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My experience as the first employee of a Y Combinator startup
71–80 of 117 posts
Re: My experience as the first employee of a Y Combinator startup
#72I personally think the first one to five employees in a minimally funded startup with small m&a exit as the likely exit are getting a bad deal, vs. the founders or employees who join after financing. An early employee will get about a percent tops as an individual contributor...maybe up to five percent tops if he is more of a vp engineering. In exchange, a seriously below market salary, equally high if not higher ris…
the thing is, the startup job market selects for people who don't place a high value on job security, and who are willing to work (temporarily, at least) for below market rates. If you want something safe and high paying, startups generally don't compete with the big boys. Now, obviously, the first hire gets a worse deal than a founder wrt compensation... but I think everyone is aware of that going in to the deal, an…
The big factor people don't realize is employee number one has worse job security than the founders. If you they have huge equity and no salary, and you draw a salary, guess who goes when the bank account is short? If you all make subsistence only, you are losing due to lack of equity and opportunity cost. And still, if there is only enough for 2 of 3 to subsist, the employee goes. If the company tanks, you all go.
Re: My experience as the first employee of a Y Combinator startup
#73Earlier quoted context omitted.
I took an almost 50% salary cut when I first started working at justin.tv. I don't think you can generally expect the industry average in an early-stage startup. My salary is nearly back up to what it used to be now though.
> My salary is nearly back up to what it used to be now though. How much do you figure is your overall loss because of joining (in $) ? Does your equity make up for that ?
If you assume the company's most-recent valuation accurately reflects its worth, then yeah, my equity more-than makes up for my loss. Until there's an exit though of course, the equity is essentially worthless (I find I stay more sane if I just act like it has no more value than a random lottery ticket has).
Re: My experience as the first employee of a Y Combinator startup
#74Earlier quoted context omitted.
It's also often not even 1% of 50m, but 1% of (50m minus liquidation preferences).
Liquidation preferences are wacky -- I would have never understood them without several patient explanations on HN. I'm curious: is modeling their effects just common Valley knowledge that you'd do effortlessly during a job interview, or would most candidates be as unknowingly ignorant of their effects as I was a year ago?
I sit with people with a googledocs spreadsheet and we plug in numbers for various scenarios, so they can see what happens if there is a quick sale vs. multi round and then later. And show how cash comp to engineers affects this too. I believe in total transparency for at least the first 20 or so employees wrt budgets, salaries, equity, etc.
If you "trick" someone into working for less, you have screwed yourself more than you have saved money.
Re: My experience as the first employee of a Y Combinator startup
#75Earlier quoted context omitted.
Racial and ethnic diversity really seem like non issues...they are pretty superficial differences within a work environment. Age, children, and sex are a little more relevant, and even those are pretty minor and only loosely correlated with traits relevant in a work environment. Bringing a windows guy into a unix shop, or hiring a sales guy too early at a product development stage startup, or hiring a stupid or lazy…
I've often found cliquishness when there's, say, five people, of which four are from the same age/sex/ethnic/cultural/etc. background, and the fifth is from something different. It's worse when the four are from a quite narrow background of similarity, like four guys of the same age/race/major/etc. from Stanford, or four immigrants from the same country.
If you put it that way I sort of agree, although I think Americanized ethnicity or race is much less dominant as a trait than other traits.
Re: My experience as the first employee of a Y Combinator startup
#76Earlier quoted context omitted.
the thing is, the startup job market selects for people who don't place a high value on job security, and who are willing to work (temporarily, at least) for below market rates. If you want something safe and high paying, startups generally don't compete with the big boys. Now, obviously, the first hire gets a worse deal than a founder wrt compensation... but I think everyone is aware of that going in to the deal, an…
The big factor people don't realize is employee number one has worse job security than the founders. If you they have huge equity and no salary, and you draw a salary, guess who goes when the bank account is short? If you all make subsistence only, you are losing due to lack of equity and opportunity cost. And still, if there is only enough for 2 of 3 to subsist, the employee goes. If the company tanks, you all go.
I think people realize this. Nobody who cares about job security works for a startup unless they have no other options.
Working for a startup when you want job security would be like getting an art degree if you want money.
My experience has been that if you want to hire people for significantly below market rates, you need to accept that you will be getting inexperienced people who probably can't get good stable corporate jobs. They are getting paid in experience rather than equity. It's just not really something that people who are good and experienced do very often, because as you said, it's not a very good deal compared to the other options available to people who are good and experienced.
(note, I said "hiring" - the rules are rather different if you make them a founder, or give them founder-level equity.)
Re: My experience as the first employee of a Y Combinator startup
#77Earlier quoted context omitted.
If by "real" financing you mean a series A round, then you're probably mistaken. People who join a startup with just angel funding might get roughly 4-5x as much stock as they'd get post series A. It's only a worse deal if a series A round makes a company 4-5x less risky. There's a market price for all the different options, from founder to early hire to later hire. It would not make sense for there to be points on t…
"You're also mistaken in saying that an early hire will get 1 percent tops. This number varies by 30-40x, " so the #1 and #2 employees are going to get 60% equity combined? Or was that x supposed to be a % sign?
"depending on where the company is and how early the hire is." In the case where a new hire gets 30%, presumably the company is early enough that they are basically joining as an additional co-founder. Certainly possible.
Re: My experience as the first employee of a Y Combinator startup
#78My experience as being employee 8 million at a Large Corporation is nearly identical. I can choose my own tools, work from home when I want to, take breaks, etc.
We've already taken care of the cash flow thing, so it ends up being much more relaxing than working for a small company. We aren't going to go out of business if our software isn't released tomorrow, so we have lots of time to write quality solutions. We can build stuff that's really nice to work on, instead of stuff that will give us one more checkbox in a TechCrunch comparison article.
(I worked at a small company for a long time. It was less flexible, and every year, we "don't have enough money" for a raise. Eventually it was very stressful, my input didn't matter at all, and I got paid nothing. All for what most people consider "the ideal job". "Going corporate" was the best thing I ever did!)
Re: My experience as the first employee of a Y Combinator startup
#79Earlier quoted context omitted.
False dilemma: there are plenty of jobs that pay fair market rates that don't involve hellish idiocy and bureaucracy. It's not somehow automatic in companies that are a different age than post-founder pre-funding. There's nothing about a pre-funded startup that magically banishes the "kafkaesque". Conversely, there's nothing about being well-funded that keeps you from sleeping at night (quite the opposite, actually).
I didn't say otherwise. I'm saying that my current job, taken as a whole, as valued by me, benefits me more than my last job.
But the implication was that it had something to do with it being a startup. There are plenty of startups with neurotic founders, and plenty of big companies that aren't a Kafkaesque nightmare.
Re: My experience as the first employee of a Y Combinator startup
#80Earlier quoted context omitted.
If by "real" financing you mean a series A round, then you're probably mistaken. People who join a startup with just angel funding might get roughly 4-5x as much stock as they'd get post series A. It's only a worse deal if a series A round makes a company 4-5x less risky. There's a market price for all the different options, from founder to early hire to later hire. It would not make sense for there to be points on t…
"You're also mistaken in saying that an early hire will get 1 percent tops. This number varies by 30-40x, " so the #1 and #2 employees are going to get 60% equity combined? Or was that x supposed to be a % sign?
One company might choose to give an early hire 20%, possibly even making them a cofounder. Another company might give an early hire 0.5%. Hence the 40x variability in the amount of equity given to early hires.