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Ask HN: Pros and cons of working at a startup in 2018?

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Re: Ask HN: Pros and cons of working at a startup in 2018?

#881

Post by Balgair »

Here is the very basic equation we are all looking for:

M(faang) where M(faang) is the money/salary over the expected timeline earned from a FAANG-ish company (many many of them), M(su) is the money/salary earned while in a start-up, CV is the Company Value when the Start-Up lotto is cashed in, ES are the Employee's Shares as a proportion of the company that the employee can sell for money, FR is the Fail Ratio of Start-Ups that get to the point that they can sell the company and don't just flame out.

Lets run some numbers to get a feel for the equation:

Say M(faang) is $125k/year and the timeline we are looking at is 7 years; that's $875k total. Say that potential start-up employee is making only $60k per year for those 7 years; that's $420k total. So, the expected paycheck at the end of the 7 years needs to be at least $455k.

So, CV * ES * FR must be $455k. FR is typically said to be 90%, as in 90% of start-ups fail, we'll take that as dogma too and set it to 0.1. ES is likely to be very small, even for very early stage employees, so without nearly any consensus via googling, let's set it at 0.001. CV is the company valuation when the start-up lotto is won, these days it's tough to find this out (it's mostly a power distribution), but let's be a bit conservative and set it at $500M. These numbers give us $50k.

That number is about 10x less than what is needed at a minimum. The start-up fail ratio is really never going to change. So, either the CV must become about $5B, not $500M, or the ES must go upwards from a thousandth to a hundredth (honestly, either situation isn't unreasonable) to meet the minimum pay requirements.

You can play with the numbers yourself and add conditions too (stock mechanics, value of medical benefits, rent issues, taxes, etc), but the math isn't calculus, just nested algebra. Hopefully this will help others out when thinking of trying to join a start-up as an employee.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#882

Post by mantasm »

rgossiaux wrote: post #741
kentonv wrote: post #678

Earlier quoted context omitted.

> Early-stage companies should offer sufficient equity such that their employees should in expectation earn at least the same as they would at a public company. That's the joke! Nobody comes remotely close to offering enough equity that their total comp is equivalent! Imagine a company that just raised a $1M seed round on convertibles at a $6M valuation cap. Now say they offer an "extremely generous" 2% equity packag…

Yes, I mostly agree. There's one nuance that I've been thinking about lately that I haven't seen anyone ever point out before, which is that high volatility will make options worth more than they are on paper. Here's a thought experiment: imagine that there are two employers on the market. One will always pay 200k/yr guaranteed and you can choose to work for them at any time for this wage. The other pays 100k/yr plus…

Yes!

Funnily enough, the fact that equity grants are "options" to purchase stock at a strike price less than the real share price is much less valuable than the optionality you describe of continuing working to earn the rest of a stock grant after more information is known.

Unfortunately I think it's very hard to pin a value on the optionality to continue working, and I haven't seen anyone mention it when considering joining a startup over a larger company.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#883

Post by heurist »

dazhbog wrote: post #818
acconrad wrote: post #129

I was the first engineer at a TechStars startup that did have a successful exit (I was there about 5 years before the exit). If there is something I want YC to know, it's this: You helped create the culture of founder empowerment. You have the power to evolve that narrative to those that sacrifice as early employees. Tell the world that early employees deserve a lot more equity. Tell the world that early employees co…

Thank you for your comment. I am a founder currently deciding how much equity to give to our beloved first engineer. Any tips are welcome!

A baseline would be making up for the employee's salary reduction with equity. If you're taking VC money then you have some dollar value per share to work from, otherwise base it on 3-5x annual revenue linearly projected from historical monthly revenue.

Formula: (Fair total dollar compensation - agreed salary) / (dollars / share) * 4 yr vesting

A sliding scale for salary : equity is built in and you can compensate based on hire desirability or local market conditions by weighting dollars per share appropriately. This system is fair as long as both the employer and employee agree upon the share value (some information asymmetry there benefiting employers that decent companies will try to correct for).

Saying this as startup first engineer ;)

Re: Ask HN: Pros and cons of working at a startup in 2018?

#884

Post by analyst74 »

alexbecker wrote: post #286
ronilan wrote: post #37

One of the “weak” points a startup has is the brand perception. Some-role at FANG sounds more impressive than same-role at a no-name startup. Even the startups themselves like to brag that they were started by alumni of brand name employers, rather than alumni of other startups. So, in what concrete way can you shift this? There is no easy solution, but you can try and follow the same route you did for startups. No-n…

+1 to not dismissing prestige, although I'm not sure I agree with this plan. Prestige is easy for some people to dismiss, but it can be a very big deal to others, especially (in my experience) in Asian cultures. My girlfriend's family still doesn't believe that I quit Google to work at a startup--they assume I got fired--because who would willingly give up that prestige?

I'm not sure if that's an Asian thing, I actually only learnt the importance of prestige after coming to bay area. When you mix with people with prestige and without, sharing job hunting and interviewing experiences quickly lead you to realize the importance of brand name recognition of your school and past employers.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#885

Post by acconrad »

icedchai wrote: post #876
acconrad wrote: post #820

Earlier quoted context omitted.

> If the founders don’t take 50% raises, neither should the super early employee with decent equity. You're missing the point of my original post. If a founder owns x100 the equity, why should an early employee be bound to the same salary restrictions? If anything, since I have 1/100th the equity, that means I should be able to get a multiple of some raise when series A comes through. Remember, equity is a lottery ti…

If founder has x100 the equity of employee #1, employee #1 screwed up.

Welcome to this entire conversation on why early employee compensation isn't fair.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#886

Post by prabhatjha »

Working for a early stage startup depends on the stage of life, your financial freedom and your ability to hustle.

Early stage startup requires that you work a lot more than 40 hours of week with a big pay cut compared to what you would get at an established company. This usually is not a problem for individual or couple who don't have kids but very difficult for people with school kids. You have less time and less money -- both have direct impact on how your kids grow up. Is it worth taking the risk? This depends on your values and how you define success in life.

Your roles and responsibilities are not well defined. Even for a software engineer, you have to split your time helping sales, customer support and marketing. I personally find this aspect super exciting but I know a lot of people who don't like and wont thrive in this kind of environment.

Most startups fail. Founders and VCs can screw you -- intentionally or unintentionally. Odds are just stacked against you if you define success by financial gains.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#887

Post by ojbyrne »

mkirklions wrote: post #67
swimorsinka wrote: post #12

Earlier quoted context omitted.

+1 to this. 10 years ago you couldn't make 400K at Google, Facebook, Microsoft, etc. Now you can. Startups made a lot more sense when your opportunity cost was 50-150K per year.

I wonder how sustainable this is. Its 400k while their stock price is crazy high. But If we really are in a tech bubble, that money is back to the typically 80-120k of most tech jobs.

It seems to me these high compensations started appearing right after Apple, Google et al got their hands slapped for colluding to hold down engineer salaries.

https://www.theguardian.com/technology/2014/apr/24/apple-goo...

Re: Ask HN: Pros and cons of working at a startup in 2018?

#888

Post by icedchai »

acconrad wrote: post #885
icedchai wrote: post #876

Earlier quoted context omitted.

If founder has x100 the equity of employee #1, employee #1 screwed up.

Welcome to this entire conversation on why early employee compensation isn't fair.

My point is Employee #1 should’ve asked for more. 1% isn’t enough. Maybe 5 or 10% is.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#889

Post by rosser »

icedchai wrote: post #888
acconrad wrote: post #885

Earlier quoted context omitted.

Welcome to this entire conversation on why early employee compensation isn't fair.

My point is Employee #1 should’ve asked for more. 1% isn’t enough. Maybe 5 or 10% is.

Yes, let's blame the person that structurally has less power in the dynamic for having that power imbalance used against them.

Of course you can try to negotiate for more. Enough people want to work at a startup however that if you ask too much, you'll get passed on, and they'll just hire the next candidate who doesn't act so entitled to a meaningful piece of the founders' pie. It's exactly the same phenomenon that lets the big game studios chew up and spit out engineers: there's always someone else willing to take the job for less, or even just put up with the status quo.

That's a massive part of the problem, and telling people to negotiate better doesn't address it — or even acknowledge it.

Re: Ask HN: Pros and cons of working at a startup in 2018?

#890

Post by sidlls »

kentonv wrote: post #807
sidlls wrote: post #804

Earlier quoted context omitted.

That was part of the comment: at that point it's more like a co-founder not an employee. So: very few obviously. Perhaps more reasonable is 1-2% per for the first 5-10 hires, then 0.5-1% for the next batch, etc. Also I really think these should be RSUs, not options. Employees are already invested in the startup by paying a premium in the form of reduced salary and opportunity cost.

If you give them Restricted Stock, though, they have to pay tax on whatever the 409(a) value is -- which is what the strike price would have been with options. You can give them a signing bonus to cover the tax, but at this point it's easier and actually better for the employee to give them the cash separately and say "you can use it to exercise if you like". Really the difference between options and Restricted Stock…

Sure; point being that employees ought not have to pay for their equity, because then it's not really compensation.
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