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Comment by bee_rider | Hacker News Reader

I always imagined that startup folks were working for a lower salary, with the expectation that if it goes big, the have a chance at a massive payoff. Is that not how it is? I'd expect discontinuous QOL changes between:

unsuccessful or not yet successful startup | working at a big company | successful startup

(I'd rather not work for a startup because the middle bracket looks fine to me).

If people are working for that startup lottery ticket and then not getting the full reward when it comes up a winner, they are just getting screwed. Which is a possibility but not very mysterious, right?

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My understanding is that the actual payouts have gotten much worse for employees due to lots of special priveleges that the investors get: employees get paid last, and therefore get paid less. So the 'f you money' for an early employee these days buys a new car and that's about it. (In exchange for lost sleep and lower salary, and, oh, a high chance that you don't even get the car because most startups fail.)

As a faang employee, it just looks like the startup space is completely uninterested in trying to hire me.

> employees get paid last, and therefore get paid less

Paid by who and in what case? If the company IPOs or buys back a sizeable chunk of stock as part of fundraising or acquisition, employees with options do just fine. Employees are paid when they choose to sell.

If the company liquidates that's obviously a bad deal for employees, but it's a bad deal for everyone involved.

In some sense, working for a tech startup is like working for FAANG and spending part of your salary on buying 10 year call options on random other private tech companies (if that were possible without having VC-tier wealth). Lost sleep is a founder issue.

>If the company IPOs or buys back a sizeable chunk of stock as part of fundraising or acquisition, employees with options do just fine.

You need to read up on preferred stock vs. common stock, and the shenanigans that startups can do in order to reduce employee payouts, e.g. stock dilution.

Preferred stock by default mainly affects liquidation order when there's no dividend. If the company does very well, that won't be a factor. https://www.svb.com/blogs/lewis-hower/startup-founders-shoul...

Dilution can happen regardless of any preferred stock agreement. The biggest sources are when top leadership exercise huge options packages or when the company issues new stock for sale. If you buy stock or call options you are subject to dilution on the public market too. Under dilution, any investors that negotiated an anti-dilution clause on their preferred stock are the winners, everyone else loses. It's stacked but it doesn't break the game completely.

There's a pretty good chance of failure of this strategy. I've stuck around my company for almost 10 years to hit my FI target, and the first 2 years I didn't get equity by default as an intern. The opportunity cost is potentially huge. However, as an individual there's no way I would have been able to invest at this company at the time I got options. The job has been pretty nice in the mean time. FAANG also would have returned extremely well in that time, but more like 10x not 100x.

Is this an efficient strategy on the risk-reward frontier? I don't know. But sometimes the outcome works out very well. Unfairness in the system is there but not so different than owning any random stock. Fiduciary duty exists.

/Unfairness in the system is there but not so different than owning any random stock./

Diversification is also important, though, and is really the biggest problem with startup employee equity: your job is also your lottery ticket, and you lose both at once if/when the company fails. Dilution and preferred stock deals just make it worse.

There are, of course, other reasons to do work than money. But what charity would you give $50k/year to?

You're still getting paid a salary and can save that to diversify. Selling equity along the way isn't possible for everyone, but for example my employer IPO'd after 3 years and I've been liquidating at a schedule since then. I also got options ~300 employees, which is late in the startup game but early enough considering the company's success. That's a bit safer than super early stage.

Yes, some blind luck is needed to win at this game. However, the job market has been such that a solid programmer can get something lined up pretty quickly if their current job fails. I don't think the risk is as bad as people portray. Again, picture buying long term call options for a single stock with a proportion of income each year. Somewhat risky, but risk is capped and the payoff could be quite big. More diversification is almost definitely more efficient but carries less tail upside.

By "unfairness" I don't mean risk, I just mean unfairness.

Yeah, I think we're basically on the same page, but have plugged pretty different numbers into the proverbial Drake equation.

I agree that job loss probably isn't all that bad... (Unless it lines up with a wave of companies closing, which is known to happen from time to time.)

I can also just save + diversify /more/ with faang salary and equity than I could at a startup. The $50k/year is a lower bound on what I expect the pay cut to be in moving to a startup. So from where I sit, there's really no financial argument for moving to a startup. The startup has rather lower pay, some probability of payout multiplied by a value that I just kinda expect will be chipped away by the suits, and some probability of a bad outcome (with some bounded range of potential badness). I look at it and just think it's not interesting unless I get really, really bored.

I think your evaluation is right and sensible. If you wanted, you can also take on risky bets with more diversification.

Joining a company that's relatively close to IPO is an interesting middle area.

Getting $1 million used to be f you money, it paid for a nice home for you, college for all your kids, etc. Now, if you make a cool million off the IPO, you can put in a down payment for a house closer to the office.

I had a founder promise me millions upon millions with my equity... but even generous valuations - at a “unicorn” - with minimal dilution would leave me with <100K. Quit not long after.

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