Comment by diziet | Hacker News Reader

Comment by diziet | Hacker News Reader

It's quite difficult to compete with Google and their revenue/cash hordes when it comes to salary / total comp. Especially if you price the options at the last round's price and discount them some more.

Imagine a well to do company of 2 founders (in SF/Bay Area) and a team of 3-4 others that raised a seed at 10m cap. They want to grow their team headcount to 15 and are busy hiring, running servers, etc. They can offer a 100k salary (more than enough to live on) to a sort of senior engineer or PM and want to compete with Google on total comp. Let's say they need to make up the other 100k difference in comp & salary with options. Over 4 years, you're looking at a 4% equity chunk to one employee, the 6th person joining the company.

Not that I think numbers in line with this aren't realistic (I do agree with Sam that more generous equity grants are better), but for most companies that make a 15% option chunk for employees it's difficult to rationalize a number like that.

Edit: Also, that puts the equity comp of that 6th employee (or 10th, because in most cases you will have a similar equity bracket for those people) at about 1/8th of the founders, not the 1/200th that Sam mentioned. I wonder how many people have made offers to employees with a similar comp plan.

100K is not more than enough to live on, if you live in the Valley and have a family (say 3 kids) then 100K barely buys you a comfortable lifestyle. I know that is not the point of this thread but so much focus of these discussions seems to pivot around a 22 year old college dropout who lives with roommates in a shared apartment.

When you reach a certain point, say your mid-30s and you have kids your financial obligations can extend far beyond what people think is necessary to 'live on'. You have retirement contributions, savings for college, long term care for family (most people believe it or not, have to help their parents out at some point).

And that's why in the latter case, an early stage startup may not be for you. You join later, with a higher salary, when it has stabilized and looks to be going somewhere. And without the risk, you don't expect the equity to offset it. Pretty simple, really.

An equity offering of 1-5% doesn't offset the reduced salary. That equity typically doesn't imbue the recipient with the same authority as the founders' equity imbues them. Yet, for example, Hire #1 in a two-founder startup is pretty darn close to sharing 1/3 rd of the risk as the founders. It's just that his risk is assumed to be amortized over the term of his tenure and slightly reduced by a salary, so it has the appearance of being significantly less than it really is, even though neither component of that assumption is valid.

Being able to raise a seed round is a non-trivial hurdle and is not something most engineers can do. Compensation isn't really about risk (which is low for everyone involved given the current employment market), it's about value and opportunity cost.

I agree with the logic that gives very early employees 3-5% equity stakes. Any more than that I think is unfair to founders and angels -- there is real value in getting even a reduced salary. Most founders have worked for a year or two without any cash comp, at something that may look absolutely ridiculous on a resume. That is a humongous risk. Those coming in after that risk, plus the risk of failing to raise the seed money, are IMSHO taking about an order of magnitude less risk, therefore the 3-5-ish percent number makes sense.

Don't even get me started on this idiotic "we put 15% aside for employees" crap. Fogedaboudit. $80 to DE and you've got 10 million more shares to play with. Not my fault you failed to get the arithmetic right the first time around.

A 22 old college dropout who lives with roommates in a shared apartment can live in $50,000 a year or less, even in the Valley.

As a sibling comment mentioned, working at startups, especially early stage startups, isn't for everyone. If a person has major financial obligations a more steady job with less uncertainty (and less potential for upside) is probably the best fit.

200k is nowhere close to total comp for a lot of engineers at google. 300-400k for anyone with 7+ years experience who is worth a damn, and some are topping million+. Startups simply cannot compete with google compensation, period. No matter how much equity you give.

There may be valid reasons to work for a startup, but thinking you will be paid to the best of your ability or god-forbid, thinking you will get rich is not a valid reason.

It's easy for a startup to compete with google on compensation: just be a huge success. If you sell for $10 billion, a typical engineer with 0.1% equity will do well. A first employee with 2% equity will do very well indeed.

But yeah, on average, it's not going to be as good as Google. Pick your startup carefully.

I was underestimating the comp for google engineers just to prove the point. I strongly agree that working at google is better in terms of pure comp (though the longer term capital gain taxes do work out better than salary..)

It would be more realistic if it accounted for the expected growth of the company valuation. It's unrealistic that the company should be valued at 10m for the next 4 years - it's going to grow or zero. Also their salary is likely to bump. Just doing some quick numbers it might be realistic to give the same "EV" as google by granting 2.3% with no raise or 1.5% with a salary that approaches market over 4 years. I think that's very reasonable for the kind of person who is turning down a 200k/yr job to work for you.

The valuation is the expected value. And since we're talking about investors who get preferred shares, the actual valuation for determining the value of the common shares (which employees get) is lower than that, still.

You're not wrong and that view represents the normal thinking I suppose. But don't you think it feels weird to say, "We're going to pay you next year in equity at this years valuation"? if you choose to stay in the company for year 2, it's strange to think that your risk goes down while value per share goes up. Your effective cash+stock compensation for year 2/3/4 goes way way up if you think in those terms. Then drops sharply at year 5!

I don't know, I suppose in a fair world you would be given more equity on yr1, less y2, etc. But that doesn't motivate people to stick around like the existing structure.

Value per share goes up, but presumably the employee had a significant role in making it go up, so that part seems fair. The 5th year discontinuity is an unresolved problem, though. It seems that, for the most part, people don't expect their employees to stick around that long. In the blog post, it mentions that some people are moving to 5 or 6 year vesting.

> The 5th year discontinuity is an unresolved problem, though.

By the end of year 3, you should be having "that talk" with whomever is running the show at that point. If you are a valued, productive member of the team, you'll negotiate another package that is at market. If not, it's probably time to move on to the next town 'cuz you're a rolling stone, always looking for the next adventure....

> Your effective cash+stock compensation for year 2/3/4 goes way way up

Not if the company flails or fails. If it does well, your increased comp makes up for the even more probable counterfactual, where your equity was worth bupkiss but you plugged away like a true belieber until the lights went out and the last pizza box was empty.

15 employees on a ~$2M seed round would be very aggressive. Realistically you'd only want to hire around 5, so your runway lasts at least 18 months.

Low-single-digit percent equity stakes vesting over 4 years for those employees is pretty in-line with what I've seen on https://angel.co/salaries.

It is not really aggressive if you are planning on growing your company. Typically, a high growth oriented venture funded startup is looking to get about 12-18 months of runway from their funding, hit some metrics and get funded for series A, repeat. 2M seed round at 5 employees means avg per employee spending of 260k / year. This is assuming you're not bringing any revenue in yourself.

By hiring 5 employees I meant a total headcount of 7 or 8 including founders, which will burn through nearly $2M in 18 months.

Fair enough.

I suppose it depends on whether you're running a startup with revenues or not. I am operating from the assumption that by series A you're about at the 1m arr revenue level and your revenue + funding are funneling your growth. YMMV with companies with low/no revenue.

The 100k number isn't engraved in stone, to stay the same for 10 years. If there is a talent shortage and big houses raise salaries to pull it in, VC will have to follow up.

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