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Pitfalls of Equity for Employees In Startups
blog.upcounsel.com
http://answers.onstartups.com/questions/6949/forming-a-new-s...
Also: keep your eye on the ball. When a software company gives equity to an investor in exchange for money, most of that money is going to employees anyways; salaries dominate the expenses of tech companies.
That being said: Please take your super slow loading popup of doom off of your blog. I don't want to have you spam me for my info the second I hit your page, and, no, I don't care how many more people sign up.
Yes it's effective, but it's also rude.
Edit: Capitalization removed.
Profit sharing (a larger percentage, but annually dispersed rather than permanent) is a much better method of upside compensation. I actually think that typical equity allocations in VC-istan fall into the uncanny valley and become demotivators. A nickel (0.05%) of a 50-person company isn't ownership. It's a consolation prize (severance) if your job is sold away in an acquisition.
Also, I think startup equity exacerbates the inequalities. Let's say that a software engineer (someone who does actual work) makes $120k while some politics-playing non-technical VP (who doesn't show up half the time, but the CEO likes him) makes $150k. That's unfair, but it's not going to stop people who are otherwise enthusiastic about their jobs. They'll find it mildly annoying but get back to work and forget about it in a couple of days. Replace those numbers with 0.05% and 1.0%, however, and you get a different story.
You could release all the salaries at a VC-funded startup and it wouldn't stop work. If the equity table came out, the engineers would all leave on the same day and it would be chaos. That's why the cap table is hidden (a disgusting practice when one considers that equity is billed as ownership; by the way, someone should totally Wikileaks a bunch of startup cap tables.)
I don't even think it's meaningful to consider yourself an owner-- at all-- of something if you don't get to see the capitalization table or interact directly with investors. I'd rather have a market-level salary, to be blunt. There are levels of equity that justify the typical startup's pay cut, but no (non-founding) engineer in Silicon Valley gets anything close to that.
I worked out how to make profit-sharing more fair: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . It can be done, but it requires a dramatically different style (one less vampiric) than a typical organization.
Joel Spolsky's Stack Overflow answer to this question is to date the best single explanation of this issue I've read: http://answers.onstartups.com/questions/6949/forming-a-new-s... Also: keep your eye on the ball. When a software company gives equity to an investor in exchange for money, most of that money is going to employees anyways; salaries dominate the expenses of tech companies.
Most often, "took more risk" means "comes from a rich background and had a softer landing". The VC-funded startup CEOs (and hedge fund CEOs; that was even bigger than VC startups in NYC for a while) I know didn't take any real risk, because they're all trust-fund kids and, half the time, their families pulled connections to expedite pre-packaged outcomes.
Sure, more risk should mean more reward, but not the order of magnitude Spolsky suggests, especially given that most of this "risk" people claim to have taken is fabricated; they're really rent-seeking off the connections that made their forays not risky.
Making the system fair (and I recognize that this is impossible) would require taking into account the socioeconomic status of the players. I'm not actually suggesting it should be done that way, because it would be a total clusterfuck and no startup would ever be founded for all the nasty arguments that would ensue, but it would at least be closer to fairness.
Joel Spolsky's Stack Overflow answer to this question is to date the best single explanation of this issue I've read: http://answers.onstartups.com/questions/6949/forming-a-new-s... Also: keep your eye on the ball. When a software company gives equity to an investor in exchange for money, most of that money is going to employees anyways; salaries dominate the expenses of tech companies.
I don't agree that founders deserve as much as Spolsky thinks. 3-5 times more than early employees, sure; 20 times more, no. Most often, "took more risk" means "comes from a rich background and had a softer landing". The VC-funded startup CEOs (and hedge fund CEOs; that was even bigger than VC startups in NYC for a while) I know didn't take any real risk, because they're all trust-fund kids and, half the time, their…
Earlier quoted context omitted.
I don't agree that founders deserve as much as Spolsky thinks. 3-5 times more than early employees, sure; 20 times more, no. Most often, "took more risk" means "comes from a rich background and had a softer landing". The VC-funded startup CEOs (and hedge fund CEOs; that was even bigger than VC startups in NYC for a while) I know didn't take any real risk, because they're all trust-fund kids and, half the time, their…
What about those of us who aren't "trust fund kids"?
I have no problem with you four.
Earlier quoted context omitted.
What about those of us who aren't "trust fund kids"?
VC-funded founders? Not rich? I have no problem with you four.
The founders of startup #2 for me just sold their third company. Both were middle-class Canadians with no "connections", just a solid professional track record. My 2 cofounders at startup #3 were well-off; both were working professionals, like me. Startup #4 was a spinoff of the University of Michigan started by a professor and his postdoc.
At each of the 5 startups I've worked for, I worked with 2-3 founder/cofounders. That's ~12 (I just counted them out) people I've worked with that had founding roles at startups; none of them recurring from previous companies. Not a single one of them fits this inane description you keep using.
Am I just extremely lucky, or are you a little bit full of it?
Joel Spolsky's Stack Overflow answer to this question is to date the best single explanation of this issue I've read: http://answers.onstartups.com/questions/6949/forming-a-new-s... Also: keep your eye on the ball. When a software company gives equity to an investor in exchange for money, most of that money is going to employees anyways; salaries dominate the expenses of tech companies.
I don't agree that founders deserve as much as Spolsky thinks. 3-5 times more than early employees, sure; 20 times more, no. Most often, "took more risk" means "comes from a rich background and had a softer landing". The VC-funded startup CEOs (and hedge fund CEOs; that was even bigger than VC startups in NYC for a while) I know didn't take any real risk, because they're all trust-fund kids and, half the time, their…
The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. Before getting funding, most bootstrap for years, neglecting family, friends, vacation, working 14 hour days, all for a business idea they believe in. The equity a founder gets is small compensation for giving up years of his life. Even after raising money, a founder will continue to live on subsistence wages, giving up the opportunity cost of a cushy 6 figure job. In pretty much every venture backed startup, the founders are some of the lowest paid employees at the company. Most of the funded startup founders I know make less than $50K, which is a big improvement from the minimum wage salary they paid themselves in the first two years of the startup.
When your startup falls, there's not some kind of cushy EIR gig waiting for you at the friendly VC. Unless you're a tech celebrity, you're lucky to get an entry level PM job at a Google or Facebook. Source: Dozens of founders I know who raised money and failed.
Your portrayal of all founders and investors as some kind of scheming robber barons is insulting and incredibly demeaning to every single entrepreneur on this forum.
Guess what: founders are regular programmers, just like you. And they deserve every last bit of equity they get.