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The tech sector teardown is more catharsis than crisis

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Re: The tech sector teardown is more catharsis than crisis

#191

Post by gsibble »

tyrfing wrote: post #116
crate_barre wrote: post #62

Someone needs to explain to me why our tech companies are so tied to interest rates. Are VCs borrowing with home mortgage equity??

Most of these tech companies build business models around giving away money, with a plan of eventually making a profit. They are affected by interest rates because the higher interest rates you have today, the more attractive it is to have money today instead of tomorrow. Interest rates available today are the discount rate for those future cash flows (profit).

This. Historically, a company is fundamentally valued by the discounted rate of its free cash flows into the future. The discount rate is decided by several factors including the risk free rate.....which is frequently tied to interest rates. So interest rates go up, the risk free rate goes up, cash flows become worth less, and corporate valuations go down.

Re: The tech sector teardown is more catharsis than crisis

#192

Post by UncleMeat »

arcticbull wrote: post #178
UncleMeat wrote: post #167

Earlier quoted context omitted.

> After 3-4 years in a staff role you can easily be making $1-2M/yr. Refreshes exist but this is a total lie. I'm staff at Google. Nobody at L6 is making $1M in annual compensation, even if they have their sign-on equity and three refreshes. Let alone $2M.

Ok so I'm speaking from personal experience and network. The point is that 3-4 years tenure is enough for significant appreciation in equity, especially in the earlier grants. Let's work an example, for someone who started 3 years ago. - May 2019. - Base: $225K. Equity: $880K grant = 785sh @ 1120/share = 220K. Bonus: $60K. Total: $500K. - May 2020. - Base: $236K. Equity: 196sh @ 1428/share = 280K. Equity: $220K grant…

Okay if the stock price more than doubles in two years then yeah you can end up making a lot of money. This is why it is foolish to use vest price rather than grant price when discussing compensation. It isn't actionable information.

And Google wasn't giving $880k sign-on equity grants for L6 in 2019. You can't use todays numbers for past cases. And then you are choosing a peak pay before it drops dramatically after the sign-on grant ends. And after all that, you aren't even at 1M, let alone "easily 1-2M". With literally everything being used to pump numbers up, you don't get to where you cite.

So yes, there are people at loads of companies who make way more money than advertised because the stock ballooned. But this is a completely useless way of analyzing compensation.

Re: The tech sector teardown is more catharsis than crisis

#193

Post by arcticbull »

UncleMeat wrote: post #192
arcticbull wrote: post #178

Earlier quoted context omitted.

Ok so I'm speaking from personal experience and network. The point is that 3-4 years tenure is enough for significant appreciation in equity, especially in the earlier grants. Let's work an example, for someone who started 3 years ago. - May 2019. - Base: $225K. Equity: $880K grant = 785sh @ 1120/share = 220K. Bonus: $60K. Total: $500K. - May 2020. - Base: $236K. Equity: 196sh @ 1428/share = 280K. Equity: $220K grant…

Okay if the stock price more than doubles in two years then yeah you can end up making a lot of money. This is why it is foolish to use vest price rather than grant price when discussing compensation. It isn't actionable information. And Google wasn't giving $880k sign-on equity grants for L6 in 2019. You can't use todays numbers for past cases. And then you are choosing a peak pay before it drops dramatically after…

> So yes, there are people at loads of companies who make way more money than advertised because the stock ballooned. But this is a completely useless way of analyzing compensation.

I couldn't disagree more. If half your total compensation is derived from stock, then you better be looking at yourself not just as an employee but as an investor. And part of that means making projections.

Re: The tech sector teardown is more catharsis than crisis

#194

Post by worik »

gsibble wrote: post #191
tyrfing wrote: post #116

Earlier quoted context omitted.

Most of these tech companies build business models around giving away money, with a plan of eventually making a profit. They are affected by interest rates because the higher interest rates you have today, the more attractive it is to have money today instead of tomorrow. Interest rates available today are the discount rate for those future cash flows (profit).

This. Historically, a company is fundamentally valued by the discounted rate of its free cash flows into the future. The discount rate is decided by several factors including the risk free rate.....which is frequently tied to interest rates. So interest rates go up, the risk free rate goes up, cash flows become worth less, and corporate valuations go down.

Discounting is a fool's game, IMO.

We only have data for the present and the past. Prediction is hard, especially for the future.

I prefer using nominal quantities, known values, and ignore people's predictions. Not that they are always wrong, or never right. But because I like to make decisions based on facts.

Re: The tech sector teardown is more catharsis than crisis

#195

Post by worik »

UncleMeat wrote: post #165
thebean11 wrote: post #101

Earlier quoted context omitted.

Coinbase isn't paying $380k base either..are you just quibbling over the meaning of salary?

I don't think it is quibbling. It is a really important distinction. Salary is (mostly) guaranteed. Equity isn't guaranteed at all.

> Salary is (mostly) guaranteed

Truth

The salary I banked at the beginning of the month is guaranteed.

Re: The tech sector teardown is more catharsis than crisis

#196

Post by zeruch »

mlom wrote: post #180
Clubber wrote: post #158

Earlier quoted context omitted.

>Almost every company views tech as a competitive edge, and that is simply not going away. I hope you're right. In my experience, most large companies see tech as a cost center.

the entire point of large scale technological literacy is to replace the tech sector. no web app you write is going to be more useful to an organization than an administrative staff that just knows SQL and can use it on the fly for queries, reports, and analysis. software developers are working against the tide: think about how much simpler dev tools are than user tools. as users become more sophisticated then you ex…

"as users become more sophisticated then you expect them to need simpler rather than more complex tools."

That sentence seems inherently contradictory.

...and yet all the stuff being built by and large makes users less sophisticated as consumers and their 'technological literacy' questionable. At no point in the last 3 decades, and no one moving forward currently, has shown any interest in making the masses use SQL for anything at an administrative level, and users have shown ever less interest in how any of the tech works, or what it can do, as long as it fulfills whatever prima facie use case they care about.

Re: The tech sector teardown is more catharsis than crisis

#197

Post by lemonlime »

onlyrealcuzzo wrote: post #142
robbomacrae wrote: post #140

Earlier quoted context omitted.

"cannot possibly provide the value necessary to keep their job." It's actually very much possibly for software engineers, at least, to justify high valuations. As an example when I joined Reddit my first task was to remake a data engineering server in scala that cut down the needed AWS machines by 70%. That cost saving already covered more than my salary in perpetuity and I was only 3 months in.

The vast majority of startups aren't doing anything remotely complex enough to be able to save money on electricity by paying for developers to write more efficient software. Or if they can - the instances are few and far between. The vast majority of startups are also heavily cash-flow negative - so anything you do likely won't pay for itself. It's almost always a bet on a rosy future.

The vast majority of engineers earning these salaries work for "startups" like Google minting huge amounts of money on software built by these engineers. They are underpaid if anything. Do you really think management or shareholders (that get paid more for doing less) are the underpaid ones in this equation? Where else would the money go?

The amount of revenue per employees at some of these companies is in the 7 figures.

The "vast majority of startups" is not a useful unit of measure. Look at where all the people and the money actually are (FAANG).

Re: The tech sector teardown is more catharsis than crisis

#198

Post by lemonlime »

gsibble wrote: post #186
robbomacrae wrote: post #140

Earlier quoted context omitted.

"cannot possibly provide the value necessary to keep their job." It's actually very much possibly for software engineers, at least, to justify high valuations. As an example when I joined Reddit my first task was to remake a data engineering server in scala that cut down the needed AWS machines by 70%. That cost saving already covered more than my salary in perpetuity and I was only 3 months in.

I was paid $165k a year by a neobank startup to.....build their bank. It's now responsible for over $200mm a year in revenue. I was the sole engineer on the project. Good engineers are worth their weight in gold.

Yeah when I read takes like the guy you're responding to, I have to wonder: where should the money go if not to the people that built the product? Management? Shareholders? You can say that but those people are doing less work for more money already, so I don't buy it.

Engineers like many people that build useful things, provide orders of magnitude more value than what they get for their labor.

Re: The tech sector teardown is more catharsis than crisis

#199

Post by nomel »

BoxOfRain wrote: post #85
DebtDeflation wrote: post #26

Earlier quoted context omitted.

>There’s a whole generation of tech employees that have never seen a down market. Indeed. I lived through both the 2008 financial crisis and the 2000 dot com implosion (also graduated high school and went off to college right during the 1991 recession). People who entered the job market after 2015 and know nothing except recruiters constantly hitting them up with mid six figure+ job offers are in for a rude awakening…

What advice would you give to people who've not been in the tech industry during a recession yet?

To counter these answers a little...

I saw the dot com bubble burst, and then made it through a round of layoffs in early 2k, and again near 2008.

I saw people lose their homes, go bankrupt, and end up in bad positions. It really scarred me, to the extend where I won't work at a company that doesn't actually make something of value, or doesn't have an existing line of profit. I don't consider stock options when taking a position, since it's very rare they actually end up being worth anything significant, even with a buyout. I live well within my means so I can take a salary that's 1/2 and be ok, if needed.

But, as the counter, you could easily, and rightly, claim that this has caused me to not make a significant amount of money by taking these less risky positions. Those risky positions pay more because they are risky, and everyone knows it.

Re: The tech sector teardown is more catharsis than crisis

#200

Post by onlyrealcuzzo »

lemonlime wrote: post #197
onlyrealcuzzo wrote: post #142

Earlier quoted context omitted.

The vast majority of startups aren't doing anything remotely complex enough to be able to save money on electricity by paying for developers to write more efficient software. Or if they can - the instances are few and far between. The vast majority of startups are also heavily cash-flow negative - so anything you do likely won't pay for itself. It's almost always a bet on a rosy future.

The vast majority of engineers earning these salaries work for "startups" like Google minting huge amounts of money on software built by these engineers. They are underpaid if anything. Do you really think management or shareholders (that get paid more for doing less) are the underpaid ones in this equation? Where else would the money go? The amount of revenue per employees at some of these companies is in the 7 figu…

Define FAANG.

Facebook, Apple, Amazon, Netflix, and Google employ <1M engineers in the US. There are 4.4M engineers in the US.

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