

Cash vs Equity compensations - ColinWright
http://swombat.com/2011/2/21/cash-vs-equity-compensations

======
goodweeds
Google is "just a market job" yet it's interesting and will pay it's SRE
engineers a compensation package which roughly equates to $200k if you're
married (with children). Most start-ups in SF try to con you into filling the
same role for $100k and subpar health insurance, plus at best 0.5% of the
company, which will be diluted down to about 0.05% after 3 rounds of VC.

At my last full-time job I fought hard for 2% of the YC2010 company and
exchanged a disgracefully low salary for it. At some point I got tired of
slaving away so that the "founders" of this start-up would become
millionaires. That time was when I did the math and realized nothing anybody
could do would make this company see more than a $20m exit meant I had a one
in ten-thousand chance of seeing $400k after 4 years. So I quit and I expect
to gross $200k over the next year while working roughly 1,200 hours.

To work for a start-up is to be a sucker.

~~~
temphn
goodweeds' HN profile:

    
    
      An old sysadmin going through a career change, spending 
      most of my time learning Ruby, Rails and developing small 
      niche websites as a way to fund my lifestyle of friends, 
      family, outdoor exploration, and ganja.
    
      Disclosure: I suffer from Ultra-Radian Cycling Bi-Polar 
      Disorder, and have a tendency to post stupid comments 
      during swings that I later regret. I'm not quite sure how 
      to fix this with software, yet.
    

No comment on the second paragraph.

But in all seriousness, a lifestyle of "friends, family, outdoor exploration,
and ganja" may not be wholly compatible with the intensity required to build a
successful startup.

Given the gaudy valuations and acquisition prices of many YC startups, it
might be useful for someone to estimate what the average, median, and max ROIs
are for engineers joining YC startups before 10, 20, and 50 employees. Would
not be surprised to see mean north of $200k, and median slightly lower. That's
the risk profile people are looking for when they join a startup.

Only pg could really do this calculation of course.

~~~
goodweeds
You're half right. I'm more than happy to work myself for the bone, but I'm
not willing to do it when I hold all the risk and others hold all of the
upside. The thing about today's startups is that the founders hold zero risk,
they get paid good salaries and they keep the lion's share of the company for
themselves while asking their engineers to bleed for them in exchange for
their table scraps. All in the name of "interesting projects" and "fun,
exciting environments".

I've sold one company, failed another, and am working on a third. Between
consulting and full-time employment I've worked directly wit about 50 start-
ups over the past 12 years. I know dozens of founders who are now
millionaires, even two who are now hundred millionaires.

Except for the fluke of associates I know who went through Google's IPO, and
through Youtube's acquisitions, I only know about a handful of engineers who
have become millionaires working for a startup.

~~~
temphn
> the founders hold zero risk

There is zero evidence for this claim.

------
Timothee
_one small hole in this is that startups are not just "a market job". They're
significantly more interesting, you learn more, you get more introductions to
interesting people, etc. Startup jobs are inherently more valuable than
"market jobs" working at a mindless corporation._

About that, I'll just say that, like much everything, it depends.

Sure, you might do more interesting stuff, meet more interesting people, etc.
but you also might work on a project that nobody will remember or even hear
about, that will go offline in a few short months so that you can't even point
at what you did, etc. While another "regular" job will possibly bring you a
scale and reach that you would likely never get working at a startup.

Considering the other sacrifices of extra hours worked (typically), more
pressure, less job safety and benefits, and so on, I don't think the discount
you're talking about is necessary.

------
bpm140
What most people forget is that equity is awarded over time for value provided
over that period.

For simplicity's sake, imagine a startup with two people: a founding CEO and
their first development hire. At the beginning, their contribution to the
company may be equal, or even tilted towards the developer providing more
value.

As the company grows, there is still just a single CEO, but now there are
multiple developers. Several years on, the CEO is still responsible for all
their own duties, but engineering might encompass dozens or even hundreds of
people.

Over time, the relative value of the first program is diluted, while the CEO's
remains fairly constant. This is why there is great inequity between founder
and early hire option grants.

~~~
andrewvc
And who built that team? Who hired and managed those dozens of devs? Often
times its engineer #1. Also, who picked the stack?

You're selling technology short on HN of all places.

~~~
bpm140
No offense, but you appear to be acting deliberately obtuse. I am not
denigrating the role of developers.

In most cases engineer #1 is the founding CTO and has commensurate equity. The
first _hired_ developer, like the first hired sales guy, marketing guy or
customer service guy, is the first person in an eventual team of people, all
performing similar duties in parallel.

~~~
andrewvc
Your post only mentions two people a CEO and a developer. No CTO or technical
founder is mentioned.

------
raganwald
Are you thinking of working for a start up? (2005):

[http://weblog.raganwald.com/2005/03/are-you-thinking-of-
work...](http://weblog.raganwald.com/2005/03/are-you-thinking-of-working-for-
start.html)

------
robryan
Job security can push it back in the other direction though, if I'm at a start
up with say 6 months cash in the bank I can't be to certain that I'll still
have a job there for me after that. If anything the salary should be market
rate on the equity for the extra responsibility/ effort of being in a small
team.

As much as some startups advertise a good work/ life balance I'm sure it's not
going to fly working your normal hours if overnight or over the weekend the
service has a major problem.

------
xarien
Isn't this a moot point? Any type of employment whether corporate or startup
will start with a yes or no and move on to negotiations. During negotiations
is when the startup and the potential hire figure out compensation. So the
real question is: how well can you negotiate? (applies to both sides)

------
gfodor
Problem is most early investment is convertible debt hence the angels don't
know what they're getting either.

------
akkartik
You could also argue in the other direction: the substantial risk that stock
in a startup may pay nothing at all should require paying a premium in stock
options to make the expected value line up.

~~~
wtvanhest
The point the author is trying to make is to price that risk according to how
Angel investors and VCs price that risk.

One reason you _may_ want to take a discount is that you are in partial
control of its success. I also think that if you are going to join a start up
you should believe that the VCs and Angels priced it incorrectly and that the
chance of success is far greater.

~~~
akkartik
But investors get to spread their risk around. _You_ are forced to keep all
your eggs in one basket. The marginal utility of their cash investment is
likely lower than that of your time investment.

You have some control of its success, yes, but does it _really_ compensate for
the previous paragraph?

