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There’s no such thing as “a startup within a big company”

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Re: There’s no such thing as “a startup within a big company”

#301

Post by rblatz »

dilyevsky wrote: post #270
ptmcc wrote: post #195

Earlier quoted context omitted.

Let's be careful here and not conflate options and RSUs, especially comparing between startups and public companies. Options in a startup are extremely likely to be worth nothing, ever. Not only does the company need some sort of liquidity or exit event, but the valuation then also has to be higher than the strike price on your options. And options usually have punishing exercise-or-lose-them requirements if you leav…

It’s still possible to lose money on rsus if the company value plummets bc they are taxed on liquidity event (assuming double trigger vest)

You can also elect to be taxed at the time of the grant via an 83b election.

Re: There’s no such thing as “a startup within a big company”

#302

Post by mensetmanusman »

This will only get less and less unlikely as it becomes obvious that only the management folks benefit greatly in compensation from risk-taking.

There is no way they would let their lowly engineers make seven figures if success was found. And the recent experience at Google, with engineers making seven figures, is some thing for them to point to saying “look, they will leave the company if they make too much money!”

Re: There’s no such thing as “a startup within a big company”

#303

Post by tjs8rj »

thegginthesky wrote: post #213
munificent wrote: post #183

Earlier quoted context omitted.

> when the startup becomes worthless (can happen for any number of reasons, and often do), then one wishes one had taken a salary (and reinvested in stocks or as seed investment - ways to gain equity exposure). Well, sure. And when the startup becomes worth billions, one wishes they had taken the options instead of a higher salary. This is just an observation that having information lets you make better decisions. Un…

The point is that the odds of any startup to be worth billions, or for an employee stock option be worth a lot more than accumulated high base salary, is very very low. So if one optimizes by using the expected value over time the conclusion is that high base salary tends to trump employee equity. One can make this sort of inference at any point in time, without hindsight at all.

The expected value is a fine way of looking at it. There’s other ways that favor the startup though. Working at SV startups your whole working life will still probably result in retiring very comfortably, with some fraction of the money your friend who worked at established companies their whole life.

At the midrange of the preference curve that’s a problem, but you’re still likely in the same order of magnitude of wealth. The difference is if you have a strong desire to have an order of magnitude more wealth, you often can’t do that in established companies only. At the least you can bounce into startups for the executive and leadership experience then bounce back to established companies at a managerial role, but by then you probably have the experience and connections to make a startup with its huge potential payoffs more likely.

If retirement comfort is what you seek, you will likely get reach that at startups too, but you will likely only see those massive payoffs with startups.

Re: There’s no such thing as “a startup within a big company”

#304

Post by Swizec »

tjs8rj wrote: post #300
Swizec wrote: post #122

Earlier quoted context omitted.

Modern Silicon Valley lets you do both. Why not throw the dice and still make around $200k cash? As a [good] engineer you can have your cake and eat it too. Sure it won’t make you a billionaire but you can live a comfy life, maybe win the lottery, and retire at 50 if the lottery fails.

By the time a startup can pay you serious base cash compensation, I don’t think it’s likely they could also pay you serious equity compensation as an individual contributor. There’s no lottery ticket there, just trade offs. A lottery ticket is usually huge payoff or nothing. $500k or less, even a million or less doesn’t really sound like a lottery ticket (not to downplay how life changing that payoff could be). Philo…

I mean it depends right? Even employee 1000 at Google made many millions. And it’s rumored that the Lyft IPO made several hundred millionaires.

Hell, a friend of mine made about 1mil at IPO (on paper) and she’s a tech support manager. Not sure how early she joined but always said the cash was her highest salary ever.

Re: There’s no such thing as “a startup within a big company”

#305

Post by mathattack »

rightbyte wrote: post #252
mathattack wrote: post #42

Earlier quoted context omitted.

It’s a combination of risk and forced standardization. Big companies try to standardize to allow C players to perform as Bs. This crushes As.

I have yet to see this mythical standardization on big companies.

In terms of people being pulled up or pushed down? Look at Walmart for both extremes.

Re: There’s no such thing as “a startup within a big company”

#306

Post by tcoff91 »

Animats wrote: post #283
tcoff91 wrote: post #261

Earlier quoted context omitted.

More and more companies are moving away from dividends to buy backs so for many stocks you have to sell to realize profits.

Yes, because stock buybacks reward management with options. Dividends do not. Many countries don't allow a company to buy its own stock.

Stock buybacks are more tax advantageous to investors than dividends. The price goes up and you sell some shares and pay long term capital gains if you’ve held for more than a year. This is cheaper than paying income tax on dividends.

Re: There’s no such thing as “a startup within a big company”

#307

Post by ssk2 »

CobrastanJorji wrote: post #186
ryandrake wrote: post #157

Earlier quoted context omitted.

True, but this is a vanishingly small edge case. You generally have to be a certain person to negotiate something like this with a big company. Surely the "Ninth Cog Engineer From The Left" at Waymo will not have the negotiating power to get this kind of profit-sharing or pay-for-value comp package.

I recall reading somewhere that Waymo had retention problems due to many of the early engineers were given so much money that they simply no longer cared to work. I don't know how true that is, but I believe it.

The Verge reported on this [1] in 2017-

> Bloomberg says that early staffers “had an unusual compensation system” that multiplied staffers' salaries and bonuses based on the performance of the self-driving project. The payments accumulated as milestones were reached, even though Waymo remains years away from generating revenue. One staffer eventually “had a multiplier of 16 applied to bonuses and equity amassed over four years.” The huge amounts of compensation worked — for a while. But eventually, it gave many staffers such financial security that they were willing to leave the cuddly confines of Google.

[1] https://www.theverge.com/2017/2/13/14599186/google-waymo-sel...

Re: There’s no such thing as “a startup within a big company”

#308

Post by zalequin »

1vuio0pswjnm7 wrote: post #272
nojvek wrote: post #77

When I was at PowerBI in Microsoft, all the execs hailed it as Startup within Microsoft. Come work here instead of Uber. I worked like a dog, sometimes till 2am in morning. My manager would routinely ask us to come on weekends. I was naive, I thought we are growing customer base, this is what a startup looks like. The ultimate realization was in a startup you have equity, a decent amount in a good startup. At Microso…

Jeff Bezos: "It's Day One." Ah, not quite. At that early stage, the risk and opportunities are different. He wants his employees to to work as hard as if it were Day One, but he cannot offer 10s of thousands of workers the same possibilities as if they arrived on Day One.

I think Bezos referred to the mindset of the people who live and die by the success of the company - namely the founders and executives who are responsible for making sure it succeeds.

Re: There’s no such thing as “a startup within a big company”

#309

Post by wpietri »

jjeaff wrote: post #227
wpietri wrote: post #209

Earlier quoted context omitted.

As somebody who also has a bunch of lottery tickets that didn't pay off, I feel your pain. But I think there's a bit of hindsight bias to your conclusion. I think it's entirely reasonable for people to trade salary for equity. I also think it's reasonable to stick with cash. As long as people are making well-informed choices, I'm entirely fine with gambling on a positive-sum effort. That said, there are good question…

There is also something to be said for the information asymmetry between employer and employee. From the outside, it is hard to know what the odds of winning really look like. Founders are always painting a rosy picture of how close we are to breaking out or getting that next huge round of funding. The reality may be totally different. Things may actually be rather bleak and they are hoping to just limp along, paying…

Absolutely. And in addition to a pure information asymmetry, there's also a strong interpretive difference. A founder is generally going to be person who most believes in the company, so they'll value the stock more highly than anybody else. I think it's totally reasonable for a prospective employee to say, "I think the odds are good, but not that good" and lean toward cash.

One formulation I've used that helps is to say, "From data source X, your market-rate comp package is $Y/year. You decide how much of $Y you want to use to buy in now, at a price set by the most recent investment round." That only works if the company has enough access to capital, of course. And it does set the price as that of the most optimistic VC the company could find. But I like that it takes it out of the realm of personality-based negotiation.

Re: There’s no such thing as “a startup within a big company”

#310

Post by kerng »

nojvek wrote: post #77

When I was at PowerBI in Microsoft, all the execs hailed it as Startup within Microsoft. Come work here instead of Uber. I worked like a dog, sometimes till 2am in morning. My manager would routinely ask us to come on weekends. I was naive, I thought we are growing customer base, this is what a startup looks like. The ultimate realization was in a startup you have equity, a decent amount in a good startup. At Microso…

Good comment.

It seems the only ones benefiting are the partners in these companies - who actually try to create that startup narrative and get the compensation in return.

If a group within a large company tries to advertise as startup, it's a big red flag.

One should join a company like Microsoft to learn and see how things are done in a mature place and to have good work life balance with reasonable pay - then if you want take that knowledge and experience with you outside to a startup if you want.

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