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Comment by potatolicious | Hacker News Reader

Welcome to the ugly, ugly truth about startups. Employees have so little equity compensation it's almost hilarious - and yet founders will hand out 0.1% offers and expect you to take huge haircuts for the privilege of owning a tiny sliver of a 7-8 figure exit (potential exit, actually).

Having seen the stock and bonus structure at Amazon and Google, I can confidently say that your expected outcomes are considerably higher at a top-tier tech company than at your average startup.

Sometimes I wonder where all of this "take a haircut for equity" advice is coming from for employees. It's patently terrible given the amount of equity that most deals involve.

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It's a founder generated myth - come here and work for me cheap in the hopes I become a billionaire and change the world blah blah blah. The funny thing about equity is the guy who starts benefits disproportionately by simply being there earlier than others of equivalent technical ability. Contrary to popular belief - most founders are selfish morons compared to some of the people they hire later to make them rich. It's the halo effect that occurs when some of them succeed luckily that makes people think founders are different from normal people - they aren't.

Fun fact: You know all those perks provided by startups to their employees that are marketed like charity - the value of said services doesn't come close to the haircut taken for becoming a startup employee. It's psychological arbitrage.

I wonder if startups are just an exercise in psychological arbitrage driven by myths and lies that allow them to take the delta of wealth from their employees' haircuts and transfer them to founders. 40% haircut for 100 employees for 3 years at 100k par value is worth 12 million - more with DCF and even more with an adequate investment strategy investing said wealth to acquire users below cost and psychologically arbitrage big company fear into a sale or acqui-hire.

  most founders are selfish morons compared to some 
  of the people they hire later to make them rich.

Lets hope there aren't many startup founders reading this forum - or they might get worried :-)

Anyway, enough silliness, is it feasible to create an expectation or culture that rewards early hires in line with the (expected) drop in salary - the argument being that if I could earn 150K contracting for a year, but work for you at 50K, I should expect to garner 100K worth of equity.

Or are we going to see a simple return to the basics of start-ups - it takes money to start a company. You need lots of it to hire good people. Or is it really feasible to do everything with three guys in a room?

Or is it simply that heaving a compny into existence takes more than just technical know-how. it really is about hustle.

I honestly doubt that start-ups that become profitable and breech the magic 1m /pa are purely taking the employees pay cuts and moving them around - I mean that money does not really exist.

I'm sorry, do you mean "paycut" or is this some sort of idiom I'm not familiar with? What does hair have to do with it?

It's a Valley-ism - but yes, "haircut" simply refers to a (substantial) pay cut.

While the term has more specific meanings in finance, "haircut" it has been generalized to often mean "a small paycut".

Wiki page with more info: http://en.wikipedia.org/wiki/Haircut_%28finance%29

Haircut is usually a term for taking a reduced return on an existing investment that is otherwise unlikely to pay off - for example many European banks have taken a haircut of upto 50% on Greek government bonds, otherwise the greek government would leave the Euro, default anyway and take its chances.

Said haircut of course then stuffs their balance sheets, so they need bailing out, from for example Spainish government, which then cannot payout its loans and threatens a haircut to its investors. Who are the same damn banks it just bailed out.

This leads to two situations - one ECB chief saying it will pay anything to anyone to stop this idiocy, just ask. And two, the philosophical approach to wealth "hair today, gone tomorrow"

Haircut = any asset monetized below par value (100%)

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