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Joining a startup: high salary, no equity OR "startup salary" with equity?

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Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#41

Post by tikhonj »

ChuckMcM wrote: post #17

Interesting conversation. The answer is actually much simpler. "Never work for a salary that you can't live on." which is to say that if you are an employee of a startup you should first make sure that you can live day to day on your compensation before you talk about equity. Remember that compensation consists of salary, benefits, and vacation time. They all contribute. Once you have that out of the way, you can thi…

I think your answer is perfect: make sure you're making enough not to worry about money unduly and then pick whichever one seems more fun. I find worrying too much about getting the highest expected return just isn't worth it, at least to me.

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#42

Post by tikhonj »

throwaway52212 wrote: post #40

This is perfect timing. Can someone offer me advice? I'm young. I'm in the process of negotiating to join a biotech startup in the Bay Area. I am a graduating undergraduate student, and interned with the startup team previously when they were working in research at BigCo. They left, licensed their own hardware patents from BigCo, and are starting up. They are asked me to join them in return for housing reimbursement,…

Take my advice with a grain of salt because I'm still a student, but I'd join the company. You don't really need large amounts of money just after graduating, and besides, most people in other majors probably end up making even less. On the other hand, working for a small startup would probably be more interesting and exciting, especially if you like the founders. Then, if it doesn't pan out, you would probably have no problem finding a job at a bigger company for a sufficiently high salary. So maybe you'd make less money overall in the event of a the biotech company's failure, but you'd still have enough to not worry and a more interesting experience.

Also, your risk tolerance as a fresh grad is much higher than it will be in the future. You (probably) don't have an expensive lifestyle or a family, and you can live pretty cheaply yourself. So you have much less reason to be leery of equity than somebody older and more established.

I personally think that the best time to work for a small startup is just after graduating, and that it's definitely worth doing at some point in your life. So I would go for it in your position.

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#43

Post by rmATinnovafy »

jobu wrote: post #34
emmett wrote: post #33

Earlier quoted context omitted.

If they're not paying you and you accept But if they've raised money and you're drawing a salary? The startup is massively de-risked. You should accept far less equity. You take on virtually none of the downside risk and still participate in the upside risk. As an employee, the situation you want to avoid is the quick flip. Do the case analysis: Failure: better to be a first employee than a founder. You should be bet…

"Don't work for people who want to flip their company to Google in 6 months. Work for people who want to change the world." That's a great point. I really think any entrepreneur looking for a quick out is another sign of an (un)intentional scam artist.

You make a very good point.

Is someone who is doing a startup in hopes of hitting the startup lottery (when you get bought out) a scam artist?

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#44

Post by Drbble »

wpietri wrote: post #29
snorkel wrote: post #11

high salary. Even if the startup is positioned well with deep pocketed investors you won't be able to cash out the equity for at least 8 years (a typical time span from launch to IPO or buyout for a successful startup) assuming you still work there (or you quit and purchase your vested options with your own money) ... and the odds of any given startup reaching a miletone where the equity is worth selling is small.

FYI, median time to exit for VC-backed companies is down in the 4-5 year time range: http://www.dowjones.com/pressroom/releases/2011/04012011-VCE... A few years back the median was more like 7.

I would estimate that the exits that are sooner tend to be smaller.

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#45

Post by Drbble »

aamar wrote: post #39
beagle3 wrote: post #22

First, it depends on your risk aversion. If you have kids to support, you usually can't afford take as much risk - so the "startup salary" might not even be an option. But assuming you can afford the risk: Make a guesstimate about the expected value of an exit, add some risk premium, and compare. e.g. If you assume $1B exit with prob. 3% (and no other outcomes), the expected value of the company is $30M. If you are o…

This is a good comment because it steps through the math. People seem to go to amazing lengths to avoid doing back-of-the-envelope calculations of this sort. Thank you. I will say that "3% of $100M (and no other outcomes)" would be an extremely pessimistic assessment of a startup, a so-called "risky double."

Pessimistic is realistic. Most businesses fail.

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#46

Post by Drbble »

beagle3 wrote: post #23

A very important aspect that people usually overlook in these cases is the exercise price (in case of options), or immediate tax consequences (in the case of an RSU 83(b) election). If the question is relevant to you, CONSULT SOMEONE WHO'S PROFESSIONALLY DOING THIS STUFF, or at the very least, make sure you read a lot about it. Generally speaking, the equity you receive (in whatever form) will effectively only reflec…

83b election and postponed exercise protect you from tax on forfeiture. They don't protect you from decrease in share value, though.

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#47

Post by gergles »

beagle3 wrote: post #23

A very important aspect that people usually overlook in these cases is the exercise price (in case of options), or immediate tax consequences (in the case of an RSU 83(b) election). If the question is relevant to you, CONSULT SOMEONE WHO'S PROFESSIONALLY DOING THIS STUFF, or at the very least, make sure you read a lot about it. Generally speaking, the equity you receive (in whatever form) will effectively only reflec…

That understanding of RSU taxation is completely inaccurate, so I would agree with your advice to consult with a professional beforehand, rather than "read a lot about it".

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#48

Post by jsolson »

Here's a thought: high salary, no equity.

After one year, no raise, but 20% (or perhaps more) of your salary as equity at the company's most recent valuation.

Would any startups consider taking this?

Would any other potential employees of startups consider it?

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#49

Post by j45 »

capsule_toy wrote: post #32
j45 wrote: post #9

If the CEO has been a success before at a level you want to be: consider equity. If there's no track record, the equity isn't worth the paper it's printed on. You'll come out ahead with the high salary until you are really on an all star team with a track record.

Be careful with this. If the founders already had a successful exit and are already set financially for life, they'll be more willing to turn down life-changing amounts of money at the shot of an even bigger payout.

This is a totally insightful and important point. If the founders aren't working every bit as hard (or smart), if not harder, than the rest of the team; RUN.

Re: Joining a startup: high salary, no equity OR "startup salary" with equity?

#50

Post by beagle3 »

gergles wrote: post #47
beagle3 wrote: post #23

A very important aspect that people usually overlook in these cases is the exercise price (in case of options), or immediate tax consequences (in the case of an RSU 83(b) election). If the question is relevant to you, CONSULT SOMEONE WHO'S PROFESSIONALLY DOING THIS STUFF, or at the very least, make sure you read a lot about it. Generally speaking, the equity you receive (in whatever form) will effectively only reflec…

That understanding of RSU taxation is completely inaccurate, so I would agree with your advice to consult with a professional beforehand, rather than "read a lot about it".

Other than stating that you're smarter, could you point to a factual error in my numbers?
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