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Y Combinator Compensation Numbers

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Re: Y Combinator Compensation Numbers

#51

Post by philip1209 »

zachthewf wrote: post #7
philip1209 wrote: post #2

For late-stage startups like this, RSUs are common instead of options. Because stock is issued rather than purchased (like an option), I don't think this is dishonest. (If a company valuation stays flat, stock options are worthless - but RSUs have value). Either way: A thing to keep an eye out for is startups that describe the compensation value of stock using the preferred stock price, but then issue you common stoc…

You are right, but using the 409a pricing would not really be honest either. (In the sense that the 409a is basically "as low as we could reasonably value this stock" in order to keep the strike prices low.)

I understand the founder argument. "Our investors said our valuation was $XM, so we give you your stock grant based on that price." But, the investors don't take normal stock. They demand special ("preferred") stock with more voting power that can get paid first - before employees. So, the $XM valuation isn't fair between the different stock levels, and the employees are at the bottom of the food chain - most likely to walk away with nothing.

Startups typically give their employees stock or options, and how you price the stock has tax implications. So, the IRS strongly suggests that you do something called a 409a valuation, where a neutral 3rd-party professional accounting firm determines the value of each stock type in your company. So, if your startup valuation is Schrodinger's Cat, then the 409a process is intended to have some trusted third party open the box and see what's happening.

The problem arises when you report one valuation to the IRS, and another to employees. You can't keep two different sets of accounting books, and you can't represent two different sets of valuations at the same time. By having the third-party accounting firm issue a valuation and by issuing stock at that valuation, you're supposed to have eliminated uncertainty in your stock price - and if you haven't, then the tax treatment of your grant is at risk.

That duality is made clear when your offer letter says "$X" and the stock grant says "$You can say "Your stock is valued at $X based on a $Y liquidity event, and $Y is the post-money valuation of our last round of funding." But, that's not the same as "We advertise your stock as worth $X (but, shhh, that's not what we tell the government so keep it a secret)."

Re: Y Combinator Compensation Numbers

#52

Post by irq »

snir wrote: post #45
thraway3837 wrote: post #43

Earlier quoted context omitted.

What is your company's remote work position? I could not find it on your careers page and only saw 1 remote position listed. Is it 100% in office? Or expected to come in 3 times a week, etc? Can you please tell us?

Sure thing! We hire primarily out of SF, NYC, and Seattle -- in-person has boosted our productivity and been a lot more fun for us! Transparently, we have made a few exceptions, and are not entirely opposed to more, but it's really the exception rather than the rule. We are in-office 3 days a week, so there is some flexibility built in there, too.

Treating remote as the exception rather than the rule, or at least as a fully supported, equal labor force is the most common way I’ve seen companies get remote work wrong.

Re: Y Combinator Compensation Numbers

#53

Post by thraway3837 »

irq wrote: post #52
snir wrote: post #45

Earlier quoted context omitted.

Sure thing! We hire primarily out of SF, NYC, and Seattle -- in-person has boosted our productivity and been a lot more fun for us! Transparently, we have made a few exceptions, and are not entirely opposed to more, but it's really the exception rather than the rule. We are in-office 3 days a week, so there is some flexibility built in there, too.

Treating remote as the exception rather than the rule, or at least as a fully supported, equal labor force is the most common way I’ve seen companies get remote work wrong.

Retool: Thank you for your response.

irq: Agreed. It's just a roundabout way of saying they want everyone physically at work. Given that they're based in SF, and the real estate/rent is high and the need for a small group to boost downtown revenue, of course the investors will push for that since it benefits that group. Not having a clear remote only position for a 100% software company post pandemic is just not going to work for me, and there's no evidence that physically being together has any productivity gains.

Re: Y Combinator Compensation Numbers

#54

Post by thehucklecat »

In my startup we track another number in order to normalize our compensation.

We do a quick "expected valuation" calculation on the share price and use that, instead of the 409a or the valuation. This is how I actually value it in my own head, so we just kind of canonicalize.

example: I think there's a 1% chance 1billion a 5% chance we make 100M. A 40% chance we make 20M. So that's a 23M and then I calculate the value of an option based on that.

Using that, I can then try to "match" a salary from a public company. So we set our comp as 80% of the google levels.fyi data. (Chose google bc it has the fullest levels.fyi data).

This gives us a full compensation benchmark for any roles / levels. ie a Sr engineers makes 263k. But we pay 140 in cash and 123k in equity.

Then I can explain to an engineer. We feel like we're paying you as well as you would be paid at google, but you need to believe that we have a 1% chance at a billion. 5% chance at 100M etc. They can easily tweak these expectations too so they can compare offers. If they think there is a zero percent chance of 1B they can adjust the offer themselves in their head.

Re: Y Combinator Compensation Numbers

#55

Post by [deleted] »

temp_praneshp wrote: post #50
yen223 wrote: post #31

Earlier quoted context omitted.

If the company value stays flat, that means its valuation at liquidation time is equal to $Y

But in any offer I have received, I've seen two numbers: Preferred value(?): X, and strike price: Y, with Y well below X. In any case, you don't have to teach me all about options here, I was just curious :)

[deleted]

Re: Y Combinator Compensation Numbers

#56

Post by kokanee »

verbify wrote: post #36
kokanee wrote: post #22

Earlier quoted context omitted.

As a W2 software developer, I've held options at three companies and RSUs at two. I've netted around $30K from RSUs, and netted a loss of $20K from options. Only once did my options "liquify," when a startup I had worked at was acquired. The proceeds were distributed entirely to preferred shareholders and employees were left with nothing, several of us having spent thousands to exercise. I made my bed and slept in it…

Thanks for your contribution to this discussion, it's helpful to have actual numbers. There was a mixed metaphor that popped out to me in your comment (and I hope pointing it out doesn't break HN guidelines around tangential annoyances): > I made my bed and slept in it, so I have no axe to grind It reminded me of something George Orwell wrote in 'Politics and the English Language': > A newly invented metaphor assists…

Well, that was not at all an expected reply, but it's well-received. Thank you for the thoughtful linguistic advice; I'll keep it in mind.
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