Startup Stock Options – Why a Good Deal Has Gone Bad
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What was ethically shady was shortly after I left with 4yrs vested they decided to restructure the entire company so they could attract investment. They took all the debt from the original company and put that in a shell company that then owned a portion of the new company. Guess where early employees’ stock went? The debt vehicle.
I actually did make some money on the eventual exit, but probably 1 or 2 orders of magnitude off of what it would have been if my stock was in NewCo. Consider the tech we built was a major driver of the acquisition, it was frustrating.
People are greedy, no matter how nice they are to your face.
It sucks because you sign on to something and change your whole career but once you do that they kind of have you trapped in a way. They can change the deal arbitrarily once you don't have a job to go back to and you don't have a lot of recourse until the company becomes profitable.
IANAL, but MobileVet's situation may have been illegal, running afoul of minority shareholder rights, if the situation was accurately described. I imagine what happened was the CEO divided the company then paid a pittance for the portion without the debt to the portion with the debt. You can't do this, or well, other shareholders have legal recourse if you do. If you play enough shell games, you can somewhat hide what you did. That doesn't make it legal. If this is the case, the CEO just relied on the former employees not doing anything.
I was the CTO of a company and built its entire infrastructure for 4% of the business. One day I came into work and the CEO(and majority owner) tells me to put aside everything and start work on a totally separate project. Oh, yeah and the company name is now different. The new project that I'm assigned is much more intensive in terms of volume and uptime requirements and came with no rewards.
So I start building the company in good faith with no real contract in place with the new company with the expectation that we would negotiate while I developed so as to not cause delays. This was a naive decision. Always get the contract first because as soon as real money starts flowing in everyone starts grabbing theirs. Prior friends or acquaintances also get preferential treatment which is how I ended up with the VP of marketing taking assignments from me and yet somehow being given 9x as much equity.
Eventually, after the system was stable and I felt confident in my work quality I asked to negotiate my contract. I was instead let go. The joke was on them though, I revoked their access to the repository and told them to show me the contract that says the software is theirs.
Maybe I should have, but it wasn't going to be life changing money either way and it would have required a lot of time, money and emotional energy.
I made zero (well, negative, really) from startup stock options, even before things got really shifty in the 2000s. One startup that I left, that is now a billion dollar company, simply decided to "extinguish" the shares I bought a few years after I resigned. I was probably cheated, but it's not worth the effort to go after them and they know it.
Treat startup options as wastepaper. You might get lucky, but it's really, really unlikely.
I would understand if that happened when the company is in trouble (e.g. valuation dropping below the last preferred valuation, so preferences kick in, or as a result of the company having to honor very high liquidation preferences), but otherwise?
The only couple very shady cases I know about where Facebook with the Brazilian cofounder (with a complicated legal process where they reincorporated the company into a new one or something like that) and Skype with the employees (who naively signed a clawback clause in their agreement stating that the company could repurchase shares in the future at the original grant value even if their price skyrocketed, or something similar).
In all the other cases I know about where employees got screwed, it was because the company saw its valuation plummet and the investors preferences kicked in, in one way or another, so "extinguishing" common shares in that case is "expected" and more similar to a public company declaring bankruptcy and seeing the shareholders being wiped out while the bond holders can generally recoup something, since they have "preferred" terms inherent in the nature of the bonds.
But yeah. It does go down that way more often than many people know.
In fairness though, one thing I think a lot of people don't realize is that someone must've gone to bat for employees when documents like that show up. I can pretty much guarantee you that the greedy bastards in the room wanted to shut down, or layoff, and reorganize with just the employees that they needed.
Someone in the room had to say, "Hey guys, let's try this!" And that someone took a real risk at being seen as "not a team player" so to speak. (It was likely someone powerful. What I've seen is that it can be everything from a powerful VC of the religious variety, all the way to your more idealistic founder types.)
So, assume I already left the company and exercised a big bag of common options and so I have a decent amount of common shares. If they tell me to sign something that looks shady I just say: "No, it looks shady".
What then, can they do?
It doesn't take a lot of imagination to see that this can happen. People are generally naive, and there are just a few that will resist and fight.
But, for the sake of the discussion, I'm purely focusing on common shares that the employee already owns, which means vested options that were already exercised.
Zynga's shady practice was affecting unvested options.
The TLDR is "The majority of the board has already approved the decision of eliminating common stock and distributing excess payments to two founders and the product lead"
Each holder of Preferred Shares is entitled to receive cash merger consideration in exchange for the cancellation of his, her or its shares pursuant to the terms of the Merger Agreement.
Each holder of Common Shares will not be entitled to receive any merger consideration in exchange for the cancellation of his, her or its Common Shares.
In case interested, here's the full redacted disclosure -- docusigns followed very shortly after: https://pastebin.com/q6q7XMvF
If I read your document right, it says:
The Company expects that the proceeds available for
distribution to the holders of Preferred Shares,
including the full release of the Indemnity Escrow Fund,
will be approximately $0.5816 for each Preferred
Share (the “Estimated Per Share Consideration”).
before any distribution or payment of merger consideration
is made to holders of
Common Shares, the holders of Preferred Shares are entitled
to receive $2.66 per Preferred Share (the
“Liquidation Preference”).
The holders of
Common Shares will not be entitled to receive any merger
consideration in exchange for the cancellation
of their Common Shares because the maximum potential merger
consideration payable to the Stockholders
pursuant to the Merger Agreement is less than the aggregate
amount of the Liquidation Preference.
If not, this is instead a horror story.
Once investors do this, they can take control of a company, and even issue new equity to current employees to keep them happy.
This is a tricky thing in normal scenarios because obviously the shareholders getting wiped out might sue, unless they are 'in on the deal' and coughing up more money. There are legal obligations around valuation as well, it can't be 'made up'.
But if a company is effectively bankrupt, then the board can basically nullify old shares by making them worth 'near zero' and issuing new shares cheaply.
The common term is 'washout round' [1] and this practice is not entirely uncommon.
If they really want to pay you 10% in pension, they can pay to a fund in your name with some terms about when and how they can be used.
They sold all the products to another company, paid all of the proceeds out as a bonus to the execs and big investors, and left the holders of the common stock (ie, employees who had bought their options) with a worthless, empty shell. Thanks for working hard and buying shares in the company!
https://smallbusiness.chron.com/legal-relationship-between-s...
I have a similar story. I've been a part of three startups (two exited, one still going) and the options in all were only worth an eventual capital loss. For my last company, I owned nearly a percent of shares, but they were still worth zero. The only money I got was a cash bonus and stock from the acquiring company as a retention mechanism (I was an executive of the company, rank and file got much smaller amounts). Startups are good for experience, being a big fish in a small pond, etc. but it's marginally better than a lottery ticket if you're looking for a big financial reward.
Thanks
I must ask - is there a hint of hyperbole here or are you dead serious? I currently work for a startup, and let's just say... I could've negotiated better on options when I joined. It's been on my mind to bring that up during my performance review.
Is that a fool's errand then? What is your advice when working at startups?
I don't think its foolish to ask for more equity as compensation, though obviously I don't know anything about your performance or current compensation. :) In fact, I would recommend negotiating better. Sibling comment has good advice on preparation. I would add talk to an accountant about tax considerations, and talk to a lawyer about the legal aspects of it. The last time I talked to a lawyer, it was ~$120, and that was a somewhat complicated situation. If you don't want to spend that much money on something that could be worth thousands or millions, well... You might end up like a lot of the other posters in this thread, and that is sad.
Seriously, a number of the posts in this thread likely wouldnt have happened, or could likely be resolved had the victim talked to a lawyer. Its like if you were robbed; you call the cops. Some people are saying its not worth it, it costs too much money, etc. If you arent going to call the cops, you can be robbed with impunity. It also means the thieves might grow bold, causing more headaches for the rest of us.
A number of people have said that the company/management told them that talking to a lawyer would be a waste. This is the thief telling you not to call the cops. You wouldn't take legal advice from a thief, right?? At least one person stated that the company "made" them sign something. This is the thief saying you "have" to give them something. If you sign something saying they can take whats yours, then they can. So talk to a lawyer before agreeing. The more upset they get, the more pressure they apply; the more likely it is that you need to talk to a lawyer.
Please, everyone, stand up for yourselves and get a lawyer. There are so many sad stories in this thread. The idea that people making 6 figures, with equity that could be worth that much or more can't spend ~$100 bucks to protect themselves!? It's appalling. Saying that it costs too much, not worth it, it wont matter anyway; that is like Stockholm Syndrome. Ok, that was hyperbole, but seriously, protect yourself.
Edit: EVIDENCE! The cops can't do anything without evidence, neither can the courts. Well, your testimony is worth something, but its better to get it in writing. Consult your local laws, or a lawyer regarding things like audio recordings, recording phone calls, etc.
Sounds like an opportunity for a class action lawsuit. If they did it to you, they probably did it to others.
They all do it to everybody. They're careful to make sure there's nothing/nobody to sue - the stock options are offered by an S-corporation, which then goes "out of business". You can sue the now out-of-business S-corporation if you'd like, but it has no value, being out of business.
However, your last comment holds up well and I echo that sentiment.
If you're an engineer sitting on $5m of vested stock in a decacorn, it makes financial sense to sell some of it. Today, companies make that really hard to do.
If employees could easily sell their stock while the startup is still private, this would solve a lot of the problems.
Without early liquidity, a pre-ipo zuck/kalanick/etc. would be a paper billionaire with $0 in the bank and >$1bn "invested" in a risky tech startup. That's not financially or mentally sound, even by their risk lovin standards.
If investors demanded every penny go towards growing the business, those CEOs would just IPO earlier to get liquidity.
It's a necessary alignment of interests, if investors' interest is delaying the IPO.
Employee options holders can't just decide to take a company public, so their interests can stay misaligned.
Not for long, though. The standard HN advice of "value options at $0" came about from a generation of employees conned by this, as you call it, misalignment.
Also, when you trap employees into heavy golden handcuffs, abuses of power in line management thrives (as what happened at Uber).
Having a look at the revenue generated per person in Facebook vs General Electric we seem pretty shit at negotiating. The revenue per employee at GE is 400,000 at Facebook it's ~1,400,000. I'm not hearing FB paying people ~4 times the wages that GE does. Most I've heard is ~1.5 times for similar positions in similar locales, having friends in both.
We have convinced ourselves we're special snowflakes while the lucky and ruthless laugh all the way to the bank.
This can benefit the founders and major investors, because they take less dilution.
Personally, I think founders should do this any time they take money off the table.
It also means the way the company operates is different. Public markets don't allow (at least they're currently extremely intolerant of) high risk-reward strategies in practice, or cultural weirdnesses.. especially in a major stock. See: Tesla's issues, contrasted with spaceX's "must not be listed if we want to go to mars" stuff.
So, in practice, buying 2015-ipo Uber stock is a different investment to what Uber investments actually were.
Also (possibly the real factor) it goes through different channels. VCs and PEs business is investing people's money in investments they can't just buy on an app.
Suster points out that the longer the company stays private, the more valuable it becomes. And if during this time VC’s can hold onto their pro-rata (fancy word for what percentage of the startup they own), they can make a ton more money.
The premise of Growth capital is that if that by staying private longer, all the growth upside that went to the public markets (Wall Street) could instead be made by the private investors (the VC’s and Growth Investors.)
Further down, continuing the Sister quote:
three examples Suster uses – Salesforce, Google and Amazon – show how much more valuable the companies were after their IPOs. Before these three went public, they weren’t unicorns – that is their market cap was less than a billion dollars. Twelve years later, Salesforce’s market cap was $18 billion, Google’s was $162 billion, and Amazon’s was $17 billion.
> And finally, in many high valued startups where there are hungry investors, the founders get to sell parts of their vested shares at each round of funding. (At times this opportunity is offered to all employees in a “secondary” offering.) A “secondary” usually (though not always) happens when the startup has achieved significant revenue or traction and is seen as a “leader” in their market space, on the way to an IPO or a major sale.
Employees are also not usually invited to the investor meetings where these types of negotiations would take place. They would probably need the founders to vouch for them to make this happen.
- You leave the company after 4 years and have 30-90 days to exercise. The exercise will cost you $20,000. The company is nowhere near an exit. Do you do it?
- When you exercise you are either immediately hit with a tax bill for NSOs or you get screwed on AMT with ISOs. You suddenly owe money to the IRS simply because the company received a very high 409A valuation just before you left. A liquidity event is nowhere in sight.
You've taken a huge gamble by joining a fledgling company that pays little with a low probability of success. You toil for years an overcome tremendous odds to just keep the company alive. But now when you leave the IRS and the company itself wants you to take a final gamble with your hard earned cash.
I used to be an attorney who drafted option agreements. Now I've been at two startups as early employees. The reason why this never comes up is because employees do not know what they are getting themselves into. The options are worth very little BY DESIGN. Unless you are among the first 5 hires, you will have no leverage to negotiate a better deal.
But not all startups are like that. Where I work (Mixpanel), that window is 5 years. Which I feel is a much generous and fair offer.
With stock options, I pay no tax. If the company liquidates, then I convert the options to real stock (yeah i’ll have to pay money to do that). If things go better, I hold that stock for one year and when I sell, I pay capital gains tax at a much lower rate on the gains.
But. Big BUT, there’s a lot of assumptions. Things may not go well, may it doesn’t get valued as much, may be it takes longer than 5 years. Lots of may be’s. That’s part of the startup gamble.
We are hiring btw if anyone is interested in analytics space. DM me.
Two years later, one founder forced out his two other cofounders, started a new company in the exact same space, and poached his best employees, essentially jettisoning the cap table in the process.
The small frys who exercised their options were totally screwed. That was a real lesson for me on how crazy this stuff can be.
Options are better up front because there is no outlay for the employee. They are a hassle down the road. However, if you exercise during a liquidation event your tax liability is probably covered.
Stock is a pain upfront unless granted before the first round of funding or any real revenue when the stock value is very little. They are easier down the road, though.
Just my two cents. HackerNews, please correct any errors in logic or how this stuff works.
In practice you either buy them the day they are offered (but before they vest, so a gamble) to switch to the CGT rate asap, or exercise and sell in the same process which means you pay at your marginal rate. You tend to do the former if you are early series A (penny a share or so so low financial risk - for example I once paid $1000 for 100k founder's shares), and the latter otherwise. Doing something in between means a largish tax liability with no matching liquidity event to pay for it - during the first dotcom bubble a lot of people did this, got a huge unexpected tax liability at the end of the year (and AMT) AND lost their jobs as things crashed and their stock became worthless (they could write that off in the next year, but owed the IRS lots of money while unemployed) ... so be careful here, make sure you know what you are doing if you're exercising in a situation that's not one of those first two I listed.
- award RSUs that have a liquidity event as the final vesting requirement and don’t expire (so you are not taxed until you can sell, and don’t risk losing what you already earned), or
- pay annual cash bonuses that are “grossed up” so that the after-tax amount of the bonus is enough to cover the taxes levied against the employee’s value of actual stock or vested RSUs, etc., and ensure the company bears that tax burden.
I’d be more forgiving to fully bootstrapped companies, which are often fairer to employees anyway.
Not willing to compromise at all for VC-backed companies, period. They also should be paying full market wages and the equity portion is solely meant to be competitive with the equity compensation or bonuses at public companies.
As I understand it, they ARE taxed as income for all intents and purposes at exercise time (based on the value difference at exercise). They are not regular income but they are part of Alternative Minimum Tax income. You pay taxes on the greater of the two. The difference between exercise price and sales price is then taxed as capital gains assuming you held the stock for a year (or two?).
The one trick to this is that if you exercise very early then the tax is on basically nothing (literally nothing if your option price and current value are identical). However, you still need to buy the options so it's not free but just tax free.
This is especially useful if you have ISO's currently vesting and the company has since gone public.
This basically means that to avoid negative salary outcome startups must arrange so at least portion of grant can be sold privately to cover tax liability at the time of grant in case of RSUs or at the time of exercise in case of stock options.
If this condition is not met, trade waters very carefully.
Granted, these were small shops ~30 people and the exits were small ~$100M, but the effects were devastating. Everyone who could quit, did. People for whom an extra few $100k would have been a big deal would throw drinks at founders in a bar. The code became an unmaintainable worthless mess and they basically failed to live up to the value they existed at.
Why would someone give the founders such a deal? If they don't care about their employees to share 10%, they probably don't care about even medium term success.
But I AM NOT A LAWYER.
You get a 409A valuation to establish the Fair Market Value of your stock. That valuation isn't based on the same criteria that investors use, it is much more rigorous and based on income, cash in the bank, etc. You could very well have a company raise money at at $10MM cap and be "worth" less than $1MM. If you grant someone stock at that price, their taxable income will be negligible - usually only a few hundred to a few thousand dollars, and then they don't have a giant tax bill at the end.
You still have to pay capital gains, but that only applies when you sell the stock, so you have the money to pay it.
Great tax advantages. For ex one startup I worked for did it the other way resulting in recognizable tax income and everyone got hit with a tax bill. Fortunately when it was brought to leadership's attention they were enlightened enough to offset the tax bill with cash but don't expect that, ever.
- You are a cofounder.
- You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats").
- They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else.
- You want to work a certain way (remote, on the beach, whatever) and they are willing to go this route.
Invalid reasons for working at a startup:
- Getting rich off stock options.
- Making a lot of money in salary.
- Work / life balance.
- Stability.
Not sure if going back to a startup would be nearly as beneficial in terms of "levelling up." Seems like the game now is to grind whiteboard before I get too old for Google.
A friend grew from junior developer to director of IT at that startup, so there's that aspect as well, though I have also seen a number of startups hire leadership outside.
If you are young and blessed with no dependencies, you should attempt exploiting higher risk domains. As you get older with more dependencies, you need to lower your risk tolerance. The technical term for this is exploration vs exploitation. The maximum payouts in many complex system requires some balance between two and sticking with just exploitation is often not the optimal policy when you look at life span as a whole.
In my years at BigCo I worked with engineers who have 10-20 years more experience than I do. Often felt like the dumbest guy in the room. I learned a ton. No comparison. But I would never have gotten the job there without my previous startup experience. And without that experience I'm not sure I would even have been able to learn from my BigCo co-workers so successfully.
I got tired of corporate politics and a high traffic commute, so now I'm happily back in startup land.
There's huge value to getting the lay of the land.
It is true that it's easier to be stagnant as an associate at a larger company. If you're not interested in taking on new challenges you can generally sort of fall through the cracks. However, folks who are proactive at a FAANG style company can find great mentors and support to develop skills really quickly. Often skills that simply aren't available to people at startups...
What's more valuable: spending your formative years working on systems at really high scale, or building a quick RoR MVP and managing 3 VM's in AWS for a startup?
You may never get to manage a cloud VM. You will probably never get to help decide how a CI build pipeline works, how engineering hiring should work, etc etc.
I'm not discounting your point about learning to develop software at scale, but your overall scope of responsibility is much narrower. It's a tradeoff.
BigCo titles are much more narrowly defined, so most of the time you can't even see the parts that might have new challenges...or cracks.
I learned a lot from that job and it opened a lot of doors for me in my career.
http://nattyornot.com/bodybuilding-basics-noob-gains-explain...
I disagree. They have, necessarily, a greater willingness to accept risk since they are already in a risky situation by definition.
If anything the startup is likely less tolerant of failure compared to a big established business, in that it has nothing to fall back on and will simply fail and go out of business.
This was the main benefit I got from a startup, but that also required winning something of a startup lottery. I was at a company that went from two to 200+ engineers. I was able to grow into the tech lead of the entire thing.
That put me into a leadership track at a relatively young age at larger companies. Which has been great. Financially, however, I suspect I would have been better off working at a FAANG from day 1, even being a very early and key employee for a company that exited at 9 figures.
Still I now know how fortunate I was. At my current gig we routinely hire startup "tech leads" for non leadership roles. They're probably generally thought of as a tier below a mid level IC coming out of a FAANG company.
Startups are a huge gamble. It worked out for me but even the inflated titles are only valuable if the company itself proves to be a winner.
the sad reality of this industry...
Employees shouldn't be treated like that, and I will never work at a place like that again, but I am a dramatically stronger engineer because of those experiences.
Congrats on using the opportunity to grow in an abusive role. It should not be normalized is the point.
If you are in this scenario, just you, no wife kids etc. What is wrong with working really hard on a problem? I loved the startup and it fit my perfect niche. I would grind 12 hours days, but also had lots of freedom. Remote work, unlimited days off etc. Sure at sometimes you get burnt out but you are a sponge soaking up everything you can.
now i'm 28 with wife and kids, no overtime for me. I still work extremely hard and lazer focused, but i show up at 7:30-8am and leave at 4 everyday :p
Because you're normalizing abusive workplace practices. Need I explain further? It's not right, it's not okay, and if you tolerate it, you do a disservice to your colleagues. Maybe you don't care, that's fine. But when you say "What's wrong?" I will point out that it is not to be commended or supported.
If your employer encourages, supports, or allows this sort of behavior to exist, I hope you find yourself on the business end of a lawsuit.
When I was in grad school, 100 hour weeks and working 100 days straight was the norm. Also I made 25k a year. And I loved it, because I loved doing science and I got to be paid to do what I loved. And also, it's maybe worth mentioning that your experiments don't give a damn about labor laws. There really are some important societally beneficial things that simply won't get done if there aren't crazy fuckers like me around (not necessarily the projects I happened to work on, they all turned out to be crap)
Honestly what made me mad was that there were a lot of kids who got out of college, and went to grad school because they didn't know what to do next and nobody told them how crazy grad school was. These jokers depressed the asking price for a grad school salary.
But I had a lot of responsibility. Was sort of thrown in the deep end with respect to a lot of things. It was a great experience out of school and, in retrospect, was absolutely the right job choice relative to my other options.
Would I have wanted to have done it long-term? (I left after 3 years to get another degree.) No way.
Even when I did a startup, I held pretty normal hours. Working on someone else's problem to make them rich is silly to me. I think it's something that you either get or you don't. I don't plan to convince you to change sides, but I'd 100% of the time rather spend hours 8 or 9 through 12 working on my own hard problems. They're easy to create. I definitely had more responsibility, did more coding, and felt more energy at a startup than a big corp though. Pay and nearly everything else was shit in comparison.
If someone did 10-12 hour regularly on my current team, we'd be pissed. It would set a new normal and management would think they could start replacing people until they get 10 of those guys that are willing to sit here half the day.
Sounds like a union where they'd beat on the new guy who actually tried to be more efficient.
I know some people at work that sort of have your mindset. I think it’s the worst. Not only do they not want to help someone who’s passionate you now make me suspect they’re incentivized to undermine hard workers as well, since they make you look bad.
Fine, take it easy at work, I don’t care. Just don’t make it harder for people who are trying to get work done.
This is me. I quit my well paid job and took a massive pay hit so that I could work from home and so be able to spend more time with my daughters.
Absolutely worth it.
Hence, many folks who end up accepting to work at a startup are less talented engineers (you're left with the "scraps" of the market), so if you're a high performing individual you might find that you really don't need to put that many hours in to be effective, as compared to your peers (and that's deeply depressing as well, and one of the reasons why I left startups for FAANG, other than compensation; talent is SO SO SO much better).
I speak for direct experience, I rode a startup train for a long time at a company that grew a lot, and rarely put in more than 40 hours a week into the job, while others were routinely putting 60+. And I kept being praised by the management and technical leadership.
The problem (lack of local talent due to big company competition) became severe enough that we had to bootstrap multiple remote teams in easily overlooked areas because the new local hires (San Francisco) were literally trashing the product due to poor development/testing.
Maybe a decade ago, a knowledgeable colleague, speaking of one of the better-regarded FAANGs, told me, "First they hired the A students, then they hired the B students, now they're hiring the C students."
More recently, the sentiment I heard among CS-ish PhD students at one big university was that FAANGs (or, at least, particular ones) aren't seen as the cool places to go anymore, and people would rather do their own startups, or get professorships.
Personally, I'd consider most of the FAANGs (but not one-sided hire-hazing rituals). But technical cofounder, or working on a startup that's already funded, or a rare research lab position, is seeming more likely to be a good match.
Typical thing, that really happened: a coworker at a startup ("senior engineer") had to do some calls to a very simple HTTP API from an embedded C++ component. She proceeded to hand craft her own HTTP requests and manually dispatch them to a manually instantiated connection using sockets, and then manually parsing HTTP responses (!!). I suggested to not spend time on such irrelevant code, I was ignored. Management didn't chime in.
She kept having problems and problems once that 100s-lines long thing hit production, as you can imagine (every software engineer should know that writing a network client from scratch is not easy!): finally I broke down, linked libcurl in the application, and in 2 hours and 30 lines of code I had the whole thing solidly working. And that's how I afforded working 40 hours a week instead of 60.
At Google, this would never happen.
At Google you do rigorous engineering, you're intensely data-driven, you have to work at massive scale, everything you touch is a distributed system (with all the skills and pitfalls that comes with working on that), and you'll often learn a lot of fundamental CS algorithms because you need to re-implement them to work across 1000s of machines rather than using a standard library built for a single address space.
As a founder, it's just one problem after another, rapid fire, and you might have 1-2 days to solve something that took 2 months at Google. You do a lot of hacky 80/20 solutions. You need to think big-picture on everything and understand how everything fits together. You solve a much wider variety of problems, but you don't really go into depth with anything. Rigorous engineering isn't really part of a founder's job description, and some people view that as being dumb or poorly trained, but you make up for that in speed, ambiguity, and breadth.
I'd say that when I joined Google in '09, the level of colleagues there was much higher than the general level of technical founder prowess in the Valley, and it remained that way for the whole time I was there. But the types of employees Google hired in '13 were very different from the types of employees hired in '09 (who themselves were very different from those hired in '02), and it wouldn't surprise me if starting in '15 or so the balance started shifting back towards startup founders. Honestly I think the best technical minds today are actually doing cryptocurrency "non-profits" (scare quotes because they're actually being paid by capital appreciation of their founder tokens) - I've been quite impressed by the algorithms being discovered by projects like Ethereum, OmiseGo, MakerDao, zCash, Monero, etc.
First of all, they're looking to validate the choice they made in lieu of becoming a millionaire. It helps them sleep at night to think Google or whatever isn't cool (maybe it isn't).
Second, they're interested and driven by different things.
Every single good/great practical software engineer I know from college is working at FAANG or a unicorn.
I work eight hours a day on average, and being that we have staff on most continents we don't really have a need to be on call. That said, I've had a handful of 3am emergencies over the course of the last few years.
I work in my garage; so I have no commute, and I no longer lose over two hours a day to commuting. That's meant I contribute far less to open source, which I did while on transit. However, I don't miss commuting at all and am thankful for the time recovered.
Balance is blissful. While my wife was on maternity leave for twelve months our girls were at home as well, and so my breaks consisted of spending time with my family. Now I walk them to daycare before work and listen to the rain on my roof while I work.
I am lead engineer at a start-up and my goal is to create a good work environment for our current and future devs. #1 enemy is the on-call, which should be resolved with customer support + some automation.
Lots of automated tests. A good community team. Code reviews. A _rigid_ feature-branch-and-test process. A _rigid_ closed beta->open beta->release process.
And we still have bugs. But things don't catch fire often, and when they do, it's usually not our fault. ;)
What is your vacation policy? Fixed amount + required to take or unlimited + take what you need? I am not a big fan of the latter, but not sure how it works for others.
Thanks.
I think it helps that they've never taken issue with my general performance; if I weren't satisfactory in my output then I probably would have some push back.
We rotate on-call duties, but seriously, if you're fighting fires all the time, it's because you're bad at computers. Get some discipline about writing code that doesn't blow up constantly, get good at blue-green deploys, do code review, run post-mortems, etc. Basically, exercise some professionalism.
We definitely have fires, but it's not a weekly event. Or monthly.
Now, not every company is going to be professional, but as a software engineer in this market, where you work is your choice. You can work at a startup building comparatively boring software (like mine!) that sells to enterprises, for founders who don't work 80 hour weeks, and have a good working environment. Or you can not. But now, perhaps more than any other time ever, the choice is yours.
It worked fine. The founders were fairly enlightened people, and well aware that we were in this for the long haul - success would take time and nobody could work long hours without the quality of the work suffering.
This wasn't the case for all staff, mind. There were definitely people in some roles who worked longer hours. Marketing and PR mostly.
I think a bit of perspective is in order. When the bar for comparison is technical principles at FAANG, yes.
If you want to own a house, have paid-for cars, put your kid through school, put away savings, and otherwise be completely comfortable then you can do just fine. That is "wealthy" for a lot of people in this country.
I know someone that delivered food to restaurants. He woke up at 4am, and periodically did double shifts. His work life balance was worse than almost any developer I know. And he had to carry stuff. [That was a bad work/life balance].
Seriously, count you blessing if you're in software now. I have been doing this 20 years and this is the best it's been since before the .com bubble ended.
lol wut ? if you work in a typical SF startup, you can do precisely none of these things. Like, literally zero.
If you have one of those incomes at the higher end, you can do these things in the bay area. If you have more than one then that stuff is not hard at all.
Berkeley has pleasant single family homes in a great school district around the $1MM mark. You can absolutely do that on $200k/year. IMO you should for sure be able to reach the mark where this is comfortable financially by the time you're around 30.
Let's say you make $200k/year and manage to put together a $300k down payment and get a $700k mortgage at 3.8%. Here is the breakdown of your annual spending (using 2018 numbers):
$18,500 to 401K
$35,930 in federal income tax
$10,593 in FICA (Social security and medicare)
$13,724 in California income tax
Take home after tax + retirement savings: $121,253 Also, remember that the rules have changed and only $10,000 in state, local, and property tax is deductible against federal income.
Remaining payments:
$39,140 in mortgage payments
$10,500 in property tax
$1,000 in homeowners insurance
$10,000 in car ownership costs (gas, maintenance, insurance, financing or depreciation)
$4,000 in utilities (gas, electricity, water, trash, internet)
$1,000 for phone
That leaves you with $55,613 of "real" annual take home, or $4,634 per month, without counting the cost of food, entertainment, other debt servicing, etc. Certainly not poverty wages, and many people get by with far less, but you'll also spend 2+ hours per day commuting and have a significant fraction of your net worth tied up in a house in an earthquake-prone area.
But either way... doesn't this prove my point? This does not sound like a difficult way to live, _and_ it factors in luxuries (I for one definitely do not spend $10k/year on car ownership).
After paying for CA taxes, fed taxes, kids' schools, rent, car expenses, 401k contributions, I really don't know how you would come up with the savings necessary for the huge down payment required for a house there.
Just last week, a friend of mine got outbid on a ~1.5M house in the East Bay Area because another buyer came in and offered a down payment of $700k (!!), whereas my friend just had a more traditional 20%.
Good luck getting to those savings on a 150k startup salary and mostly worthless options.
In my experience, and I certainly respect yours, people just need to stop working for startups and go to big corporations, period.
And I speak as someone who had a low 7 figure liquidation event from a startup, and I'm still so against startups, because that liquidation event still didn't match the compensation I could have gotten as FAANG all along.
I agree that this math does _not_ work as well if you're moving to San Francisco and already have a family but no preexisting savings, so don't do that.
It's also true that if you rely on financing you will get outbid on some houses. But I know plenty of people who've successfully bought using financing.
2 years ago people with standard financing didnt have a chance in hell of buying a house in the Bay
I've worked at companies that at least called themselves startups for my entire career, and I own a house in San Bruno, my wife and I each have paid-for cars, we can put our kids through school, and we put away savings.
That said, I do Postmates for fun on the side and it's awesome. Grinding out hours delivering stuff is honestly pretty chill. Engineering is at least 2x as mentally taxing, unless you're delivering in weird weather conditions. I can put in 4 hours of delivering without grabbing a meal prior and be ready for 4 more no problem.
The work never comes home with you. You're never sitting there wondering "how do I be more effective?" or "how do I even start to solve this issue?". There's little to no politics and 80% or more of the gig is me riding a motorcycle around and popping a few wheelies.
In order to afford those things there, you need to laugh at startup offers and go work for a big company.
Seriously, I would love a world in which every single damn engineer shows their middle finger at a startup trying to hire them unless they pay market rate AND offer the written possibility to sell their shares every year or so, at the current company valuation.
When I pointed this out to people they didn't believe me. So it turned into a bit of a troll for me to say "yeah I'm going to go consult for a while to build up my skillset" and then watch their eyebrows do gymnastics.
You might assume, as I did, that they hire contractors who already know everything. They hire people with a reasonable skill in a couple areas they don't possess. But to actually contribute you have to drink from the firehose, going deep into the tech you were hired for and the constellation of technologies they use that interact with those things in any way. As soon as you start discovering XY Problems you find they were trying to get you to make X happen because they don't know how to do Y (or didn't know Y was possible) and the clock is ticking.
- way less big company type politics
- you won't get lost among the crowd at the big company
- if you join early enough you get to define how work is done, instead of just going with whatever process already exists at the big co
- you will know the CEO personally and have chances to discuss ideas and concerns with them in person, at big co there is zero chance of that
Also, the stability argument is interesting. I've actually experience more stability at the start-ups I've worked at than I have at the big companies. Big companies re-organize often and your manager, manager's manager, etc. might change several times in a single year. Lay-offs happen seemingly willy-nilly for reasons peons will never be told. Start-ups don't have any organization to re-organize, and don't have the people to be continually shifting things around and laying people off.
Big companies have multiple projects running in parallel, waiting to see which one will pan out. If you are working on one that doesn't pan out, it will be cancelled without a second thought (often with lay-offs involved). Start-ups have one project and it better work out or the company dies. It will not be cancelled lightly.
I cannot say whether age bias had any impact on my job searches. There have been interview processes that did not result in offers, which did not happen when I was younger. Maybe I was lucky early on. Maybe something has changed.
But I can say that every time I have looked, I have found work.
Disagree here for one specific type of startup...remote (which I know you mentioned).
Here's an example day at BigCorp:
- Rise and shine at 5am to work out early enough
- Leave the house by 7am
- 1+ hour commute into work
- Start work at 8am
- Stay until 8pm
- Get on/in the car, train, bus for a 1+ hour commute home
- Late dinner around 9pm
- Veg out because you're exhausted and go to bed by 11pm
Here's an example day at RemoteStartup:
- Rise at 7am to work out
- Make breakfast at 8am
- Standup at 8:30 while eating breakfast
- Work until 5pm
- Spend some family time and eat dinner until 8pm
- Work another 2 hours before bed around 10pm
The work life balance in scenario #2 is far and away more desirable to most people.
Here's an example day at BigCorp:
- Rise at 9am because standup isn't until 10am
- 10 minute commute since you're paid well enough to live near the office
- Arrive at work at 10am
- 1 hour lunch break at 12pm
- Leave work early at 4pm to miss the gym rush
- Get home by 6pm, enjoy the rest of the day until midnight
Versus RemoteCorp:
- Rise at 6am, immediately start working since you're online
- Work through lunch and eat your desk because you don't have a separate space
- Don't clock off at 5pm because you're always on. Keep checkin in on emails until 10-11pm
- Don't go outside at all because you never changed out of your pajamas. Sunlight seen: 0. People talked to: 0.
I definitely know which I prefer.
Some of that is undoubtedly controlled by the job itself, but some is usually also controlled by you and the boundaries you choose to set for your job.
I worked at a BigCorp and it was one of the worst years of my life. The work/life balance was awful, and the pay was shit compared to the hours I put in and satisfaction I got out of the job. All other experiences I've had have been much more satisfying.
On top of this, people think BigCorp is a safe bet where a startup is not, but BigCorp lays people off in large swaths all the time because their stock price moves a millimeter in some random direction.
My team was acquhired as a "startup within a larger company!!1" which ended up meaning: lower pay, longer hours, no equity, no actual autonomy.
But I was young and foolish and, caving to peer pressure, decided against my better judgement to take the gig. After my 1 year cliff (and successfully launching the Editions app that they soon after shitcanned) I got the fuck out.
EDIT: keep in mind, my hours were a product of my specific team, and the fact that I was commuting from Santa Cruz to Palo Alto. It would have likely been a regular 9-5 on other teams, and I'm pretty sure most of the other people there had regular hours.
I once got a dressing down from my director because I took a PTO day after working 20 days straight. I am so glad I don't work there anymore.
I know some people who go back home for a quick lunch or disappear for an hour in between. Many of these companies only care about you getting your work done and being present for all the meetings.
Ofc, there are just as many where your case applies. But, it is certainly not the norm for FAANG-eque companies
Once a startup raises a series A is there actually any reason to pay below-market? Fresh out of college I was employee #1 at a startup that had funding, and was basically at the mythical "Google salary for new college graduate" figure that is thrown around here, and higher than competing offers from name brand tech cos.
Yes, because there is a greater fool competing with you who seems to thinking the theoretical value of their illiquid options is worth a trade-off for equivalent actual cash.
"market" is a big chunk of change. "Google salary" is not market. It's closer to 50% of market. (GSUs and annual bonus are significant aspects of comp that are basically cash). "Netflix salary" is market, and for a series A company there are a lot of reasons not to pay senior engineers 300k+.
- get good experience on many different technologies
If you want to learn how to do things quickly, often in a way that barely holds together, then yes, you will get that work experience in a startup.
If you want an opportunity to learn how to do things right, you need to work with experts. Your startup is incredibly unlikely to have experts on many different technologies.
If you've got something valuable to offer, and want founder-like exposure to risk and reward, negotiate a founder-like equity package. If they won't give it to you, it's not because they're a startup. It's because they're unwilling to give it to you. Perhaps they don't think you're worth it. Perhaps they just don't want to share the pie like that.
- Less politics, and more autonomy (if you are given a certain role). - The dopamine or kick that comes with solving problems and the joy of getting results fast. Quite a few occasions, I have felt more involved in a startup than a big MNC. Maybe different kind of culture. (Consulting is the worst in case you like to see results for your ideas though)
But also, as to your invalid reasons list:
- The money is good.
- The work-life balance is excellent.
- And it's perfectly stable.
This usually is not the case. But if you're in a position to negotiate for these things and the founders are in the right position to offer them, it can be.
for this you have a much better chance at an established small company that doesn't need crazy growth. From what I see most startups prefer putting everybody into a big bullpen.
[1] https://en.wikipedia.org/wiki/Greater_fool_theory
[2] https://www.investopedia.com/terms/f/fullratchet.asp
[3] https://www.cnbc.com/2019/04/06/lyft-is-threatening-litigati...
Offer internal Dutch auctions on a regular basis to provide an opportunity for investors/the company/etc to buy stock from employees at a reasonable price. This makes the value of the company, from the point of view of the employee, not "funny money" but something very tangible. With an opportunity to cash out long before it is public.
Then all the problems go away.
Though there are secondary markets arising for this sort of thing.
I was lucky to join a now unicorn as one of the first few dozen employees a few years ago. I forward exercised with a few thousand out of pocket (section 83b) an equity grant now worth around $1.5m. Because I forward exercised my options at a low valuation I didn't have to worry about paying taxes if I exercised at a later time when the company's valuation grew. It also meant that my gains became long-term capital gains, and thus taxed lower, as soon as possible after I vested each month.
Stock options are never a reason to join a company. They are potentially an added bonus. But they should never be valued in that initial "should I work here?" Not when first taking the job, and not when considering whether you should leave or not (barring an imminent IPO that would delay your leaving by a bearable month or two)
Something you might not be aware of: If you joined the company before they had $50M in assets, your stock would also qualify as QSBS [1], which means you don't have to pay any tax on gains of up to $10 million.
[1] https://www.andersentax.com/services/for-private-clients/bus...
Your shares are likely going to get hugely diluted exactly because of growth investing like in the article. Investors and founders will essentially trade away your share of the company in new rounds, while they get huge payouts for it, your shares may grow a small amount, again realized over some long time horizon.
Let’s take an extreme example and say your shares double in value (not likely) through the remaining funding rounds, and eventually in another ~7 years you can actually sell them in some liquidity event.
So that’s $3 MM (gross) over 10 years. That works out to be $300,000 / yr in equity compensation.
Certainly very high. But not any kind of crazy number. Definitely there are rank and file engineers in FAANG companies, Wall Street, and other industries getting annual RSUs or bonuses well beyond that without having to wait 10 years to realize it or have the risk that it folds or you get laid off and lose a bunch of future value, and have a high base salary, good benefits, and good work/life balance the whole time.
Given that even a crazy outcome like $3 MM annualized over 10 years isn’t significantly better than other reasonable total comp opportunities, this overall paints a really bad picture for start-ups.
Your case, which is nearly about the best lottery ticket someone could get, is only slightly better than a competitive position at many public companies, finance shops, etc.
Meanwhile, almost all start-up outcomes would be far worse.
Not sure what your point is about $3MM over 10 years. Why would you divide it over anything other than the number of years you actually worked at the company?
You've assumed I was a senior engineering hire. I was in a junior non-technical role a year out of college.
> “Not sure what your point is about $3MM over 10 years.”
Please re-read my comment to help understand.
> “You've assumed I was a senior engineering hire. I was in a junior non-technical role a year out of college.”
Where did I make an assumption about junior vs senior level?
As for your claim you were given this grant for a non-technical role 1 year out of college, I think it’s more likely you’re just lying to troll this comment thread. Just in a Bayesian sense, the conditional probability that you’re lying is higher than that this is a true story.
It’s not impossible that this could have happened for a non-tech hire with no experience, but that mere possibility also is irrelevant compared with the far greater probability that this is just made up.
I don't think there's anything particularly special about my situation other than I was fortunate to join a now unicorn early on.
The fact that some people win at startup roulette doesn't mean that it's a good financial decision to join a startup, especially considering that you can make the same sort of money without the risk elsewhere.
To expand on it further, even if you are lucky to have joined a unicorn, you still didn't get a good deal in comparison to virtually everyone else involved in the company. The founders are likely billionaires and you made off with a low 7 figure outcome while taking on only marginally less risk. That's not a good deal by any reasonable definition.
Take Jeff Bezos. He was a fairly wealthy guy, having worked at D.E. Shaw before founding Amazon. Still, he took a $250k investment from his parents to help found the company. Yes, it turned out to be a great investment, possibly worth $30 billion today, but at the time, the more likely outcome was that it would be worth $0. So not only did he risk his own money, but that of his friends and family on his new venture.
Contrast this to an early employee who starts after the first round of outside money is made. That employee often gets paid a competitive salary (maybe not a FAANG level salary, but something that's fairly easy to live comfortably on). They certainly are not expected to raise money for the company. It's just a much safer thing to do, that really doesn't involve nearly as much sacrifice as the founder.
Now, I agree that there is a point where the rewards may not justify the risks, which is joining a company in the pre-series A stage. At this point, you might be asked to take a very significant salary/benefits cut, while your share of the company is likely to be in the low single digits (percent-wise). At that stage, I personally don't think the risk/reward ratio is fair (i.e. i think that stock grants to these early employees should generally be higher than they are).
Seems he is another wealthy guy who "made it on his own". I couldn't raise even a 10th of that from my family.
You have the option to swap places with the founders and become a founder yourself. But if you do that, you have to clear the same hurdles the founders did - validate a market, build an initial product, convince people to give you money. And you bear the financial risk that any one of these steps won't work out yourself.
One (productive, IME) way to look at the founder/investor/early-employee/late-employee divide is to think of it as risk apportionment. The founder risks their time & effort for a potentially large payoff if those risks succeed. The investor risks their money on the assumption that the founder can turn it into more money. The employee trades away the financial risk that the venture as a whole might not succeed for reasons outside his control in exchange for ceding most of the rewards if it does. Depending on your risk tolerance and belief in whether the company will succeed, you might choose to occupy different roles in that ecosystem. But understand that what you're being compensated for, when you have an outlandish success that nets a big payoff, is all the ways that payoff could have gone wrong and you might've ended up with nothing.
You have to include whether you are enabling greater income disparity, to ensure there is a disincentive for those in power to create that sort of environment for you. It is rational to consider both what benefits you, -and- what benefits society at large, and if you have sufficiently not terrible options to choose from, picking the one that does not greatly enrich another on your effort is a positive.
I wouldn't see the risk of being an employee and founder as similar. Typically often founders are for time periods without salary etc. Early employee should just consider it as a job with more risk of the company going down under (that risk also exists in more established company). You can request more salary for the job or some additional perks (such as options).
I think for the employee the risks of joining to startup are quite easy to manage compared to a founder.
Increased risk of a startup should mean increased salary. What it has turned into is lower salary with options to get rewarded if all goes extremely well. If things go only okay then the salary is about the same.
The risk can be higher for a founder but could be more risky for an employee based on personal situations. The reward ratio is higher for founder and control over risk is in their hands.
I don't think this is true. There are cases where people have broken equal or made slightly more than working at a corporation would have. It can be really good, but it can also be just okayish or not that great.
This is based off my reading of the phrase, which means that good options have to be really good. The "it is really good" that is actually written verses "it can be really good" that is closer to the truth (imo).
I would've been screwed if I didn't early exercise.
Not sure what the best source on this is, but a quick DDGing:
https://www.fool.com/knowledge-center/tax-rate-on-exercising...
If I early exercise my options on day 1, then I still have to wait until the 2 years after the grant date (2 years of employment) to get long term capital gains treatment.
If I wait 4 years, then exercise, then I have already satisfied the 2 years post-grant requirement, but I still have to wait a year after the exercise to get long term capital gains treatment.
The key part was my last clause: "whichever is later".
Meanwhile, (b) options do a much poorer job of motivating/recruiting employees, (c) an even worse job of aligning interests and (d) the risk/downsides aren't reduced at all.
If stock "values" start to drop, it can really make a company feel like a sinking ship. That's the risk of equity sharing. They can make bad times worse. This happens no matter how distant/unlikely a liquidity event is.
The solution has been mentioned all over this thread: make them liquid somehow.
Alternatively, stop doing options and do something else instead. Aren't startups supposed to be breaking conventions and being creative?
I agree this Steve B's implication, the average stock option scheme is a vestigial artefact. Unless you're in a position (and of a mind) to negotiate terms, it's a checkbox.
If you get a 100,000 shares at 0.10 each...they are likely over multiple trials going to be worth around 10K. Act accordingly.
About a year later, we were sold, and the payout from the stock did not justify the salary difference. In order to justify the difference, the payout needed to be about 20x.
When I confronted the CEO she just changed the subject, and didn't understand why I stopped keeping it a secret that I was looking for another job.
Startups have effectively given away their biggest talent attraction, why bother working for a high risk startup for "options" when you can work for a steady growing FANG with liquidity and real "equity"? From a talent acquisition perspective it doesn't make sense.
The reason why I confronted her had less to do with the payout from the sale, and more to do with her general attitude towards compensation.
To put it bluntly, she continued to pay well below market rate, and if she didn't pay up, everyone was going to trickle out the door as we got market rate jobs elsewhere. No one works in an aqui-hire situation below market rate. Her views on compensation were so bad that she had me at the same starting salary that I had when I worked under the same parent company, 5 years prior.
Needless to say, shortly after my conversation with our CEO, she was fired by the parent company, and the new owners promptly fixed the compensation problem.
The bigger problem was that she was setting general compensation far below what was competitive.
The new parent company fired her, and gave us all big raises and retention bonuses.
I don't understand this part of the post. When do "investors" grant stock options? When I did a startup back in the 90's the founders owned all the equity the day after the company was incorporated and a stockholder agreement signed specifying what each of us owned. We then sold equity to angel and venture investors by carving out a piece of the common in the former case, and issuing new preferred shares in the latter. Later the company granted ISOs to employees by an act of management, ratified by the board which did of course include investors. But at no time would I have said that the investors "shared their ownership" with employees. All current owners were diluted by the issuance of new shares or rights to new shares, but it was never a flat-out decision by the investors to share what they owned. It was a management decision.
Curious if others have seen a drop in hours expected from your average startup (separate discussion if longer hours is a key ingredient and overall a good thing).
> The first big idea is that unlike in the 20th century when there were two phases of funding startups–Seed capital and Venture capital–today there is a new, third phase. It’s called Growth capital.
It used to be that The Public would provide the "Growth capital" via an IPO; Now the public is providing, I suppose, post-Growth capital via the IPO. In an current era where the market believes P/E ratios of 24 make sense [1], that has so far been viable.
If more historically normal valuations return to public companies, or if the latest crop of unicorns fail to provide great returns for the IPO investors, I strongly suspect this new division of funding phases will come to an end.
[1] https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...
Options are a bit like lottery tickets. All other things being equal, it's marginally better to have them than not, but their existence has never affected my decisions about where to work.
Do startups commonly offer RSUs? I suppose my follow-up is whether it's easy to do, using Carta or something similar.
You can have 20k shares of stock and walk away with nothing even in an a successful IPO
Either all shares must be diluted, or none. When someone's shares are diluted but someone's not, it's a scam. The concept of privileged shareholders is just wrong.
The whole system looks overly complicated and corrupted.
This means that the percentage of the company your shares equate to is only a small part of the picture. You also need to know what deals were cut with every investor now _or in the future_ to know what your shares will be worth.
What can be done about this? At the very least can we name and shame?
I'm surprised this article didn't mention Investors ability to simply hold shares post-IPO. Leave it to the LP pension managers to decide how much upside they want to risk.
Negotiate compensation accordingly.
i could refute his arguments point-by-point but i'll just highlight a few.
1. in a couple of places, he notes that "employees" put in as much hard work as "founders" but don't receive equivalent compensation. this is an absurd comparison. the amount of hard work is irrelevant, it's the value you bring to the table. part of that value is via hard work, and part is via the unique (or not) skill set. the unskilled janitor or maintenance man might put in hard work, but is an easily replaceable skill. if in fact you think you are bringing as much value as the founders, but aren't getting rewarded, the solution is very, very, very simple: become a founder.
2. So while the VCs gain the upside from keeping a startup private, employees get the downside. What? Given the very well known, no excuses for not knowing this, fact that the large majority of startups fail, VCs take 100% of the risk, by virtue of laying out 100% of the capital. The employees get a salary during this time (no "downside"), and any upside is free money to them. Now this isn't a perfect rebuttal, but steve's argument is also lacking in nuance so i'll leave it there.
3. VCs have moved the liquidity goal posts _but_ haven't moved the vesting goal posts. Is he suggesting the vesting schedule needs to be longer?? To match liquidity??? this is nonsensical.
the overriding problem, he suggests, is this new "growth capital" phase. i don't agree this has made the stock option deal "bad". yes, it changes the nature of it, but not to as negative a degree as he implies. if he wants companies to IPO earlier, well what happens is that your 1 basis point of options will be worth 10x less than if you stick it out. it's like people complaining about dilution: dilution isn't a problem ... your net cash value increases with each round. it's not really feasible to have the hoi polloi be able to liquidate options at each round.
If, as in the article, a start-up is effectively offering a low salary + a lottery ticket and expecting candidates to see it as at least equally as valuable as a high total comp figure from a competitor, then the lottery ticket has to be priced very highly, to drag up the expected value after accounting for all the high likelihood outcomes that have poor payoffs.
Add to this the fact that, despite false promises, you won’t get more freedom, career opportunities, cutting edge work, etc., at most start-ups than you would at even average-case public companies, and it’s a bleak picture. No aspects of the work experience will create additional forms of “payoff” that help offset the low salary and poor lottery ticket equity, and in many cases the work environment will be toxic, full of immature behavior, unprofessional, etc., and candidates should really be requiring higher compensation than at a big company, to deal with the start-up dysfunction.
When the option valuation (even assuming a hilariously unlikely high value exit or IPO) is eventually diluted and spread out across ~10 years that you have to delay getting that money you earned (or even lose it all because of a layoff + poor expiration policy), and at best it turns out to be the annualized equivalent of a pretty modest bonus, it’s just deeply not worth it.
You will not have gotten anything else out of it (specialized experience, leadership or business skills, networking, oddball perks) that offsets the income you could have been earning almost anywhere else.
The founders would have had something equivalent to your RSUs but ... they were doing the negotiation. For example, IIRC, Anthony Levandowski cut his employees out when he sold 510 to Google. (So it shouldn't have surprised anyone at Google when he later screwed them as well.)
https://www.invigorlaw.com/key-term-sheet-provisions-liquida...
Edit: the article even says it:
Today, if you’re an employee you’re now are at the bottom of the stock preference pile.
If you’re one of the early senior hires, there’s no downside of asking for the same Restricted Stock Agreements (RSAs) as the founders.