
Big IPO, Tiny Payout for Many Startup Workers - t23
http://www.bloomberg.com/news/articles/2015-12-17/big-ipo-tiny-payout-for-many-startup-workers?trk=pulse-det-art_view_ext
======
Cymen
The problem here is that the dream is dying for those of us coming to SF to
work in startups. The harsh reality is that more and more of us are going to
look towards the better deal at the bigger companies like Google, Facebook,
Apple, Netflix, etc. Companies that provide both excellent salaries and
benefits along with potentially as lucrative stock grants.

It's time for the startup community to reevaluate the idea that your early
employees (say pre 50) should get 0.05% of the company when they take the
monetary risk of working for a startup. With such small ownership, it is
starting to become a sucker bet.

So for those coming here, keep your eyes open and know that right now it's
only founders, management and investors making out and if you are not looking
to hit the lottery, you'll do much better working at a bigger company, maxing
out that 401k and investing the rest. Or go for lottery but be a founder --
sure, get the experience of working at a startup but keep a careful eye on
your personal burn rate (in regards to your potential earnings). And if you're
not learning and you still want to learn more, make the move to the next
startup. The options just aren't worth the wait.

~~~
zappo2938
All I want is to be able to write 500 to 1000 lines of code a day and not
think about anything else while I do it. I just want to focus. I want to be
prolific. Money is irrelevant if the thing a person wants to do doesn't
require it. I can see how writing software can make someone a lot of money but
if I was interested in money it is not how I would go about it. The people
with wealth I know don't seem like they are doing it for the money -- they are
passionate about making the deal. It is a game to them and the rules are
simple, buy low and sell high.

~~~
hasenj
lol who writes 500-1000 lines of code per day?

~~~
zappo2938
At IBM in the 1980s, typical productivity would be 1,000 debugged, shipped
lines of code per year. That was the metric that they used for their median
employee. Where as, when we were shipping Half Life 1, one employee, Yahn
Bernier, was shipping 4,000 lines of code per day.- Gabe Newell

~~~
hasenj
I remember downloading the source code for HL2 (via the official SDK) and
somehow I counted the lines of code and the number of programmers and the
number of days it took to program and my calculations came to about 1000 lines
per day per programmer. But I thought I must've made a mistake somewhere.

------
rm_-rf_slash
The implication is that workers get screwed by less-than-stellar IPOs, but who
demands unreasonable valuations? Investors and VCs. The ones who actually make
real money.

All in all, the Silicon Valley we-can-all-be-unicorns model is a pretty raw
deal. So what if as an early employee you make $350,000 at the IPO? That's
what, a down payment for a house in the Bay Area? Just don't let yourself get
priced out by millionaires getting priced out by billionaires. And considering
that any early employee is expected to pretty much always be working, that's
basically overtime, with a tip.

People only put up with this pathetic excuse for an American Dream because
they allow it.

~~~
nostrademons
The really effective deal in the Bay Area is location arbitrage. Move there in
your 20s, take a job at either a big company or a fast-grower that'll IPO
within 4-5 years. Have no life. Bank a million bucks. Then move someplace with
a lower cost of living to raise a family. You'll be able to buy a house free-
and-clear, and you often get a salary boost coming out of a brand-name Silicon
Valley company.

~~~
rm_-rf_slash
You're forgetting something: the toll it takes on you as a person. Those long
nights, long commutes (if you don't live a block away), they can all wear you
down. You're pressured into working more and you have less time to spend with
friends and family (work IS your friends and family! :')), less time for
dating (and let's be honest: if you're a single man in the Valley, you're not
getting laid). It just sucks.

Is that worth it?

~~~
anonypous
| and let's be honest: if you're a single man in the Valley, you're not
getting laid

From my curiosity as a late-20s guy not living in the US: For what reasons is
a single man in the Valley not getting laid?

~~~
Kalium
Not only is it a sausagefest, but there are some shockingly strong veins of
thought which hold that you're a terrible person. For the unpardonable sin of
being a "techie".

~~~
rm_-rf_slash
"Yeah, so, like, everyone here that's not from here works in tech, so you say
you work at Apple and that doesn't really do anything for me."

When I heard that, I knew Silicon Valley had nothing left for me, and I've
never looked back.

~~~
rhizome
Just about everybody in SF is from somewhere else. Something like 8% of the
population is under 18.

~~~
Kalium
It's best viewed as the equivalent of "Ewww, a nerd".

------
danieltillett
If you want to invest in a startup get a high paying job at an established
company and just become an angel investor.

On the other hand if you want to work at a startup because of the lifestyle or
mission then don’t expect to make any (well not much) money if the company
succeeds. The sooner everyone wakes up to this reality the better.

~~~
dangrossman
> just become an angel investor

Most people are not rich, even software developers. Only the rich can be angel
investors, because it's illegal to issue securities to non-accredited
investors. Being an accredited investor requires a net worth of $1M excluding
your house, or a steady job with $200K/year pay ($300K if married), and 2
years at that pay level before you can start investing. There's no net worth
or income requirement to work at a startup and get equity that way.

~~~
danieltillett
If you are not able to earn $200,000 a year as a senior developer in the
valley working at one of the established companies then you are not really the
sort of person that would be an early hire by a first class startup.

Joining a second rate start up is even a worse idea than working for an
established company - you will end up with less pay and worthless options.

Edit. Wow this comment hit a nerve with some people here.

~~~
narrowrail
I think the problem is most people (even VCs) can't tell the difference
between a "first class startup" and a "second rate start up." Your comment has
a ring of elitism to it, not to mention a lack of consistency in phrasings
that bothers us pedants.

~~~
danieltillett
They certainly can tell the difference. The ones they back are first class and
the ones they don’t are second rate :P

I was more making the point that it is not wise to turn down a good salary
with an established company for the tiny level of equity that you will end up
with at a startup and if the startup is not perceived by the investor
community as being the next unicorn then this equity will be worthless.

------
AstroChimpHam
There's this obsession now about how everything in tech needs to be worth it
strictly monetarily without paying attention to anything else. Personally, I
think that attitude is toxic. Teachers don't teach because of how much they'll
get paid. Nurses don't become nurses because of how much they'll get paid.
Same for fire-fighters, non-profit workers, artists, and everyone else doing
jobs they find particularly fulfilling.

The same ought to be true of start-ups. Sure, you can make more expected money
working at Facebook redesigning their like button, or whatever. But, at a
start-up, you can have a huge hand in building something much bigger than
yourself from scratch. You get to be a jack-of-all-trades, learning a bit of
everything, making something hundreds of thousands of people will use go 0 to
1. You get to be incredibly important to the company and have a say in just
about every decision if you want it. That role is still romantic to me, and
that's why I've worked and continue to work at start-ups. I know I can make
more money somewhere else. I don't care. And I want to work with other people
who don't care either. If your motivation is just money, there are plenty of
big faceless companies doing fun stuff like ad-tech that will be happy to pay
you, and you'll be doing your start-up coworkers a favor by leaving.

~~~
Cymen
There is nothing wrong with being motivated by both doing excellent work and
being well compensated for it. If the motivation is purely money, sure, I see
a problem. But you're painting both sets with the same brush.

~~~
AstroChimpHam
There's no problem either way. If you want that big paycheck, enjoy ad tech or
high-frequency trading. I'm not judging you. But if you come into a start-up,
both the founder and the employee should be clear that more money can be made
elsewhere. The start-up is for someone who wants that romantic lifestyle. They
still will earn plenty of money, but no, it won't be as much as you'll make at
[insert-huge-company-here], and that's OK.

It sounds like Box dude from the story had a very cool experience building a
company from 50 people to 1,000. I'm sorry all he thinks he got out of it are
his stock options.

~~~
Cymen
I wouldn't use the word romantic but maybe we're talking about the same thing:
the excitement and joy you get from building something from scratch as a small
team. You truly have to understand the whole solution and the team is small
enough that rapid changes in direction are still possible and happen
regularly. I agree that has immense value and getting experience with it is
worth the cost. This is why I work in startups.

But what are you going to do with that experience you have gained. To go back
to the romance option, if you can't get someone else into the bed, romance can
become very sour.

I too see that the Box guy got more value than just the earnings on the
options. But that more value is largely theoretical unless he can turn around
and put what he learned into practice (and get compensated for it).

------
dchichkov
I've asked Sam Altman (President of Y Combinator) if they are going to do
anything about it. That is "shouldn't early employees, investing their under-
market salary/time receive the same conditions/protection of their investments
as VCs?"

He had said - "Yes!"

See:
[https://news.ycombinator.com/item?id=10361451](https://news.ycombinator.com/item?id=10361451)

I hope that any under-the-market-salary investments from employees would start
getting the same treatment as any other investors money (e.g. dilution cap,
not vesting cliff).

~~~
danieltillett
While I think this is a good idea, what advantage is there for a business to
issue equity like this. They would be better off taking more cash from the VCs
and just paying higher salaries.

~~~
jacquesm
One of the major issues in keeping a start-up on the rails is that not
everybody is in the same phase of their lives and not everybody has the same
financial stability. By making the situation of more people crucial to the
continued well-being of the company in sync some of these discrepancies cease
to be a problem. The more you do this the bigger your chances of success
because it translates into a much stronger feeling of solidarity.

~~~
danieltillett
I tend to think the value of equity is discounted pretty heavily by most
people. It is seen as a bit of lottery ticket. Having a great environment, a
great mission, and good salaries will motivate most people to near 100%
effort.

~~~
jacquesm
That's because the percentages are super low and it isn't rare to be screwed
out of even that bit. If that should change then I think that the value of
equity would go up quite quickly.

~~~
danieltillett
My personal experience says otherwise (see my post below), but I am happy to
be convinced by data. Do we know of any startups where employees are granted
equity with the same level of protection as investors? How have they
performed?

------
wdewind
I think when you are saying "early" employees are getting screwed you have to
be really specific. Joining Box etc. a few months before an IPO is not an
early employee. You're joining at a point where the company is pretty
thoroughly derisked, so you're taking very little personal risk yourself.
You're probably not taking a pay cut (may even be getting a raise). So yeah:
don't join a company 6 years in, get your ~10k shares with a price of $12 and
a projected IPO price of $16 and expect to get rich.

~~~
nostrademons
The article said he was there for 4 years, joining in 2011, and watched it
grow from 50 employees to 1000+. So not a total early employee, but also not a
few months before IPO.

You also need to consider what equivalent returns would be at competing
companies. Someone who joined Google or Apple in 2011 with a decade of
experience could easily have made $350K _in stock compensation alone_ , but
with a higher base salary and even less risk.

~~~
jordanb
The article says his salary was $95,000. It sounds like he was a manager and
not just an engineer, but if we peg his market rate at, say $140,000 (the
market rate of a good senior developer in San Francisco), then he paid
$180,000 for these options.

~~~
phamilton
But $140k is not actually market rate. If we are looking at opportunity cost,
a good engineer at Google or Facebook will pull in over 200k.

------
soham
Ex-Box employee here. I was at Box a little longer than Sutton.

I have worked with him for all his 4 years there. He is a good, competent,
typical startup guy who fits better at an early stage. But I think that the
way he is (and many others in the valley are) measuring payout is flawed. I
hope this audience doesn't generalize and extrapolate Jeff's observations.
Especially in the context of Box.

For those who have never worked at Box, it's very hard to describe how special
that place is. The culture is (or at least was) hands down one of the best
I've experienced. The bar to entry is high, both culturally and technically.
Everyone has a drive to do the right thing for the customer, and has had a
meaningful opportunity to contribute. All of us there have built amazing
relationships and grown (tremendously) professionally over the years. Many of
us have even gone on to build successful businesses, on the strength of those
relationships (e.g.
[http://interviewkickstart.com](http://interviewkickstart.com)).

THAT is the payout.

The fact that Sutton can now hop from one good startup to another in the
valley is the payout.

The fact that companies look at his resume and trust him to help their IT
infra grow from 40 to 1000, is the payout.

The fact that he can proudly recount to his friends, that he worked at Box
early, is the payout.

The fact that he can call upon any relationship from those years and they
pickup his phone, is the payout.

The fact that he is not worried about his next startup job in the valley
anymore, is the payout (that wouldn't have happened had he stayed at IBM).

The fact that he can put down payment to a house and raise a family in a
decent part of Bay Area, is the payout.

And btw, the fact that his IT management helped 1000 of us serve a million+
customers to organize and secure their data, is also the payout.

In a startup, you value people and an opportunity to do meaningful things,
above everything else. You want to be a part of that small group, that moves
the needle in this massively morbid and unpredictable world. Anything else, is
bonus.

~~~
throwaway596
I'm going to post anonymously, but even so, I'm afraid I have to disagree with
how you're looking at this.

According to the article he made about $750k over four years at Box ($95k/yr
salary + $350k in options total), but would have made nearly 60% _more_ , or
$1.2M, working for a more firmly established post-IPO tech company during the
same time (say $160k/yr base salary + $40k/yr bonuses + $100k/yr in restricted
stock).

Still wouldn't have been able to buy a Bay Area house (not sure why you
suggest it could), but he would have had all of the other payouts you listed,
with basically no downside risk at all.

Seems like pre-IPO companies like Box are increasingly a bad deal for the
employees. I'm genuinely sorry you guys ended up getting the short end of that
stick.

~~~
soham
> I'm going to post anonymously, but even so, I'm afraid I have to disagree
> with how you're looking at this.

Appreciate your disagreement, but why anon? :-)

> According to the article he made about $750k over four years at Box ($95k/yr
> salary + $350k in options total), but would have made nearly 60% more, or
> $1.2M, working for a more firmly established post-IPO tech company during
> the same time (say $160k/yr base salary + $40k/yr bonuses + $100k/yr in
> restricted stock).

This was in 2009, when salaries at established companies were not that high. I
came from eBay, where neither of the three components were anywhere near what
they are today. Also realize that he was in IT, where salaries have never been
that good.

> Still wouldn't have been able to buy a Bay Area house (not sure why you
> suggest it could),

I didn't say 'buy'. Just down payment.

> but he would have had all of the other payouts you listed, with basically no
> downside risk at all.

I prefer to define "downside" with not just money, but with the whole
experience. Defining upside/downside with money builds mercenaries; not
missionaries. And in a startup, whatever level one gets in, one should be the
latter. If you can't be one, then IBM is a better place to be and to stay at.

If you are primarily focused on monetary payout, you won't be able to do the
best work of your life, which is an opportunity a fast-growing organization
provides, which nobody else can. And when a 1000 people do the best work of
their life, everyone invariably gets rewarded.

At that point, 350K or 500K doesn't matter. What matters, is that you've spent
4 years of your life with incredible people doing incredible work. That will
always open far more doors than it'll close.

> Seems like pre-IPO companies like Box are increasingly a bad deal for the
> employees. I'm genuinely sorry you guys ended up getting the short end of
> that stick.

That's the point. We didn't get the short end :-) Even Sutton says, that
overall he is fine. Because he too, understands that it's about the whole
experience and the future credibility. He is just ranting about one piece -
viz. mismatched monetary expectations and doesn't want us to generalize.

------
55555
I really enjoyed this sentence: "He made about $350,000 before taxes on his
Box stock, more than enough to buy the world’s smallest violin."

~~~
bpodgursky
It plays well to the audience, but it's effectively less than two years of
salary, when you consider the high marginal taxes (depending a bit on whether
they were ISO/NSO, etc). Given he was significantly under-market for four
years, it's not a particularly good payout.

Remember that everyone who joined early was taking a gamble on a high risk,
high reward company. You see an OK payout for him, but you don't see the 0
payouts for the people who bet on the wrong horse. So if joining a startup as
an early employee is changing from high-risk high-reward gamble to instead
high-risk OK-reward, that's a problem.

~~~
Cymen
Well said and I think that is the exact problem. It's also coupled with a
10-11 year to IPO duration. In the past, it was much shorter. The equity game
doesn't make sense anymore. You can see it in how hard it is to hire in SF as
a startup and as more people see it, it is only going to get harder unless
things change.

------
free2rhyme214
Oh QQ the Box and now Instacart employee made $350k before taxes. How is this
a surprise to anyone? All you have to do is ask other employees of startup
IPO's to see how much they made and the answer is obvious:

Founders and investors make MOST of the money. It has and always will be that
way. If you want to change this dynamic, become a founder or a VC. It's pretty
straightforward.

This nonsense about "getting screwed" as a startup employee is delusional
ignorance.

If you work for someone else at a startup, of course you're not going to make
as much as someone at a more established company.

I only know this because I have relatives who work for a public company that
IPO'd that everyone uses to search for restaurants so this surprises me not
one iota.

Last comment on employees who make millions from IPO's - how often does that
occur? As often as Uber, Google, Facebook and the like are created. Which I'd
say is once every 6-8 years. The odds are terribly stacked against you if you
think you'll pick the right company in the beginning.

I mean I remember when Dropbox was super popular and then Uber just absolutely
blew it out of the water. Who would've thought a taxi dispatch company would
be the next Google/Facebook?

It's certainly not impossible to make money, but temper your expectations and
don't believe everything your founders & investors tell you until you see the
real numbers. The devil is in the details.

~~~
x0x0
I'm having trouble understanding your post because you go from "How is this a
surprise" to "I only know this because [I have inside knowledge from either
yelp or opentable]".

------
brudgers
Underlying those expectations is the pre-internet Microsoft IPO when more than
10,000 people became millionaires. It's the outlier in reality that creates
the myth that rank and file startup employees are likely to get wealthy. Even
the millionaire cohort containing the Google chef was only about half the
size. I don't think anything has come near as close since.

~~~
scurvy
Don't forget about David Choe, the artist who graffiti'd Facebook for almost
$500M in stock compensation. To quote the (not great) movie "Boiler Room",
"you see stuff like that and it just plants seeds."

Was Choe's comp worth near $500M? Hell no. Is he laughing to the bank? Of
course. Is life fair? Hell no. Were other early employees screwed by the
Choe's comp? Probably but they made out more than OK. I don't hear Taner
complaining. Roll the dice. Make your decisions. Live with them.

In 2004 I turned down a job offer from Google. On paper, I'd be worth lotsa
millions. In reality, I would have gained zero. Why? Because the team I
interviewed with was full of jerks, and I would have quit before my 1 year
cliff had I accepted the offer. Instead, I stayed and worked at my then
current job. I made a lot of good professional contacts and have never looked
back.

Would my life have been different if I accepted the Google offer and hit the
IPO payday lottery? Possibly. I'm not sure. I don't think about it at all. I
moved on over a decade ago. I'm quite happy with my life. There's more to life
than being a "early XYZ employee" or "pre-IPO employee". Notorious BIG had it
wrong. You don't have to slang rock or have a good jump shot. You can live
nicely and happily making assists.

------
lkrubner
For the last 16 years, I've mostly worked with startups. Most of them have
offered me stock options. I've never made a penny from stock options. I don't
take stock options seriously. If the goal is to find a way to give me an
incentive to work hard, then stock options don't work for me, because I don't
believe in them. They lack enough believability for me to get emotionally
amped about them. And yet, that kind of excitement is suppose to be the point,
yes? The startup that hires me has the option of simply paying me a salary in
exchange for my professional services. But they want me to be excited enough
that I'll work lots of 60 and 70 hour weeks. So they want to give me an extra
incentive. So they offer stock options, but as I said, for me personally,
stocks options fail completely as an incentive.

I could also write a long comment about how often I get into negotiations that
take the form of "We'd like to offer you less salary, but more stock options".
Ha ha ha, if I was that dumb, why would you want to hire me?

The problem is, there are too many things that can go wrong with stock
options. The biggest, of course, is that most startups fail, and therefore
most stock options have zero value. Or as Paul Graham once said, the median
long-term value for any startup in any startup investment fund is $0 -- and
that implies the median value of any startup stock option is $0.

The article lists many other things that can go wrong with stock options --
dilutions, side deals, etc.

I can think of some incentives that would actually motivate me. They would be
expensive, but that is the point -- they would put real money in play, which
would make them worse from the point of view of the company, but would make
them real to me. They could then work as an actual incentive.

One such incentive would be for the company to agree to commit a percentage of
gross revenue to the workers. Say, 2%, or 4%. Then lets say, for every dollar
we are paid from our salary, we get 1 royalty point, and the gross revenue
fund is divided up on the basis of how many royalty points we all have. As
much as I laugh at the line "We'd like to offer you less salary, but more
stock options", if I seriously believed that a startup was going to do well,
then hell yes I would take a salary cut now in exchange for a percent of a pot
that is guaranteed to get a committed amount of gross revenue.

I'll point out that Hollywood has been a trailblazer in this regard. It used
to be an industry joke that actors were promised a percent of the "profits",
but then with creative accounting, even very successful films could be shown
to lack any profits, and therefore nothing needed to be paid to the actors.
Because of the unfairness of those deals, Hollywood has moved toward royalty
payments that are increasingly based on something like gross revenue.

~~~
emcq
I have a friend at space x who can earn performance bonuses relative to the
improvements within the company, such as reduction in cost or construction
time. This feels fair; if you find a way to save a million dollars a year you
should get some portion of that. I hope other companies begin to have similar
performance bonuses instead of randomly walking stocks.

------
jheriko
i'm still convinced this whole philosophy of investing/cashing out is the
wrong one for building successful businesses.

still the comment about the smallest violin hits this on the head. what could
have been with different decisions is fine, but if you made $350k you did not
get screwed over. plenty of companies like this fail outright and never even
float.

~~~
Cymen
That is the issue: $350k is not enough of a reward for the risk when most
fail. It's like going to the bookies and finding the favorite horse is paying
1:1.0001. What's the point of betting?

------
rdl
Box wasn't a particularly successful IPO, nor was Square. Successful that they
got to IPO, sure, but the IPOs themselves were not. (They might be successful
products and companies in time; the IPO isn't the end, it's just a transition
in the middle.)

It's not unreasonable that employees didn't do well during those IPOs.

------
lpolovets
I think what articles like this accurately capture is that stock options are a
crapshoot. What they don't accurately capture is that if your _only_ goal is
to maximize expected earnings over the next 4 years, then startups are
unlikely to be the best strategy. I think an analogous mistake would be
interviewing someone at Google who says they hoped to advance their career and
learn a lot about common software frameworks and programming languages, and
instead they only got promoted once or twice and mostly learned things that
are unavailable and unheard of outside of Google. That doesn't mean Google is
a bad place to work, but it does mean that it wasn't the right place for the
person given their initial goals.

Some of the things startups are good for:

1) Higher _potential_ earnings. EV might be higher or lower depending on the
startup. At Google, you get a $175k salary and a $300k stock grant over 4
years. The stock might double or triple but won't 10x or 30x. If you joined a
company like Pinterest or Uber 3-4 years ago, you might've gotten $100k salary
and a S300k stock grant over 4 years, but that stock has gone up 10x or 30x
and is now worth $3m or $10m (at least on paper).

2) Better shot of quickly shooting up the career ladder, having a lot of
responsibility, and so on.

3) Great opportunity to learn things outside of your current comfort zone.

Startups are not good for: maximizing steady salary + predictable equity,
blending into the crowd and having more free time outside of work, going
really deep on one area instead of working on a lot of different areas, and so
on.

Finally, I think using Box in the article is potentially misleading. By the
end of 2011, according to [https://equityzen.com/blog/box-path-to-
ipo/](https://equityzen.com/blog/box-path-to-ipo/), Box was already valued at
$600m. The current valuation is only 3x that, despite the company having 20x
more employees. There are other startups with a similar trajectory, like Etsy.
However, there are also companies like LendingClub or Lyft or Uber, where
joining 4 years ago would've provided a 10x or even 50x for an employee. 10x
or 50x on a $200k or $300k initial grant is huge.

