It seems to me that early employees are underpriced these days, the way that founders used to be, so a correction is probably inevitable. At the same time, there's no way seed-stage startups can match FB levels of compensation—the math just doesn't work. So what would a correction look like?
Could be something like:
- companies keep lower number of employees, higher grants, but demand founder-like effort for early years
- early employees get substantial equity grants 5-10%, that must be sold to VCs on secondary offering at next rounds. In that case, employees could directly benefit from startup grows, while reducing risk compared to FAANg, and founder can keep their equity size. Yes, upside is limited, tax/legal work, but could be covered by new refreshment grants from employee pool
- YC creates/funds employee union-like organization, that funds/organize activities/benefits for early stage startups
- help legally with paying/hiring employees remote with equity package
also joining startup and buying out $$$$$ worth of stock options that could turn to 0 is a downside compared to stock grants from FAANg.
But I think big vc orgs and especially YC could pioneer / help with new approaches
At least, that's what it would take for me to join a startup as first engineer versus starting my own business.
Just to be clear, I'm not disputing the point and don't have a strong opinion. I'm curious where HN users—who include many prospective early engineers—think the market needs to go. The comments about startup compensation are routinely so negative that it seems clear it needs to move; the question is what range would start to be fairer.
I think the first engineer employee should get 2-3%, next three should get ~1% each. Sam Altman has said he thinks the first 10 should get 10% total [1], so you could front load the early employees even more.
We're a long way from that. The offers I got were in the .02-.03 percent range with most of the standard terms. Not even a 10 year exercise window. This was as one of the first 5 engineers.
Why is it like that? Guess people can hire a sufficient number of engineers without offering more. Maybe with FAANG squeezing everyone out we'll see the numbers go up, I wonder if they've been going up already.
I was certainly disappointed with my equity offers, for that YC has said about rewarding early employees, I was expecting more. Oh well.
I would be OK with contracts that say employee's 1 through 5 get 0.8 to 1% share of the company but is non-diluatable. So their equity stays the same regardless of the success of the company. (of course there is room for discussion with an idea like this but hopefully you get the point Im trying to make)
This bit, however:
better liquidation preferences that favor employees at the same level as investors because employees _are_ investors if they are taking a pay cut
seems serious and fair to me, and perhaps something that startups could actually do to stand out. I don't know how doable that is vs. what barriers there might be to it, but I'll ask.
This is all intensely vague and general but it's an interesting line you started down with the balance of investment vs. employee contributions, risk and compensation.
The thing about fiddling with liquidation preferences is that it's very hard to change and will have minimal impact on the bottom line for employees. Liquidation preferences only matter in the case of companies that fail, where they might make the difference between making $0 and making a tiny bit of money. Employees will make virtually all of their money on the companies that are successful.
Not that it's a minor point if Airbnb was that far ahead in employee compensation.
Any offer I've seen from a startup (admittedly a small sample size, and always later stage) has been options rather than stock, and I've never heard of a company providing enough information to actually value the options.
I think the amount I got was pretty standard for an engineer, but I also know some engineers received 4 or 5 times as much, and others got half that. I think the recruiters had a lot of discretion to decide how much to hand out in order to hire great people.
Either some info is incorrect somewhere, or there was some split or valuation indeed didn't change much in 4 years.
https://www.vox.com/2019/3/19/18272274/airbnb-valuation-comm...
There are going to be challenges, no doubt. Depending on where the team is, there will be legal stuff to figure out, time zone difference will be an issue and it will require some work to maintain the same "all-in-this-together" team atmosphere.
On the other hand, you are not competing with FAANG on compensation. For example, in Eastern Europe, even low-level Bay Area salaries are higher than most offers people will get locally. And equity grants are basically unheard of. English levels are very high, culture is pretty compatible with the US. And the level of accessible engineering talent is also very high, since you can outbid the local market easily.
There is a pretty well-developed remote contracting ecosystem where I live, but hiring people to be a part of the core team (by US startups) is comparatively rare.
To me, it's not a question of monetary reward so much as agency. If you want me to care about something deeply, then I need to have say in how it works. I'm not going to be blindly devoted to a plan that could change at any moment for any reason.
Of course, compensation/equity matters as well, but as a programmer I tend to get heavily attached to work that matters. Nothing is more demotivating then feeling like I'm giving up free time and working long hours to build something that doesn't matter or that is poorly managed. And at a certain point, if I'm devoting that kind of energy into something, I'm going to start having opinions about it.
With many VC funded startups, workers often get sold on a vision, and then in 4-5 years they get sold to Google and everything they build dies. Workers know that their work isn't going to matter in the long run, and that the vision they're being sold could change at any moment (and in fact is highly likely to change once VCs start putting on more pressure for rapid growth). It's hard to invest emotional energy into something that fragile.
Founders have a vested interest in making sure that their baby stays under their control. But if you want me to work like a founder, treat me like a founder. And while equity is a part of that, the biggest thing is that I want a say in how that vision evolves.
The way I work on personal projects and the way I work as an employee are different. It's not the money that makes them different, it's the sense of ownership and agency. As an employee I work from a contractual "what are my obligations" perspective, because I recognize that it's not my vision, it's never going to be my vision, and that it would be problematic and against the company's interests for me to try and make it into my vision.
This is part of why I am very cautiously optimistic about the rise in popularity of worker collectives. I dislike founders who want the employee enthusiasm that comes with ownership and purpose, but none of the employee opinions and agency that are part of that.
But in principle it makes enough sense that when I see an article in Slate or similar[0] that's championing them, I don't dismiss it out of hand. I want to see more evidence that any working examples that do exist aren't just very rare, temporary exceptions to the rule that hierarchy is necessary. But the idea seems worth looking at.
This principle is the same reason I'm also very cautiously optimistic about ideas like UBI. I'm cautious of anything that sounds great in theory but that has comparatively little practical data behind it. My understanding is collectives are more common in Europe, but it's not clear to me how that experience will map to the US.
[0]: https://www.vice.com/en_us/article/pa75a8/worker-owned-apps-...
I also suggest stay to keep a good eye on operation, rules and definitions when considering mapping that or any experience to the US. It's become very apparent to me that discussion on concepts (for example unions or healthcare stuff) in the US often reference apparent success or failure in other countries without ever looking deeper into the workings and such. Thus implementations often end up flawed or just not equivalent.
Someone who's attacking or defending unions for example should not consider my country an example for the style and workings of unions I often see described across the pond and if they do talk about the style of unions here they should to the environment and law constraints in which they exist all of which has a big impact.
By the time that Buffett worked for Graham, he had already studied at Columbia with Graham and worked for a few years at his dad's brokerage business. He worked for Graham for a couple of years, he took a salary (over $100k/year in today's terms), and literally the year after Buffett was running money for other people. He was not a rube who needed Graham's wisdom, he was already Buffett. It is a very odd and specific story to make up.
Interestingly, there is a more well know story in the Berkshire lore on this subject about Mozart (google Munger Mozart story).
But yes, you are right. The idea that you need to sit at the feet of some guru, and that is the only way you will ever learn is utter horseshit (and likely self-serving).
There isn't some secret book with the answers, you have to work it yourself, and build up expertise yourself...you can't borrow expertise (btw, this is something that is kind of common in Asian culture...if you go to a Berkshire Hathaway meeting, you overindex to these cultures that have respect for elders/"guru" culture...if you want to be an entrepreneur, I can't think of a worse attribute).
As for learning, obviously it depends on the specific companies and what you're interested in. But what Naval is talking about here is becoming a founder. At startups you're wearing more hats, can have a bigger impact and are closer to how things work. You'll probably learn a lot more about being a founder than at a big company where your role is more defined and sandwiched between layers of abstractions, many levels away from the CEO and decisions being made.
But then I had to get into the "big" companies for visa reasons, and honestly I don't miss start-up world anymore. The learning has been pretty steep, yes in a start-up you wear more hats.
But in my experience, the attention to detail and investment on engineering is higher in bigger companies, simply because they can afford to. Whereas an early stage start-up works more or less on a thin deadline, and if the founders are not engineers themselves, usually engineering gets compromised over velocity. Also, scale. The bigger the company the more challenges they will have (whether in vertical or horizontal scaling). And IMO working at scale, teaches you a lot more than people think.
As a software developer, the differences in goals have a significant impact on how I design and implement code.
I prefer big companies because I am usually a stickler for good conventions and proper coding structure.
Simple.