Could not agree more, and this is my stance which I will happily share with anyone who cares to listen. I was first employee (and only engineer) at a startup which dangled 'equity' in front of me but didn't deliver. Contract was so full of gotchas that the path to me seeing some sort of actual payoff was astronomically unlikely.
90 day exercise windows upon leaving or even getting sick and being forced to leave. Liquiditation preferences for VC shareholdings. No way to sell your options on a secondary market. Permission of the board required to actually exercise them. Half a dozen clauses that allowed the board to revoke your options at any point in time. Basically, they want you to give your fucking life to them for 5-10 years with only a contract not worth the paper it's written on as an incentive.
Between the shitty equity terms and the fact I was building a damn tech company to make someone other than myself rich, I told them to go fuck themselves and took a job at Google for over 3x times the pay. I have no regrets. Being an early employee at a startup is a complete waste of time and I still beat myself up for being so naive. Sharing this so other people don't make the same mistake.
If I decide the next day, “Nah, it’s not going to work; let’s close the company and distribute the assets to the shareholders,” it would be manifestly unfair for the 80% shareholders to take $1.6MM of the $2MM in the bank and give the VCs back the $400K that represents their 20% stake in the bank account.
Liquidation preferences ensure that the first $2MM that comes out goes to them.
Of course, everyone is disappointed. But it's still unfair for that engineer who gave up half a million dollars or more to work at the startup to get nothing. You might say that the engineer should be aware that they agreed to a way of structuring equity that means it's likely they'll get screwed. Fair enough! But all of this discussion is meant to make readers aware that, yes, the industry standard practice is to screw over the people who have the most skin in the game.
By all means understand it; I’ll never argue against that, but I find liquidation preferences quite reasonable.
I don't have statistics, but I believe the more common scenario is that the company gets acquired, and the return on investment is not the 10x or 1000x or 1000000x the VCs hoped for, so they recoup their original investment. Leaving the engineers with options worth nothing.
I view liquidation preferences as VCs offloading risk to employees because they can.
Just like the “declare strategic bankruptcy a few months before graduation” doesn’t happen much because student loans aren’t discharged in bankruptcy.
Both moves would “break the game” in a very similar way and so are blocked.
This is absolutely correct and it SPEAKS VOLUMES about the reality of the startup world, even apart from this discussion on liquidation preferences. I'd recommend anyone looking at working for a startup to consider the above and then consider the fact that as an employee they'd be in an even worse position than those founders before turning down that far more lucrative offer from BigTechCo.
The rich technically have less personal risk -- that's because, well, they're rich. GP arguably took more personal risk, took less pay, and created the machinery that made the company profitable.
If you want to say that the original $2M is paid out before anyone else is, that's fine, especially in a sinking ship.
If you mean to say that on a %1000 increase of company valuation, GP should not get his share because, well, he didn't fund $2M dollars -- that's _utter_ bullshit. And arguing that VC's should get preferential treatment so they can directly screw over the people who directly provided the growth is the stupidest argument I've heard for this clause.
It seems to me that you built and eviscerated a strawman right in front of us.
The liquidity preferences could certainly be structured in a fairer fashion. Just because it’s currently structured this way doesn’t mean that it needs to be always or that it’s a great model ( it’s not unless you’re a VC, which is basically the point).
Would you think this is a legitimate claim?
It's silly to automatically assume that "investor" or "capitalist" is someone rich. Chances are, the VC get their money from banks and pension funds who, in the end, invest money of people who earn much less than an average startup employee.
Come up with a different mechanism if you ever want anyone competent to work at your startup.
Of course, if the difference is 2.5x then it's a no brainer.. I wouldn't take more than a 20-30% cut to work at a startup.
One thing I absolutely agree with you on is the option exercise window. I think it's pretty common in the startup world, but I can't really understand WHY. I mean your options at a startup are already worth less than stocks at a public company, and they still do this shit ? With all the extra risk you'd imagine they'd have to get rid of the liquidity window just so they can compete a bit better with the big guys.
There's also:
1. Shitty bosses (this and the following can be found in any kind of company)
2. Being promised one thing and then being screwed over later. How many companies have screwed over their employees of stock options or those holding existing stock?
3. Terrible tech stack / less personal satisfaction -- especially if the startup hires lousy people and value code production over smarts.
4. Management defined engineering -- when managers make important technical decisions instead of engineers. ("We've signed up for service X, please integrate with them regardless of your thoughts on the matter").
1) Safety and predictability in compensation
2) Ownership over your company’s strategy (e.g. mobile) only if you’re paid highly for doing it (not a bad thing, but many other people exist who would willingly take a pay cut for the ability to have an actual impact on company strategy)
3) A highly organized and logical hiring process and qualification evaluation
4) Custom negotiated options contract outside of industry norms OR BigCo stock that has value today
5) 5 weeks of paid vacation
It definitely sounds like you made the correct decision by choosing BigCo over startup.
Equity is basically always monopoly, you generally can't even evaluate its value because no one will show you the cap table. Highly profitable startups still regularly manage to deliver a pittance to early employees on exit. Even if the exit does deliver oftentimes the yearly compensations disparity is so large that if they'd just stayed at BigCo and invested the bulk of their earnings they would have earned as much or more. This is all while working significantly more hours per year.
The list of upsides is really small relative to the risk. If startups want talent the industry norms are going to have to change.
Not showing the relevant details of the cap table is ridiculous, companies that do this are banking on a pool of candidates that are either morons or don't care what they're paid.
Imagine the following situation: You're in a foreign market, and a vendor tries to sell you a fancy-looking machine. You know he's legally bound not to lie, so you ask what the machine is worth. He says "it's worth 2 billion Magic Moneys!!" but refuses to give you any information that would help you suss out whether that's 20 cents or 20 million dollars.
1) Fair compensation, yes.
2) It's unfair to ask someone to have the responsibility for the success of a huge part of your business without making sure they have significant upside if they succeed.
3) Yes, I want a logical hiring process. The horror.
4) Fair. Not "custom negotiated", just fair. The fact that the industry norm is to fuck over your employees should fill you with shame, not be an excuse you hide behind to do the same thing.
5) I doubt I'll take that much, but I like that the company understands that they'll get the best work from employees who are taking care of themselves and their families.
If you're representative of a typical NYC founder, then yes, I'm glad I didn't join a startup.
The norm is changing. Good startups today generally offer 5-10y exercise windows. [1] This is something Triplebyte started, and they have a guide for how to implement it. [2]
[1] https://github.com/holman/extended-exercise-windows
[2] https://triplebyte.com/blog/extending-stock-option-exercise-...
I think you mean the GP wants options within industry norms, which are outside of a failing startup's shoestring budget. On a separate note, what are your thoughts on the glassdoor ratings of Localize?
https://www.glassdoor.com/Reviews/Localize-Reviews-E1427641....
If you're reading this, please know that not all startups will "bleed you dry". And on the other hand, many big tech co's will!
To be fair, I was specifically not interested in a remote job. Would rather work in an office.
I'm working on something to make the interview process and the offer piece a lot more transparent. I've been part of terrible interview/offer loops too, and the problem aggravates me to no end.
I'd love to speak with you.
Enjoy your new life as a corporate drone!
Note to the salty drones in the comments below: I started a business that was passively profitable for years and now pretty much just work on what interests me
I think startups are great for junior employees because you learn so much so quickly. Eventually if you want to be successful in startups you need to start your own startup. The payout on 25% ownership at $10M or $20M is not bad and lots more companies can buy that sized company than a billion dollar one.
There absolutely is. I'm not sure why so many here seem to think that the only options are: BA startup, FAANG, Fortune 500 megacorp.
Comp and work/life balance smoothes over a lot of negatives inherent in corporate life.
To be frank, it was a total shitshow. Especially on the startup side.
Here’s some of the bullshit I faced interviewing at early stage companies before accepting an offer literally 2.5x as high as the (multiple) offers that startups made.
1. Shitty equity: one startup wanted me to be engineer #7 and completely own the mobile app and strategy, which is the single point of interaction for their customers. They offered me 0.1% and spun some story about how much it would be worth when they were worth $800mm. Their last valuation was about $35mm. Even if their numbers were real, I’d still make more at a big tech company in equity alone. They also made it clear they wouldn’t budge.
2. Bad work/life balance: the big tech company where I accepted apparently has no issue with people taking off whatever time they need (avg is about 25 days per year), working normal 40 hour weeks, and working from home if needed. By contrast, the startups felt way more restrictive here.
3. Terrible interview process: almost all these startups had pretty disorganized process. Worse: they did the standard whiteboard algorithms interviews, whereas multiple bigger tech companies had more iOS-specific interview loops. Even worse, the startups tended to have a higher bar for hiring than the bigger tech companies. This one is subjective and could be random or misperception on my part too.
4. Most infuriating of all, all of these startups (except coinbase) had a 60-90 day option exercise window for employees who left before a liquidity window. Let me be clear: fuck you if you think this is fair. IPO might be 7-10 years out and if I stay and add value for anything short of that, you’re going to ask me to take a huge risk to exercise my options (and pay the taxes) on your probably worthless stock, otherwise you’ll just keep it? Fuck you.
The entire thing left a bad taste in my mouth. It’s pretty clear that these founders and investors don’t give much of a fuck about their talent, and watching them get squeezed by big tech companies offering sky high comp fills me with glee.
Be a founder, investor, or big co employee. Fuck being an employee for a startup so they can bleed you dry.