Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Just how much is that 2% really worth?

tejusparikh.com

Post reply on HN
Print view View original

51–60 of 158 posts

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

#51

Post by icedchai »

IgorPartola wrote: post #40
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…

So why the hell do startups bother offering equity? It seems like for the founders there are only downsides in offering it, while for the employees there is no upside at all. Perhaps a better model for a two founder startup looking for a first employee is to just find a third partner who will only take equity (that is in double digit percentages), then actually start paying only salaries to person 4+.

it's like a lottery ticket. odds are it probably won't be worth anything, might be worth a lot.

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

#52

Post by nitrogen »

kristiandupont wrote: post #43
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…

>Equity = compensation for taking the risk of working at a company with a high chance of failure But if you are getting a normal salary, what is this risk?

It's the risk you'll be out of a job in three months when the seed funding runs out, right before your benefits kick in.

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

#53

Post by hcho »

kristiandupont wrote: post #43
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…

>Equity = compensation for taking the risk of working at a company with a high chance of failure But if you are getting a normal salary, what is this risk?

That you can lose that job all of a sudden.

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

#54

Post by jacquesm »

grandalf wrote: post #28
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.

That's not really much different than the standard one year cliff.

Of course it is. All things being equal, if you're still employed a year later your stock vests. In his situation he'd have to start negotiations about his equity. That's a huge difference.

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

#55

Post by dragonwriter »

nullspace wrote: post #11
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…

Very true, and thanks for the link. I think that this also applies the other way around. If you're a founder building your early team, you should not hire people who want to join because of the equity. You should be bringing in people because they want to work on the problem for the salary that you can give them or promise to give . If you hire someone who has an expectation that he will make a million dollars in 4 y…

> equity ~= the percentage of ownership and responsibility.

The entire point of the corporate form is separating degree of ownership from degree of responsibility.

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

#56

Post by pnmahoney »

nawitus wrote: post #32
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…

>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.

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

#57

Post by krschultz »

IgorPartola wrote: post #40
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…

So why the hell do startups bother offering equity? It seems like for the founders there are only downsides in offering it, while for the employees there is no upside at all. Perhaps a better model for a two founder startup looking for a first employee is to just find a third partner who will only take equity (that is in double digit percentages), then actually start paying only salaries to person 4+.

For retention. If the company actually starts taking off, the equity keeps people there. If they don't have equity, every person with a decent title at a fast growing startup will jump ship to other competitors immediately and get a big (cash) raise. The equity keeps people in the fast growing startup longer. Golden handcuffs and all that.

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

#58

Post by htormey »

dreese wrote: post #38
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 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 were given was more cash less equity or more equity less cash. Doesn't that negate your point that you should consider salary and equity separately? I don't really see from a financial perspective how you can seperate the two when considering a job as both relate to the risk you are taking.

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

#60

Post by vectorpush »

Don't forget that equity doesn't vest immediately. If you take a pay cut in exchange for equity but you leave or are let go before your cliff, you've essentially forfeited a portion of your compensation package in exchange for nothing. I guess this should be obvious, but it may not seem like a real consequence when the founders are asking you about what kind of car you think you'll buy when the start-up explodes.
Post reply on HN