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Big Tech Company Salaries Are Hurting Startups

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Re: Big Tech Company Salaries Are Hurting Startups

#241

Post by mring33621 »

alpha_squared wrote: post #201
mring33621 wrote: post #152

Earlier quoted context omitted.

Yes. I'm an older, successful dev in Chicago. I recently corresponded w/ a local startup CEO on linkedin. My skillset seemed to be a good fit for the role, but their stated top salary would be a 20K pay cut for me. So I ran a quick estimate, based on expected exit and expected dilution figures that I found on the internet (I know, grain of salt...), added a risk premium for myself, and found that I would want about 7…

> ...found that I would want about 7% equity, in order to be interested. They said no, of course. You wanted 7% equity to make up for 20k? That seems a little excessive...

I used a very simple model for my estimate:

5 years to exit * 20K yr opp cost = 100K total opp cost

I think my payback should be twice my total opp cost, so I want 200K at exit

1% chance of exit at 600M valuation after those 5 years

I would expect my initial equity to be diluted to 50% of original value.

Hence, I want 6.7% equity at the beginning of the 5 years.

Note that, IMHO, I am being very conservative in calculating my opportunity cost for the lost salary.

Re: Big Tech Company Salaries Are Hurting Startups

#242

Post by holydude »

throwaway2016a wrote: post #145
holydude wrote: post #103

Earlier quoted context omitted.

"We had someone come in interviewing for a senior that I would place as a mid (generously...)" Exactly. Do not be so cocky. This is free market and while you are entitled to your opinion why should a candidate try too hard to get a position that pays less than half of what he will get elsewhere just because his skills are not up to your standards ? You cannot really assess my skills in an interview the same way I can…

Don't be so quick to judge. Placing someone at mid / senior / junior is not "cocky"... it's pretty subjective if you do it right. The guy missed questions that over 50% of our applicants knew the answers to. I'm not talking the "implement this obscure algorithm from scratch on a whiteboard" kind of question HN is so fond of. The hardest coding question we ask is Fizz-Buzz. But we can't / won't pay him more than we pa…

Well I have to tell you this that there are a lot of companies that want you basically re-engineer the whole universe and want to pay you peanuts while I can get a DECENT salary (eg. your 70-75k vs 100k) and have time for my family and hobbies doing less challenging job.

I won't comment on whether the guy was or could be a senior because I obviously did not attend the interview but there are many many incredibly skilled people that just suck at doing f2f / online interviews.

Re: Big Tech Company Salaries Are Hurting Startups

#243

Post by rpmcmurphy »

bla2 wrote: post #5

Sounds like the market is telling startups that early engineers are worth more than 0.1% of stock options.

My experience has been that options have negative value. I learned this the hard way when I exercised options from a firm that has since gone sideways. I ended up with a $40,000 tax bill on stock that is worthless.

Nowadays I only look at companies that can offer RSUs. Until the re-write the tax code to stop taxing people on fictional gains, options are crap, especially with companies remaining private far longer than you are likely to remain working there.

Re: Big Tech Company Salaries Are Hurting Startups

#244

Post by holydude »

throwaway2016a wrote: post #234
jdbernard wrote: post #196

Earlier quoted context omitted.

Sounds like he is well aware that they aren't paying market salaries: > - We are probably priced out of the market

Also what I meant when I said... > I work at a startup that isn't profitable yet so our salaries are very low... ... was "too low... if we could afford it I'd pay three times that much" not "oh look what a great deal we are getting! Haha, suckers!"

Then I guess you are targeting the wrong pool of candidates. Do the candidates know how much can you pay (ranges?). It often happens that I as a candidate have to go through several rounds just to learn that they can't afford me.

Re: Big Tech Company Salaries Are Hurting Startups

#245

Post by beisner »

comstock wrote: post #28
throwaway2016a wrote: post #21

I work at a startup that isn't profitable yet so our salaries are very low... - Our typical junior makes $50 - 60k - A typical mid makes $65 - 75k - Seniors (including CTO) make $90 - 110k In greater Boston. It is VERY difficult to hire at those rates. We had someone come in interviewing for a senior that I would place as a mid (generously...) and he accepted another offer for $150k. At our scale he would be making $…

Increasing equity is great, but in general my view is that increased equity does two things: 1. It compensates for the increased risk of working for a startup (you don't have as much runway as google, might fail to raise your next round). 2. It gives the employee a stake in the company, and aligns their interests with making the company successful. I.e. Not just doing whatever they're told, failing to raise potential…

I think it can depend on the size of the operation, and your mindset. If I'm employee #100 at a well-funded startup, I'd tend to agree with you and value equity as a risk adjusting factor. But if I'm employee #5, I probably would take a pay cut in exchange for a significant chunk of equity - if I was even considering such a risky operation, I probably wouldn't be in a place in my life where job security was especially important to me.

Re: Big Tech Company Salaries Are Hurting Startups

#246

Post by humanrebar »

TeeWEE wrote: post #163

Wow we are really getting underpaid here in Europe (Amsterdam). Max salaries for Seniors is really around 70k per year. Without an extra bonus.

Dunno if it makes up all the difference, but in U.S. vernacular, salaries are given pre-tax.

Re: Big Tech Company Salaries Are Hurting Startups

#247

Post by nugget »

mring33621 wrote: post #241
alpha_squared wrote: post #201

Earlier quoted context omitted.

> ...found that I would want about 7% equity, in order to be interested. They said no, of course. You wanted 7% equity to make up for 20k? That seems a little excessive...

I used a very simple model for my estimate: 5 years to exit * 20K yr opp cost = 100K total opp cost I think my payback should be twice my total opp cost, so I want 200K at exit 1% chance of exit at 600M valuation after those 5 years I would expect my initial equity to be diluted to 50% of original value. Hence, I want 6.7% equity at the beginning of the 5 years. Note that, IMHO, I am being very conservative in calcul…

Alternatively you could have accrued the salary deficit as convertible debt that would roll into the next funding round, at a discount -- which is a bit more anchored than estimating a 1% chance of exit at $600M valuation (if you were serious about wanting the job, which it sounds like you mostly weren't).

Re: Big Tech Company Salaries Are Hurting Startups

#248

Post by mring33621 »

mring33621 wrote: post #241
alpha_squared wrote: post #201

Earlier quoted context omitted.

> ...found that I would want about 7% equity, in order to be interested. They said no, of course. You wanted 7% equity to make up for 20k? That seems a little excessive...

I used a very simple model for my estimate: 5 years to exit * 20K yr opp cost = 100K total opp cost I think my payback should be twice my total opp cost, so I want 200K at exit 1% chance of exit at 600M valuation after those 5 years I would expect my initial equity to be diluted to 50% of original value. Hence, I want 6.7% equity at the beginning of the 5 years. Note that, IMHO, I am being very conservative in calcul…

All these figures are subject to debate and would be more realistically modeled by probability distributions, but I was looking for a back-of-the-napkin quick estimate as a starting point for negotiation.

I also neglected to make explicit my use of the expected value of the exit in my calculations.

I hope this helps to clarify my thinking.

Re: Big Tech Company Salaries Are Hurting Startups

#249

Post by runT1ME »

throwaway40483 wrote: post #57
hashkb wrote: post #8

I don't think the average engineer with 5 years of experience makes 250k; not even in the top 10%. And startups DO pay that much, it's just reserved for powerful exec hires. Just pay more if you want the best engineers. Asking for a world where top talent works for less money is stupid.

Hey. CEO here. So you're telling me if I raise salaries I might hire better engineers? Hmm, wonder if there are any theories about this relationship.

No, you need to raise compensation. If someone is worth 250k at Google, they may work for your company for 150k if they get 600k worth of options paid out over four years at a reasonable valuation.

Re: Big Tech Company Salaries Are Hurting Startups

#250

Post by kozikow »

My solution: business and executives in Bay Area, engineering in Poland.

Syncing: I have to wake very early every day, but it's a small sacrifice in the grand scheme of things. "Remote, office not required" book have a case study of 37signals with two founders in Europe in USA. European moves his day forward, USA wakes up very early, at least 4 hours of overlap a day is enough.

Relocation: If you open European subsidiary, you can long term relocate people to USA on L1 if necessary.

How to find good people: It helped that I studied in Warsaw before relocating to Bay Area and I know some good people who stayed in Poland due to personal reasons.

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