.
A few good early hires can be just as valuable as good founders.
I'm glad you mention the pre-IPO mid-life startup and not solely trot out the usual "work for a FAANG instead and make $600k/yr out the gate" nonsense. There are quite a few pre-IPO mid-life (or even vaguely-but-not-super-early) startups out there that are doing well, growing more or less sustainably, will pay you a market-rate (or even above) base salary, and give you a solid equity package that has a much higher likelihood of being worth something than those early-stage startup options have. You might not make $600k/yr at a FAANG, but most people at a FAANG aren't making that, and many smart, talented people won't pass a FAANG interview anyway.
- Work 9 to 7 everyday. 6 days a week.
- People are working 9 am - 5 am in crunch time. Then joining again at 10 am.
- Monetary Comp is exactly market average.
- Equity Comp is even more paltry since founders raised at a huge valuation.
- Founders make unrealistic promises. Eg: It took a competitor with 7 people, 3 months to make a product. The founder told us Saturday that he wanted it built by Monday (with 3 total devs).
- Founders message you 24 x 7. If you don't reply, there's a "serious discussion" to be had next time.
- Non Accomodating of anything because "It's a startup".
I left the place after 10 weeks. I saw 3 people leaving the 6 person company in these 10 weeks. The ones who stayed were under heavy financial stress or had drank the kool aid.
one thing that catches out some junior folks is that they may believe this kind of behaviour from bosses is normal and unavoidable as they have only worked for exploitative bosses at places with toxic cultures. you can do better, you're worth it. get out. find a more mature company with professional managers, where it's normal to leave the office on time and turn off all your work comms and leave all work-related messages unanswered until you're back in the office and getting paid to think about work again.
People don't like to say "no" or "can't do it in that timeline" and other permutations of these statements. If you can't even challenge or disagree with anything, then you're doing something wrong, or you're in the wrong environment, or both.
20 years into my career and still practicing this.
One hack: I can't respond when I'm asleep! So, I head to bed pretty early (9:30-10 EST).
You drop them a bunch of messages to get signoff for the thing that absolutely had to go live on Thrusday and dont hear from them till Sunday because they are tripping on Ayahuasca in the desert.
There's a "serious discussion" to be had next time about your work ethic.
I'm sure the answer is sometimes, yes. But, as a 41-yr-old father of two kids (6, 2) and a wife in PE, the pace and stress strike me as contradictory to being present in a marriage, being present with my kids, managing my health, etc.
I'd love to hear how the people with families manage (or fail) this pace?
As someone in a similar place in my life, I'd never take a job like that either.
There's a reason why people in their 20s or early 30s, and/or without a partner or kids, are over-represented in early startups. When I was deepest in my startup work as an employee, I had no time to date, and didn't bother to try. My friends barely saw me; most of the little socializing I did was with my co-workers, and that socializing often felt more like work than play, as we were usually discussing (or complaining about) work.
I do know people our (current) age, with families, who have done it, but I frankly have no idea how, and I'm sure it put a strain on their marriage and on their relationship with their kids.
On the flip side, as someone who has no kids (and doesn't intend to have any), I have noticed a lot more tolerance for missing work / missing meetings / ducking out for a while when it's for childcare than for any other reason. But a childless employee is seen as having no excuse for needing time out of the office here and there for whatever reason. (I suppose this is true to some degree of both startups and established companies, though.)
That hurt, but I realized I had to do a better job of treating interviews as a two-way street. The company was interviewing me, sure, but I also needed to interview them, and learn what I could about the kind of people the founders and my peers were. I also needed to understand up-front what would be expected of me, and how flexible they could be with my time. The next startups I worked for were much better, and I never felt exploited.
I'm sure what can be done with 996 style slave labor with 3 devs can be done with 6 devs working 9 to 5. It's not like they couldn't afford the salaries (and you mentioned they weren't paying that much anyways).
If they go all out in 12 months, they would actually be considered a winner/failure. Purgatory is comfortable.
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Anyway that ended in tears, but I got what I was looking for from it. A look under the covers of the hot VC backed startup roller coaster. I may be getting old and cynical, but it looked considerably more exploitative than what I saw at Google. Obviously depends on the character of the founders and leaders, but the structure seems to be setup for toxicity.
Secondly, they wont share the cap table, so you dont know what the denominator is. 30,000 shares of What!? No one would tell you. You should run.
Third, the VCs installed a buddy from SV as CEO who was creative with revenue. Great -- so they make their bonuses based on creative revenue, but the company gets saddled with VC rounds they have to dig out of w/o showing real revenue growth. Once you get SV insiders being placed into the company, often with their entourage of cousins and neighbors' kids as Director of HR or Director of Finance -- RUN FAST. The company is being strip-mined for cash, while Engineers slave away trying to code their way out of the wreckage left by locusts.
The C-Suite operated in a separate tier of the company with a heads-i-win-tails-you-lose setup. You could tell -- no way you are all driving Tesla Plaid on a "startup salary" -- the "startup salary" was for suckers, engineers, and those not in the VC-back-scratch loop.
My advice to everyone -- if you want risk, be a founder. Not Engineer #1 or #10. If you want balanced risk, go to a Series C or D company where you dont have the risk of fake accounting. If you want money, go to a public company with real accounting rules, visible revenue, visible liabilities, and more accountability.
I actually think going to a Series C or D is not the ideal play. It’s better to join an early company, with good leadership, reasonable if not mind blowing salary and cheap shares. Then, work hard, but not brutally hard. Somewhere that you enjoy the people, the work/product, and you can level up a lot. The options are cheap, and you can bail to FAANG at any time if you burn out. Realistically, that’s your shot at making 1% of $Xmm without completely hating your life. It will be a rare company so, yeah- be picky. I don’t know why all startups get lumped into one when there’s a lot out there for the discerning employee.
I was in a company when my options were "purchased" from me at the strike price, when the company itself was sold. We never made it to IPO. I've learned to not overvalue options and phantom stock, and just chalk it up to another bonus down the road. The real money is, or already has been, made elsewhere.
What really steams my biscuits is when I figured out how the payout was worth less than the unpaid overtime (never more than 50 hours a week), weekend support time, and travel time spent in my years there.
I didn’t get rich because I wanted to sleep at night, but people in my orbit (probably me in theirs?) advised me very differently.
1. You get to see what it's like under the covers, as you said. It's not nearly as glamorous as it looks from the outside. And yes, as an early engineer, you share in a lot of the downside without nearly an equal share of the upside.
2. You get to leave. Unfortunately, the startup I joined entered a tailspin. But, my name wasn't attached to the company, and I didn't have a fiduciary obligation to our investors. I had a lot of "stake" myself after putting in years of 12-hour days, nights and weekends, but at a certain point I saw that my career was actively being harmed by staying. That "founding engineer" role on my resume got me the job I'm at now, at a level that skews higher than my YOE.
Do those two points mean you should get a fraction of the equity (or rather, a fraction of the options) as the founder? Honestly... maybe. I've now seen a few founders fail. It can really be a career-killer.
And I have seen a few founders fail and enter bigger companies at a pretty high position. Not sure I would relate that to how much money they should get in case their startup is one of the lucky ones.
But anyway, as founding engineer you get to set the systems, culture, language etc. maybe some people don’t want the responsibility but for others it’s an opportunity to build things out in our own image and learn a lot.
To this, I usually reply "Unless the seat happens to be in a stage that gets jettisoned before reaching orbit".
Generally underpaid and quickly toxic. It is an experience, but it's important to know it.
Founders just get greased palms along the way if they're successful.
Even IF they achieved a 100-300M exit, after dilution I would be compensated at best par with a FANG Senior over about 5-7y.
I was pretty excited about joining and would have been all-in. So I asked for 2-3% and was denied. Looking back, I'm glad because even 3% isn't worth it. Not when the founders are taking 10x.
If none of the founders are technical enough to build the MVP, none of them should take the CTO title.
I see this a lot in failing startups:
The CTO is a pure manager who can't do any actual engineering. The result is that the shares and salary that could have been traded for getting product to market faster & better ends up being burnt on an empty chair.
So not like these startups are getting top senior talent who obv will want to get PAID.
Im cynical and ultimately an rebuilding my dev career around a platform that will give me opportunities for entrepreneurship AND individual contributor work as an employee (Apple Ecosystem - iOS client development + product dev/mgn).
If I were to do it over again I 100% would've avoided startups early in my career when I could lean on junior positions to grow in a more mainstream manner. I'd have more money in my pocket, less stress, and less cynicism.
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The problem is there is objectively zero way for fresh grads to learn these lessons. Even with prominent threads like these being available to some, the bearish attitude in every other thread will be more appealing to a fresh grad.
I frankly don't mind the idea that a founder is going to see orders of magnitudes more cash from a successful exit than I will, though I do think it would be great if that gap were closed a bunch.
Ultimately I worked at startups because I thought the work would be interesting, challenging, and educational (it was), because I wanted autonomy, influence, and impact (I got those), and because didn't want to deal with bureaucracy and many layers of management (I mostly didn't have to). In contrast, working at a FAANG sounds not particularly enjoyable to me. But I've never done that, so maybe it would be more ok than I think. Then again, I did join a 50-person startup and stay until it became a 10,000-person public company, and was pretty unhappy there for the last few years of my tenure, so I think it's pretty reasonable to expect I wouldn't be happy at a FAANG.
I say this to point out that not everyone is looking for the same things out of their employment experience, and that's totally fine.
For comparison, Microsoft IPOed in 1986:
> The company's 1986 initial public offering (IPO) and subsequent rise in its share price created three billionaires and an estimated 12,000 millionaires among Microsoft employees.
https://en.wikipedia.org/wiki/Microsoft
I would really, really want to know if anything more recent has gotten to that level of widespread distribution of the riches.
I kind of doubt it, such an event would probably be considered Communist by modern standards :-)
One of them is my neighbor, an early Microsoft employee. She basically retired in her 30s.