I don't think this company has even 10% of equity allocated for all the other employees. No way it's that much. She's sacrificed her own health, the health of her child and her personal relationships for someone who's coerced a bunch of people who are to scared to talk to a lawyer into a bunch of labour law violations.

When I myself interview with startups and they try to sell me on their BS vision fantasies, I tell them that I'm not available 24/7. I'm not on call duty either and if they have issues with that I'm happy to use my experience to help them transform/automate their business into a situation where they are more efficient and don't need to burn out their employees. Some people respect this as a sign of experience and others, especially the valley considers this not aligning with their "values".

This is exploitation plain and simple. They cheat their employees into thinking taking abuse is acceptable, because that's what you have to do to change the world. If anything such people change the world for the worse if you ask me.

EDIT: also, due to the lack of experience it's clear that some of the directions actually come top down from whatever VC is involved in it.

The crazy thing is, they think they can just throw manhours at bad planning and somehow make it work.

You can literally plan well, have a good life and still come out ahead of these chaotic organizations that make everybody run in circles out of pure panic.

I have seen this so often in film projects: people believe by exploiting themselves, their crew and their cast they somehow "extract" more value and magically make it work. And that one one the point, relexad, but well-planned project will always achieve better results. Because oh wonder: crews and casts that are not overworked and that use their maximum potential where it matters instead of spreading it out over the whole project will always produce better results.

The thing many dont realize is: If you have a good plan and follow it, you will very often have more freedom to try out new things than when your planning is chaotic or non-existent — because then literally every step is made out of fear, out of panic, to avoid pain or because other decisions froced you into something.

I say this because startups would argue about creativity and all that, but having worked aomw time both in art school and on film sets I can guarantee that the qell prepared always have more freedom than those who just try to figure things out as they go.

Thinking it is somehow more honorable to plan badly, throw peoples lifetime at the thing and getting a somewhat okayish result is really problematic in my eyes. Romantizing things that could have been solved by realistic (or even pessimistic) planning is not cool, it just shows me that you have no experience.

I studied film. I directed films and I was on more films sets than I wish I would have been. While this is certainly uncommon (especially in low budget productions), it is definitly not delusional. Quite the opposite, as I already argued.

So i wholly agree that the old adage "work smarter, not harder" applies here.

The fool is most likely yourself if you are available 24/7 and work long hours more often than not.

I had a side gig that very explicitly was being hired to be the guy that gets woken up by PagerDuty. They paid me about an extra $1k/month purely for having my phone on in addition to what they paid me for the time I spent dealing with actual issues. Even then $1k/month was only enough because most of the other work I did for them was explicitly to improve site availability so I could ensure the platform was resilient enough that I rarely got woken up. In effect my hourly rate for being woken up probably translated to $2k-$3k/hour, with it sometimes going half a year between being woken up, before suddenly a bad release might cost me sleep a few nights in a row.

But having felt the stress of this on a full-time basis in the past, without that kind of compensation, I don't think it's cost-effective to have your dev team serve this role vs. having a few people on retainer to at least triage and try the obvious things. You're going to pay for it with staff that do not get proper rest (even when the phone doesn't go off it'll be there at the back of your head).

The real questions then are how is the work divided, what does escalation look like, what steps are taken to reduce incidents outside of office hours, what's being done to allow for urgent maintenance to wait until office hours, etc, and also like how well is that all working, and where is the leadership in this?

I worked somewhere with not great answers to a lot of these questions, but it was okish because the cofounders were waking up with all the pages and hoping on to fix things too, and I had a mediocre experience with a dedicated ops team at a previous job that I didn't want to repeat. Eventually, as the team got bigger, we made a lot of things better, including on call responsibilities.

What most people don't think of is that when you're on 24/7 duty your salary is less than half of what it should be.

Halfway decent enterprises will reimburse you for off-hour duty usually at multiple times your normal rate plus a minimum pay. Or just hire someone in a different timezone.

The reality is though, most people don't need panic calls from their CEO at midnight and the company would still do perfectly fine without it. There really is no excuse for this.

When the company phrases their rejection as "we don't think you're committed enough to do this", that's when things smell off to me. They're hiring for a specific role, they should act like it.

As an analogy, if you hire me to build software, and then slip in that you expect me to spend 10 extra hours a week doing cold sales calls, I might turn down your job because I don't want to do sales, I'm an engineer. And the problem at that point isn't my commitment to the company, the problem is that the company hasn't figured out it needs to make the sales tasks part of the job description.

How do interviews get to this point? How does a company get to the point where you're talking to the CEO, they're laying out their exit strategies, and the job requirements still haven't been made clear?

> "we feel like you are not willing to put enough skin in the game" or "everyone else sees the opportunity here is is willing to work their asses off, why are you different?"

Those quotes say to me that the owners are viewing this as a question of "loyalty" or moral obligation, not as a normal part of a job negotiation. A good test: if the CEO feels offended that you ask for more compensation in exchange for being online 24x7, then this isn't about trying to hire a specific role, it's about their ego/entitlement.

One person wearing many hats is rather typical in small companies and early stage startups. Being asked to do extra is not something insulting per se, as long as you compensated accordingly, either with more hard money or (a lot more) equity.

It is a non-starter proposition to many, which should be respected. But it's not something borderline criminal.

> How does a company get to the point where you're talking to the CEO, they're laying out their exit strategies, and the job requirements still haven't been made clear?

Look, if we're still talking about a startup it could well be the interviewer is the CEO, the guy who brought you coffee is CFO and you're interviewing for CTO/dev/ops/support in one :)

That one little phrase sums up the problem with most startups. Hire someone who doesn’t know any better and tell them they are the “CTO”.

That means no stopping at the gym on the way home, no going into the city to see a show, no lengthy car journeys, no getting drunk, no going on dates, no evening classes, no school plays, no sport that takes you more than a block away from home, no taking your kids to the park to feed the ducks.

The idea you could have people be on call constantly sounds crazy to me.

These sorts of word games work on young naive people, especially young men. Maybe we need to broadly educate people that this sort of exploitation is not okay...

I consider myself on call 24/7 and tell my team this but in 3 years have never been woken up, nor have I had to wake someone else up. One day it will happen but once in 3+ years is perfectly reasonable.

I really don’t think people do enough due diligence about where they should work plain and simple. Work is a mutual contract where you want to try to extract as much value from your employer while negotiating to the point they’ll still hire you. And a lot of the negotiation is figuring out if it’s a good job anyway and walking away to another option if you get the sense it’s not a good from either a financial, time or social perspective.

edit: don’t want to blame founders, they also need to preserve their equity for future employees but there has to be a better balance

That means vetting a company before joining it, pushing back during negotiations and being willing to walk away, giving necessary feedback to your coworkers regardless of their title, and personally practicing the style of leadership you expect from others.

It takes a team of people though, and if the team isn't solid then you need to either try to fix it or walk away. A good team will build individuals up and support them rather than wear down and exploit them.

I just passed the 5 year mark at my current company. When I joined there were about 30 people, and now it's probably around 400. I took 4 days off this week, but on Friday afternoon I popped into the old "office", which are some portable buildings on a cattle ranch. It turned out to be the once-every-few-years junk cleanup day, and the CEO, possibly a billionaire on paper at this point, was limping around with leather gloves and a sore back, and all he had to talk about was the recent ultrasound of his first baby, and how proud he is of how the company has grown since the last cleanup day.

In a bad startup you typically can’t ‘push back’ meaningfully. If the management doesn’t understand how to treat people well, people pushing back won’t educate them, and employees have to get work done to justify their presence rather than fighting battles all the time.

If you're a decent engineer you'll find work in a few weeks and any other startup will be happy to have you.

Unfortunately for non engineers I understand that may be more difficult and for those starting out too. So matter of perspective definitely since engineers aren't the only employees at a startup, but I would hope with due dilligence that is caught while you're interviewing.

Depending on how long it takes you to get to this point, it could have cost you a great deal in lost opportunity and benefits.

The fact that you can get another job is irrelevant to that.

Which is the point of this overall thread - you could easily have been better off at an established company.

Everything you just said is true of working at a big co as well.

Plenty of people at big cos have bad bosses, plenty get over worked. Plenty feel they have no input etc etc, this is a human organizational and work issue that is true of both small startup and big org.

I've listened to my mother gripe about some of the biggest financial companies in the world from various positions all the way to fairly senior management for the last 20 years with everything that has been said here. The only solution she had was to jump to another company after investing sometimes up to 5 years of her time in places like that.

No, but you will be paid more over time and switching jobs won’t cost you deferred payment in terms of vesting.

If you can land a startup job with the same salary and benefits as a bigco, then by all means do so. This is more about the poor value of deferred compensation.

Is what started our sub thread here, I didn't believe we've been talking financials. If we have been, then in base salary I guess I still disagree, but yeah at least with RSUs it's hard to beat. That said I've interviewed for startups where the base salary for an IC position was like 230k+, they're rarer, founded by exceptional past founders who raised ridiculous sized rounds, and all just as rare as a job at a FAANG so I don't know, is the real problem that all 85th percentile and below of all jobs pay like shit or treat people poorly?

Our sub-thread is in the context of the overall posting, which is about what a bad deal it is to work at startups. The entire point is about the risk not being worth the financial reward. Our sub-thread is discussing one aspect of that.

But on the other hand, I've also been at ok jobs that were pretty great companies and the one I currently work at is absolutely amazing and it's a joy to work at. The pay has been pretty awesome as well.

Larger companies in my experience can be soul crushingly beaurocratic and the slower pace means your skillet grows more slowly (no big tech companies in the valley, just some large public companies after startup acquisitions).

It's just anecdotal from my experience and I'm not really sure how big of a haystack the amazing startup needles are in but they are out there. Work is work, but you spend a huge portion of your life at work, if you can enjoy it thoroughly, you can live a happier life.

They didn't actually make that part of the job either. I could have rejected if I wanted to. And there was never a vision alignment talk with miniscule equity with an unwritten agreement of doing anything that was asked otherwise I'd kiss my equity goodbye.

EDIT: I can't believe I have to clarify this. Most of the startups that would fit my above description don't market themselves as startups to begin with. I.e. they don't think their distinguishing feature is to be a startup with equity.

It may be what you need to change the world. But making a n uber clone for dogs is not changing the world.

Literally 99% of startups have zero claim to trying to change the world.

In a just society these kind of labor violations would be as criminal as a bank robbery. There would be prison time involved and the victims would be paid, both for the value of the work that was stolen from them, plus compensation for the crime committed.

If so, it's voluntary exploitation. She can quit on Monday. Don't give 2 weeks notice if you feel the situation is abusive.

You'll lose a paycheck, but you always have to be prepared for that when at startups. Mainly because they die all the time, but also for these kinds of scenarios.

If they want you gone too, then sure. Otherwise, consider if and how that move may affect your next job's reference or background checks.

Maybe this is different for others, but my co-founder and I spent 2 years bootstrapping before we got our first customer. We gave up 2 years of wages and consumed our savings to do this with no assurance of success, and even after that first customer it was another full year before we had any sense of stability.

Years of time and money. I consider that quite a bit more risk than our first employees who got stable income, healthcare, 401k's, etc. on day one.

But anyway, I would urge founders to think more about the logarithmic utility of money and whether it makes sense to take 30x+ the gains of early employees. In particular, think of the number that make it all worthwhile and ask if you need to capture all the gains above that, or whether you could be more generous if you hit it out of the park, and if there is a way to write that into your contracts.

The generosity emerges out of the availability for lending the capital to strangers in society thanks to the successful investment realization.

You can do whatever you want of course, but I think people should ask themselves if trying to hold onto all the returns is helping them achieve what they actually want.

... so don't take the job. Everything will naturally sort itself out -- a startup will increase their grants, hire different people, or not hire and fail. :shrug:

This thread sure looks like it's full of people who can't get that well paid job at google, are taking jobs at less demanding employers out of necessity, and are mad about it. Otherwise, we're living through one of the absolutely hottest markets for engineering talent we've ever seen, so getting a new job is always an option if you're worth the money.

As for founder vs employee risk... certainly at my company, every employee except for the founders walked into a six figure cash comp, fully paid health insurance, and a runway that's never fallen below 12 months.

The risk calculus is simply too different versus a younger person.

Many of the payoffs I've seen for startups that did well for early employees put earnings on par with what I've done at a large company without the startup risk. And that's for the ones that do very well which is a low chance.

So in the end I personally would get a lot more stress and a lot less income to usually being equal in a great case.

So generally it doesn't seem that worth the risk, low control, and probably low payoff.

I'd actually be more likely to join a startup in some years when I'm financially at a retirement or FIRE point. But then it's like, working for a founder on their idea, and maybe the pressure to hold out for 5-10 years there for the actual payout.

Just my mental space around it.

A founder who eats in to savings and goes unpaid for two years is on an entirely different level of risk profile.

But yes, if your primary concern is job security, in general you should not be working for a startup, regardless of how many points you get.

Eg this is me explaining why I wouldn't work at a startup as I shoulder more risk and very very low chance at a payoff better than I could get at a bigco, and worse case you spend 5 more years at the big co and you can be getting into founder level payoffs.

At that point why even take a risk if there isn't a reward if you are a strong engineer. The only thing that makes sense to me is to be a founder, or go work a stable high paying job if you're able to.

This pay structure greatly limits access to very experienced employees for a startup.

* A couple of people have an idea, and quit their job (or didn't have a job), build a quick prototype, pitch it. Maybe they spend a couple of months at a startup summer camp like YCombinator

* They raise seed funding or a small first round

* ...and then immediately hire Employee #1 at 1% equity, and it's their job to build the first "real" usable version of the product. Employee #2 follows shortly at <1%.

The risky investment put in by founders often amounts to: "We had to spend a few months grabbing coffee with potential investors"

I don't have data on this but I would bet a very long lead time before getting funded is actually correlated with a worse likely outcome.

Exactly. Additionally, any of that money that you could have saved during those first two years would have had more time (obviously) for interest to compound than any savings you make today [1], so that "lost interest" needs to be factored into the equation as well.

[1] https://www.investopedia.com/terms/t/timevalueofmoney.asp

When there's no way it will every even make up for the sacrifices of the employees, all those demands are empty noises. Just a way to fool folks in to making the founder rich. And nobody else.

I think that by "that risk" you're talking about "the overall increased risk of investing in a new company". I deliberately use the word investing because that's how employees should think about their participation in a startup: They're usually giving up something now... salary, extra work hours... in exchange for some possible upside in the future, often in the form of stock options.

To state what you're saying another way: A lot of employees do not correctly assess the risks of the investment they're getting into, for example, of not having direct control over the date when a salary increase will occur, or whether that salary would be in the form or cash or shares. In short, employees often invest themselves into investments (i.e. startups) that bring far more risk than they can personally tolerate.

Avoiding startups completely is one solution. Another is to really start thinking like an investor: Personally, I like to consider whether I would be a passive investor in the company (i.e. just write a check)... If not, it's a sign that perhaps the company is not a good addition to my portfolio overall, and I'd be better off taking the cash from another employer and investing in something I do believe in.

(Aside: I've seen some pretty good "rent or buy your home" calculators out there, but never a good "work for a startup or an established company" calculator. If anyone can recommend one please reply.)

Edit: https://triplebyte.com/startup-equity-value-calculator

They fund raised. Poorly.

They offered zero direction, touted a big number as potential revenue.

They traveled ostensibly to fund raise, but usually just brought back personal stories of fun.

While we all slogged on “their” vision, which meant rearranging deck chairs to the march of some alpha non-contributor who can brown nose.

It was effectively our company with some entitled assholes name on the paperwork.

I’m guessing there’s many more founders like that, as I’ve had the “fortune” to work for 3 in the past, versus the one I work for now, who knows the problem space, has worked directly on solutions for years, and shows up everyday with new customers chomping at the bit to sign up.

So I feel confident saying: Most founders are idea people with no skills. Just a used car salesmen personality and a richer network.

It wasn’t life-defining, plus she noticed that many other employees didn’t have enough savings to actually exercise.

Savings should only come into it if you're leaving before the liquidity event.

Quite a few years ago, a well known company was sending offers where the exercise cost of the shares was around $200k, plus whatever fun you'd have with AMT at exercise time. The company still hasn't seen an IPO, and I know quite a few people that didn't exercise their entire allocation just because it was just way too expensive for something illiquid... and that was with a company that was going (and still is!) going very well. Today you'll find companies that went for a decade without a liquidity event, and where a whole lot of options that were well in the money went back to the company, unused.

Options would be far more worthwhile if there was a standing offer to, on departure, sell the options back to the company at departure time, but we all know this isn't how it works. So you end up in situations when two people join a company and leave at the same time, and their savings separate their final outcomes by 8 figures, because one could buy the shares and wait the necessary X years for the liquidity event, when someone else couldn't.

Which is another way some startups screw people. If the company is not willing to budge on the "standard" 90-day exercise window, there shouldn't be any negotiation. Just walk away.

https://carta.com/blog/pte-90-day-window/

He compiled a list of startups with sane exercise windows:

https://github.com/holman/extended-exercise-windows

The a16z link is astonishingly self-serving. Their top line solution was: “One existing solution to the ‘dead equity’ problem has been — and still can be — to make exceptions where appropriate for certain exiting employees. In fact, employers make exceptions all the time for certain employees, depending on their contribution to the company, critical skill set, and so on.” Riiiiiiight - asking nicely for a handout when you are quitting is a great strategy!!

And I would love to know how they come to this conclusion “In our model, we estimate that moving from the current 90-day window to a 10-year window will cost the average remaining employee as much as 80% in incremental dilution.” - just, wow.

The last unicorn I worked for had a ten year exercise window after employment ended.

Depending on your indebtedness (outstanding student loans, mortgages) savings and current earnings a bank could still refuse to lend you enough money, if at all

I had no trouble getting an uncollateralized loan at a reasonable rate for $75k; and I had $100k in student debt, a $500k mortgage and little else in the way of assets. And when I say “no trouble” I mean I applied for the loan, was approved 30 minutes later and had the money in my bank account within 2 hours. That loan is paid off now, but if your income is high enough banks will lend you money on that alone (I was making an equivalent salary to a principal developer at the time).

Its nice everything worked out for you, that has nothing to do with your ability to perceive a simple solution available to you.

Bigger risk comes in if someone wants to do an exercise and hold to sell much later, which can bring tax advantages. But this is a different game entirely. In the case of employee with little spare cash (to the tune of borrowing money for the exercise), not doing exercise and sell is really leaving money on the table. My 2c.

What goes on between the founders, board, current investors and likely future investors is likely known to very few amongst them, if at all.

Even if you believe strongly in the product and know the market-fit is bang on, you don't know if the option is currently priced correctly.

Excellent point. And there can also be huge differences in non-monetary value that make the opportunity cost more worthwhile for founders.

If the startup fizzles, but the founders were spending most of their time getting startup founder experience, and building their professional network and personal brand, then the opportunity cost would probably be well-spent, despite the fizzle.

Of course, worthwhile experience value can definitely happen for junior non-founder ICs.

Worthwhile experience value can happen for already-experienced non-founder developers who can get experience/keyword in some very marketable thing they couldn't pick up on their own. (For example, the necessary capital expenditure means they couldn't get experience with Quantum Deep Learning Transhuman Interfacing from their kitchen table. Or they need a team of full-time collaborators to together accomplish something they couldn't do by just organizing hobbyists on an open source project.)

* Startup doesn't outright fail, but gets acquihired...

* Founders gets executive positions with bonus on top of bonus. Their resume has taken a huge leap forward, and if they stay at the acquiring company for just one year, they'll amass enough cash to take another couple of years off to try another startup.

* Employees get regular salary, and some small bonus to make it "worth it". They may as well have never done the startup, because it's an overall net-negative.

Oh, and the employees still have to individually interview at the company, and several won't make the cut.

Very early stage employees (before VCs get involved and impose the 10-20% option pool that you allude to) tend to get an outsized offering. (and, to me, a pre-VC employee sounds an awful lot like a co-founder, unless they're not committed heart-and-soul the way the founder is.)

You might not be aware of the risks that a founder experiences versus a pre-VC employee. These risks are substantial. Many are not even quantifiable. Everyone likes to joke about rewarding failure, but the reality is that the reputational risk is very high.

If you are instead talking about post-VC very early employees, there is an even wilder difference in the risk that those employees shoulder by taking a job with a VC-backed company compared to the founders.

Let's face it; working for and/or founding a startup is really, really tough and possibly even hazardous to your health. It's not for everyone. In fact, it's really not for almost anyone. But it's one of the few shots at winning a lottery where you can actually change the rules of the game while you're playing it.

A first employee is, by another definition, someone to whom a professional investor would not give money.

My primary argument is just that if founders and VCs don't loosen their purse strings, though, they will find employees are wising up about wealth distribution in a startup and will see they have better options elsewhere, as this article suggests.

If only everyone were as mature and introspective.

> are wising up about wealth distribution... will see they have better options elsewhere

Truthfully, all those people will discover is that the distribution of educational pedigrees - the real predictor of "better options elsewhere" - is far stickier, nepotistic and unfair than a 9 percentage point difference in equity.

You are taking the same risks as the founder and you being there is directly helping the founder raise funds and hire other engineers. Don't under-value yourself.

Your previous total comp was base + public/liquid stocks. You should compute the growth in valuation of those liquid stocks (if it was similar to FAANG stocks, its growth would have been 50%+) plus the return on investment of your savings. Add that to your total comp.

For your startup comp to beat this total comp, given your 1% stocks, compute backwards the valuation your startup has to achieve. Does it look feasible or too crazy? How long will it take?

Do market research to understand how much revenue and profits a public company in similar sector does to achieve that valuation and how much capital investment and tech innovation is needed to get to that. Ask questions to your founder boss, meet their investors to understand their thinking.

Very important to consider what happens if you quit before it got there. If you have to pay to exercise options, or your options get bought back by the founder at a discounted valuation etc. (some startups have started doing "stock appreciation rights" which are somewhat unfair) understand those for what they really are and factor that into your calculation. Understand how cap tables, dilutions, liquidation etc works and factor the risks into your calculation.

Finally, remember that founders get fired/replaced; your direct boss is going to be someone else very shortly (especially if the company grows fast) etc. so don't go by verbal promises. If you are looking to make millions, invest time and energy to understand and negotiate your employment contracts properly.

I did similar math as you said and I didn't find the numbers fair. I figured how much would I be losing per year at the current valuation and my pay cut seemed more than what the investors got for the last round.

I wish there was more public information about startup salaries at various stages of employment, while the company is still a tiny company. Finding information about FANG salaries is so easy but startup salaries is tough.

In general, I agree though. Early employees should either be compensated better or given more equity. In many cases, they have a more direct influence on the product than the founders, because the founders are focused on fundraising, sales, and hiring. And they also can have an outsized impact on company culture. If it was up to me, the first few hires would be getting 2-5% depending on experience, and I would even consider giving them a title of co-founder.

Not even close.

You can quit and go get another job any second of any day with zero consequences.

You have zero financial responsibility or obligations to the investors.

You have zero responsibilities and obligations to clients/customers.

You have zero obligations to financial institutions (banks, loans).

You have zero or little reputation on the line in the industry being addressed. In fact, in most cases competitors will gladly hire you because you have valuable industry-specific experience and training.

I could go on. I see a bunch of comments on this thread painting founders as greedy bastards. All I can say is: I hope you can one day wear those shoes and actually understand reality.

That said, yes, there’s a startup culture that works people to death and often offers dubious outcomes. I really don’t like that at all. In technology some things are very hard. If you don’t work hard it is often impossible to achieve anything of note. I don’t have a problem with that. I am no stranger to 18 hour days, 7 days a week. I get it. A company can’t operate like that forever. If it does, there’s something wrong with it.

As a founder my standard mode of operation is simple: If I am awake, I am working. There’s no way I will demand or request such a thing from anyone else. I am the one whose all-in, not those who work for me.

NOTE: Don’t work for less than you are worth. Option are neat, they could be worth zero or a few million. More often than not they are worth zero. Get fair pay for your work. Assume options are worthless.

Founder has all the information. Employee wouldn't even know, if the stock was diluted twice. Or if the company is going to seize to exist next day. Employee is in the fog - so employee has more risk.

Employee risks with her reputation. A nut case founder can consider employee a traitor for leaving the company and give bad references to future employers.

Employee has responsibility and obligations as well.

Don't get me wrong. A cutting edge startup can be amazing. But it is a lot of risk for everyone involved.

It reminds me of a story. Back about thirty years ago I bought a used surface mount assembly line from this guy who dealt exclusively in used manufacturing equipment. He was much older than me, a father figure, if you will. He was interested in what I was doing in my little startup. We got into a conversation while we setup the assembly line. I talked to him about some of the challenges I was facing. At one point he stopped, thought about it for a while and told me: A business is like a living breathing beast that has a mind of its own. If you think you can train, mold it or control it, you are likely to be wrong. The business tells you what you are going to do every day. The business pushes and pulls you around. The best you can hope for it so generally guide the zig-zag path in the direction you want to go and hold on. It's like sailing in a storm. You are not in control of the sailboat, the ocean is.

Fonder is in control? Ha. Very funny.

> Employee has none. So employee takes more risk.

I am not sure how to say this. Here it goes again: The employee can pick up and go any microsecond of any day. At least in the US. Nobody can force anyone to work under any conditions. That's control. That is having 100% control.

> A nut case founder can consider employee a traitor for leaving the company and give bad references to future employers.

I don't know where you are from. In the US that would be one of the worst mistakes a founder, company, executive or manager could make. Depending on circumstances the resulting lawsuit could yield millions of dollars for the ex employee. Nobody does that (unless they are suicidal).

Simply put, by necessity the founders have inherited more uncertainty with their life outcome than a salaried worker, regardless of the transience of the work agreement.

The OP's question was about how to do that and my entire response was to that question.

> Assume options are worthless.

That's bad advise for senior engineers with relevant experience. No startup I know can afford to offer cash compensation that matches the cash+stock comp from previous employment. Startup stocks have value – you just have to get better at figuring out its risk adjusted value and consider it for that worth.

What ends-up happening is that the sexy startup culture sucks in young people with little life experience who haven't seen enough to be skeptical enough about these things. And, yes, under that context, if things go wrong, the end result is that they feel used and abused. You never hear complaints from anyone who worked super hard at a successful startup that made it and the early employees did very well.

Is your business set up such that you personally owe the investors when the business goes under? Or is the business liable?

I had a pretty ugly business failure back in 2008. Every single one of my employees went off and got jobs. Some of them were snatched-up by competitors. One of them was my director of sales. When he came onboard he knew nothing about the business at all. Nothing about the technology. No contacts in the industry. I worked with him one-on-on and taught him everything, even how to sell the products. In fact, he didn't even have sales experience, in his prior job he was in marketing and I gave him a shot in sales. The value of that education cannot be understated. Of course competitors grabbed him as soon as they could. He went on to have a (and continues to have) a great career in that industry.

While my employees went off to grab new jobs pretty much without delay in income, I couldn't simply abandon ship. As this evolved I took out a second mortgage on my home and filled credit cards to keep everyone employed as long as possible. We had the potential for sales that would pull the company out of the dive the 2008 economic implosion caused. When those fell through I told everyone I had nothing left to give, go find a job.

Could I go find a job? No way. I was trapped by my own business until the bitter end. I had obligations. I couldn't just walk away. When millions of dollars are on the line, doing so is professional suicide.

So, no, not even close. People who think employees have the same risk as founders have no clue what they are talking about. As is always the case, most of these comments tend to come from people who watch from the outside and think they understand reality.

As my wife likes to say "No, your Google search isn't equivalent to my medical degree".

Or, as Mark Twain said: "A man holding a cat by the tail learns something he can learn in no other way".

If you haven't held the cat by the tail you have no idea.

Two confounding factors: time and partial payouts. What if it takes 20 years to pay out? How does the range of possible payouts and probabilities change the valuation? That's where you establish your margin of safety and start making conservative assumptions.

I'd have no financial regrets at the $1B valuation, but I'd if they make it to $10B/$100B.

otoh first second third employee jobs don’t come along every day. turn in down and you may never see an offer this early, ever again.

And, even if the "talent" takes a job at FAANG, what stops them from having a 2-year turnover rate where they make some money and then go risk starting their own company, and if that fails then just go back to making a steady paycheck?

The FAANG strategy for hiring talent seems to be something along the lines of: "Sure, not all talent will be risk-averse, but a (large) percentage of talent will be, and we can grab those risk-averse talented people with higher-salaries than smaller companies."

In other words: if you are not a founder, relatively high-equity early employee, or a FAANG employee then you are game-theoretically either second-tier talent, really hate FAANG companies, and/or you are not actually aiming high enough.

That simply isn't competitive with big established companies like FAANG that offer me $400k+, far better career growth prospects, and far lower risk.

For most startups, the equity will be worthless, and the whole company will either shut down or get acquired, which means you won't have a straightforward career path no matter how hard you work and how many impressive accomplishments you achieve. Meanwhile your friends over at FAANG will be earning twice as much and climbing the promotion ladder simply for doing a good job.

Finally, let's not forget the abhorrent tax treatment that screws you, especially as a senior engineer: while your options will likely end up worthless, you'll have to pay tax for them as if they're worth their weight in gold. That puts a whole new level of risk on the already bad and risky deal of working at startups.

It's beyond me how that tax treatment was allowed to continue given how bad it is for startups, and how much it advantages big established companies that are already deep in anti-trust territory, though I guess that could also be the answer to why it's still the rule.

I don't see a world where you have to pay lots of taxes for worthless options, unless someone really screwed-up (i.e. messed up the 409 Safe Harbor election etc...)

Now... if you exercise the option, that is a different story. At least in theory you would only exercise if things went well and the stock went up vs the strike, which makes sense why one would have to pay taxes then.

You exercise if you leave, and startup IPOs can take many years, and most startups don't have a compelling options package for you after the first 4 years anyway.

So a senior engineer who got their full 4 year equity and wants to leave, which is the most typical scenario, will indeed have to exercise and get hit by the tax bill.

If you worked at a startup (not a small business), the most likely outcomes after 4 years is either 1) Company went bust, 2) Company grew.

The option protects you from the not having to pay anything if scenario #1 happens. If scenario #2 happens, then you should be happy: you have an option to pay X for something that is usually worth multiples of X after 4 years.

I actually think the IRS is being nice not to tax the at-the-money option grant. They essentially assume zero time value, which would be quite high for a startup given the high volatility and the potentially long term for the option.

Options are a cost, often in the 5 to 6 figures range to exercise. If you exercise at time of hire, your cost can be significant for something that will probably perform less than putting it into bitcoin as far as expected value goes. If you count exercise cost as part of the 'salary', then startup salary is even worse than it usually is.

When you leave, the options expire away typically after 90 days. If you exercise, even if they are ISOs, AMT tax can easily make the exercise cost 6 figures anyway. Most engineers in their mid 20s do not have 6 figures in savings unless they already worked at FANG for the first 4 or 5 years of their career. You have to choose, do i put most of my savings into something that will probably go nowhere? Most do not and lose out on the significant compensation they would of at FANG. It's a system that favors the already wealthy and young adults with wealthy parents.

Companies actively try to prevent giving liquidity to employees through restrictive clauses. The best case scenario is an employee that works hard and then forfeits their equity due to the above math. The company has a financial incentive to screw employees over and seduce them with unlikely projections of life changing wealth.

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On the other hand, founders have stock at the start, valued at $0. Even if they have a vesting schedule, they can pre-exercise for no cost. Since it's extremely unlikely that they will sell in the first year, all of their income from that stock in the future will be taxed at LTCG rates. Since the average employee can't afford to pre-exercise (or they get RSUs), they pay at income tax rates, so if they do get lucky, they've compressed 4-8 years of equity compensation in one year, which means they pay %25-%35 more in income tax alone. Employees are often subject to 6 month lockups after IPO, which means if it drops, they have to pay tax on a value that is much higher than they can liquidate with the stock they actually have.

Founders often get special liquidity access that employees don't, in secret, during funding rounds. VCs do this to align the founder's interests with theirs, which is going for an outlier $10B IPO vs. liquidate at $300 million at series B, because if the founder has %20, that is a life changing $60 million, taxed at LTCG rates, that makes you an ultra high net worth individual, but is basically a failure from the VCs perspective.

Right, so the bottom line is this:

After 4 years working at the startup, unless it already went bust, you will typically want to exercise, and then you'll get hit by a big tax bill for purchasing a security which is still very likely to end up at zero.

It's a risk no matter how you look at it. Unless you happen to work at a startup that became a unicorn, which is very rare, you will end up paying good money for something that may be entirely worthless.

So in the best case scenario, you take a risk for an upside that may put your comp around the same level as what you'd get for simply working for FAANG. Worst case, you pay a big tax bill that drops your comp even farther below what your friends at FAANG are making, which is already going to be twice or more to begin with.

Surely you see the problem here, especially for risk-averse engineers.

If the plan is to completely give up on my equity, why work at a startup at all?

The fact that one would receive significantly less salary compensation vs FAANG has nothing to do with taxes or startups really, it's just plain and bad decision making. If one is going to get a salary cut, one should make a rough analysis valuing the options/stocks adjusted for the few scenarios and compare.

Plus, 95%+ of Engineers (senior or not) don't get into FAANG, so the generalization is not appropriate.

In practice, most people assume the value the equity and options to zero, and always assume it is cherry on top. If you value the stock at zero and get a massive pay cut, then it's just a bad decision.

No need to throw the baby out with the bath water.

Technically, it also makes the grant neutral from the value perspective. They’re giving you something worth $X, and asking you to pay $X for it. Why exactly should you value it more than $0 then? Maybe for the optionality, but ATM option just isn’t worth that much...

In that way you minimize any tax risks and at the same time you test how much the company is interested in you and values their employees.

1. Usually there is no liquid market, so for lack of a better term, the valuation is made up.

2. Related to point one, with no liquid market, there is no option to sell the options the raise the money to pay the taxes.

3. There are often restrictions (e.g. lockup periods) that legally restrict you for selling from a specific period. You are forced to take on the risk that the stock doesn't crash, often with much less info or freedom than investors and execs.

In fact, in the US, normally startup options are ISOs (incentive stock options) so theoretically they are NOT taxed on exercise. The issue is that AMT (google it) actually nullifies that ISO tax benefit in most instances, and AMT only has stuck around because Congress can not function to deliver reasonable tax policy.

The main issue with option is the lack of liquidity.

One may have to put down quite a bit of cash down in order to exercise, and that is a problem, even if in practice, it is usually good value for the option holder.

But most people either 1) do not have a lot of cash on hand, or 2) do not have the appetite to tie their hard-earned cash to anything illiquid-that-maybe-could-go-to-zero.

I’ll never again work obscene hours without obscene compensation. Even with the compensation I’m highly unlikely to do it.