Just how much is that 2% really worth? • Hacker News Board

Re: Just how much is that 2% really worth?

#91

Post by WalterSear » Thu, Jul 03, 2014, 6:13 PM UTC

hkmurakami wrote: post #17

nilkn wrote: post #13

This reminds me of the early-stage startup that offered me a $55k salary in a big city and zero equity to be engineer #3. They told me that if after a year I'd become an integral member of the team then we could discuss equity. Meanwhile they tried to sell me on the job by saying that if the company succeeded we'd never have to work again.

I really don't understand what these companies try to accomplish by essentially lying to you and trying to defraud you of your value. Do they really think you'd sitck around for long under these terms after you find out inevitably how badly you're getting fucked?

They try to sell it because they believe it themselves.

This is almost worse than them lying, insofar as incompetence can be more damaging than selfishness: you can negotiate with a selfish person to get something for giving them what they want. You can't get anything out of someone who can't deliver.

Re: Just how much is that 2% really worth?

#92

Post by 7Figures2Commas » Thu, Jul 03, 2014, 6:17 PM UTC

eloff wrote: post #82

onion2k wrote: post #7

My advice to people who want to work in a startup is always very simple: Ignore any equity. If you'd take the job without any equity then take the job. If the equity is part of your reason for taking the job, you probably shouldn't take it. Base rate neglect[1] means we are terrible at evaluating the probability of equity being valuable. For every story about someone making millions out of their equity when the start…

I know you're not being serious about the bank thing, but I just want to say, if you're a programmer and you love what you do, and you're good enough to be choosy, don't work for anyone (especially banks!) whose main job is not software. There are a few exceptional companies, but mostly it's a good rule of thumb. Working for Dilbert's pointy haired boss is just not a recipe for happiness - who cares if it pays well.…

Lots of "software" companies are just as political as big corporations, and startups in particularly are often much more chaotic/stressful and offer far less job security.

Notwithstanding the fact that a ton of companies that would like to believe they're "software" companies really aren't, the high turnover at Silicon Valley firms suggests that working for these types of software-centric employers isn't the happiness panacea you make it out to be.

Re: Just how much is that 2% really worth?

#93

Post by SeoxyS » Thu, Jul 03, 2014, 6:19 PM UTC

drcoopster wrote: post #37

calebclark wrote: post #10

Earlier quoted context omitted.

There is a bug that triggers when you add a funding round. It takes your equity percentage down to zero, regardless of the amount raised or pre-money valuation.

That's not a bug.

How so? I agree that as soon as you add a round of funding, the math gets wonky.

For example, I'm trying to model what a ~5% ownership looks like, and as soon as I add a round of funding that creates 10% dilution with no liquidation preferences, the site says the final ownership percentage is zero. It doesn't even matter what the exit is for at that point, without liquidation preferences, the ownership should still be ~4.6%.

Re: Just how much is that 2% really worth?

#94

Post by Jemaclus » Thu, Jul 03, 2014, 6:19 PM UTC

mattzito wrote: post #27

hkmurakami wrote: post #17

Earlier quoted context omitted.

I really don't understand what these companies try to accomplish by essentially lying to you and trying to defraud you of your value. Do they really think you'd sitck around for long under these terms after you find out inevitably how badly you're getting fucked?

A lot of the startups that I see that try this are doing it because they really believe that they're bringing the value in this relationship - that they're going to be so successful, there's so much money here, they have SUCH a good concept, that the applicant should be grateful to get in on the ground floor. Of course, 90%+ of the time they're totally wrong about everything about what they're bringing to the table,…

I got an offer last year from a company who offered me a 25% salary cut from my current salary and some negligible equity percentage, and then got all huffy when I tried to negotiate the salary. In their mind, the equity was worth so much money, they could pay me peanuts and I should still take the job. It was a huge turn-off. The guy basically told me to go off. "Why bother with startups, then?" he says. Completely missed the point of equity/salary.

Re: Just how much is that 2% really worth?

#95

Post by dreese » Thu, Jul 03, 2014, 6:24 PM UTC

htormey wrote: post #58

dreese wrote: post #38

Earlier quoted context omitted.

I think about startup employee equity like this: Salary = compensation for doing the job Equity = compensation for taking the risk of working at a company with a high chance of failure Therefore, in the future, an employee with lots of equity should still be paid a normal salary/raise/bonus because the equity isn't "current" compensation for doing the job, but a reward for taking a risk long ago. But ignoring equity…

"Much better to say that you should consider salary and equity separately. One is for doing the job and the other for doing it now when uncertainty and the possibility of failure are high. Also, some people (like me) would trade an increase in equity for a smaller salary, so it's not a perfect separation. I had a job offer once that gave me two options to choose from, which was really cool." So the two options you we…

I don't think it negates my point. It's just that I don't follow my own advice perfectly. :)

It's also a little similar to how founders essentially work for free in exchange for lots of ownership. If, as an employee, I can work for less money now, then I'm taking a bigger risk betting on the outcome of the company.

Startups often want to minimize cash flow, and some employees are interested in helping out with that in exchange for having more ownership. So it works for both sides.

But I try to keep "doing the job for salary" and "taking a risk for equity" separate in my mind.

Re: Just how much is that 2% really worth?

#96

Post by ambrood » Thu, Jul 03, 2014, 6:24 PM UTC

potatolicious wrote: post #78

LaGrange wrote: post #45

Earlier quoted context omitted.

Increased risk of losing your job.

Right, but for engineers working in startup hubs, is that really a risk? You can pick up a phone and have a parade of offers on your desk in a few days. At most your risk is missing out on, say, a week's wages between jobs.

There are many of us on an H1-B here potatolicious. Technically I get 10 days to wrap my affairs and leave the country, not to mention losing any greencard application...

Re: Just how much is that 2% really worth?

#97

Post by drcoopster » Thu, Jul 03, 2014, 6:27 PM UTC

SeoxyS wrote: post #93

drcoopster wrote: post #37

Earlier quoted context omitted.

That's not a bug.

How so? I agree that as soon as you add a round of funding, the math gets wonky. For example, I'm trying to model what a ~5% ownership looks like, and as soon as I add a round of funding that creates 10% dilution with no liquidation preferences, the site says the final ownership percentage is zero. It doesn't even matter what the exit is for at that point, without liquidation preferences, the ownership should still b…

Because in real life, you still end up with nothing of value. :)

Re: Just how much is that 2% really worth?

#98

Post by optimusclimb » Thu, Jul 03, 2014, 6:32 PM UTC

I'm starting to feel like the entire equity offering model is broken.

While I agree that you should take a job at a startup for reasons intrinsic to the job itself, and not just the comp (or possible comp) - it is still part of the offer.

If someone is offering you a form of compensation, that means you should be able to evaluate it. Otherwise the offer might as well come with a guarantee of two unicorns after four years.

Additionally, almost EVERY startup trying to entice people to work for them mentions the equity as part of the sales pitch. "Meaningful equity", "Ownership in the company", "Shares of a pre-IPO company", etc, etc.

So if you're pitching people based off of an intangible, almost meaningless number, that smells like a problem, to me.

I understand all of the complications, the effect of future rounds being an unknown, etc...but is there a way to improve this?

Perhaps if, at the time of offer, and with each change in funding - there was a clearly spelled out, given possible outcome at this time, here's the breakdown of what you get - that could help?

I.e., If were were bought out at $100M right now, the founders would receive $12M, and you would end up with $37k...maybe people could evaluate better how "worth it" it is to them.

Additionally, when things happen like founders getting cashed out for some sort of comfort effect, like "OK guys, you each at least got a million out of this, run the company now with some security behind you"...employees should be made aware.

I guess I just feel like there needs to be more transparency, but I'm not savvy enough to know a good way to offer that.

Re: Just how much is that 2% really worth?

#99

Post by dreese » Thu, Jul 03, 2014, 6:36 PM UTC

btilly wrote: post #87

birken wrote: post #64

Earlier quoted context omitted.

Equity clearly has some value though, based on the fact that in any successful startup investors pay a lot of money for it. If you are considering taking equity, you should treat it like a potential investor would. Ask hard questions. Look at the balance sheet. Look at the company deck. Look at the previous funding rounds. Research the backgrounds of your potential coworkers. (If the company wont share this informati…

The difference between an employee and an investor is that the investor puts their eggs in many baskets, and an employee puts all of their eggs in one basket. So investors get diversification of risk while employees do not. Therefore consistently accepting low probability but potentially high return choices on average works out well for investors and not for employees. And in fact investors push this way - their ince…

'Seriously, the difference between "last founder" and "first employee" is so huge that people who can derive their day to day motivation from equity should be founders.'

I think this is spot-on.

Re: Just how much is that 2% really worth?

#100

Post by cellis » Thu, Jul 03, 2014, 6:38 PM UTC

pnmahoney wrote: post #56

nawitus wrote: post #32

Earlier quoted context omitted.

>If you want to make millions in software, get a job writing code at a bank and invest your salary. Really? Even if some 'banks' pay better, these banks tend to be located in a handful of cities in the world - but there are startups in a lot of more locations. And it doesn't seem clear that finance firms pay that well: > The average base salary for a software engineer at a finance firm is $92,000, not far ahead of th…

The best in finance have most of their compensation on a perfomance-bonus basis. so for a highly sought after trading associate (real example, really high valued financial institution), get 100k base but also getting forward guidance for a 200k bonus at an absolute minimum - e.g. if not turning out to be completely incompetent.

And the best in software make tens of millions. What is your point? If we're comparing outliers, software engineers at software firms win by a long shot.