
Big Tech Companies Pounce as the Allure of Startups Fades - kgwgk
https://www.bloomberg.com/news/articles/2016-11-14/big-tech-companies-pounce-as-the-allure-of-startups-fades
======
poof131
I recently made the jump from startups to bigger co. For me there were a few
considerations:

1\. We’re at the end of a bubble and doing a slow pop. Multiple companies that
have raised a lot of money don’t have the revenue or unit economics to be
sustainable. Employees with compensation tied up in stock aren’t going to do
well. Had a friend leave two companies within 6 months (didn’t bother vesting)
that both raised over $100 million because the executive teams were
celebrating $900 deals.

2\. Startups don’t exit anymore. Waiting 8-10 years for an exit is
unacceptable. It might be okay for founders who take a couple million off the
table at the B round or VCs who keep the IRR on their books, but for employees
it’s a fail.

3\. Founders as rockstars. The narrative is hurting the industry. People I
like and respected raise money and become narcissistic assholes. Last founder
I worked for who I considered a friend told me “he was like Elon Musk or Larry
Paige, a technical genius, and not to question his leadership”. This was after
he fired his cofounder and chased off the one other employee of our seed stage
startup.

4\. Risk vs. Reward. As an employee with founders trying to keep 50% of the
company to be like Zuck, companies never exiting, and no idea what the terms
of later rounds are, working at a startup is becoming stupid. Saying it’s
about the mission, it’s about learning not earning, when the VCs and founders
are doing great is disingenuous.

We’re at the end of the cycle. I’ve seen 3 now: 2001, 2008, 2016. Hopefully in
the next round the powers that be will figure out how to better reward
everyone who takes risk working at startups. Right now employees take almost
as much risk as founders for much less reward.

~~~
rubicon33
> "It might be okay for founders who take a couple million off the table at
> the B round or VCs who keep the IRR on their books, but for employees it’s a
> fail."

Does that actually happen? I've always wondered if founders walked away from
failed startups having made a couple million off the funding rounds... How
common is that?

~~~
mahyarm
Way more common than you think. Founders do not talk or advertise this part of
startups, and often hide it from the employees themselves.

Often the only way you find out is if you have access to and read through the
company documents. Another way is having a friend that works in finance and
has visibility into this kind of stuff / you monitor SEC filings or other
finance services or heard it through the rumor mill.

The logic is to incentivize the founders to go for the big wins that the VC
formula is set up for.

~~~
rubicon33
I've never been a founder of a startup, so my perspective as an employee is
clearly somewhat biased. That said, I can't help but feel, that taking
hundreds of thousands, if not millions of dollars, from a failing startup,
should be considered fraud...

~~~
mahyarm
They don't do it when it's failing, because no investors would do it. It
usually happens when the startup is on an upward trend. It's usually done as
part of an investment round of some sort. It's not fraud, it just isn't
obviously public.

------
hibikir
The way startups run today and the way compensation is often structured just
makes startups a bad deal economically in the best of times.

Imagine for a second that you become employee 10 in a new startup that you
believe in. You dedicate it 15 hours a day for 5 years, everything went
awesome, and now the company is worth 5B. Your stock options would be worth
millions in case of a liquidity event. Great, right?

The thing is, it's 5 years later the company is probably 300-800 people now,
and therefore is a very different company than the one you joined, and if it's
still growing, it's be a different company still next year. But there's no
liquidity event: You cant exercise your options because you can't pay the
taxes. If you want to exercise anything, the company has to go public, and you
sure don't control that. So you either wait in a job that probably doesn't fit
you anymore, or your stock compensation was worth nothing. Therefore, whether
the startup does great or not, you have to apply the 'I might want to quit'
discount. If I am assuming 8 years to IPO, which is not insane that discount
is going to be huge by itself. I'd not rate my chances of staying in a job for
8 years as 1/10\. And that's without considering that, career wise, you'll be
learning more changing jobs every couple of years or so.

Let's compare this to a public company: Their stock compensation has none of
that complexity, especially now that RSUs are the way to go. You can sell them
for cash immediately at the stock price that day. The downside is minimal, and
chances are your first block of shares comes after one year, so if you hate
your job, you sit there a year, sell your shares and quit.

Given how much stock the bigger companies are awarding developers, you have to
completely ignore compensation to go to a tiny startup: You kind of have to
bet in the world around you changing to make exercising options early to be
more or less free, along with believing that the startup will go the distance.
Those are odds I'd not take

~~~
lafay
If you're joining as employee 10, you should negotiate for the opportunity to
early exercise all of your shares and avoid any tough tax choices later on.
Perhaps even a starting bonus to cover the cost of exercise.

This also puts you in a position to exclude your entire gain from federal
capital gains tax if the liquidity event is at least 5 years out:

[https://blog.wealthfront.com/qualified-small-business-
stock-...](https://blog.wealthfront.com/qualified-small-business-stock-2016/)

~~~
asabjorn
With large early rounds exercising your stock might set you back 50k or more,
making you an investor as well as an employee. With the odds of startup
success it is advisable to diversify more than that unless you are already
wealthy.

~~~
Terr_
The example that always pops to mind for me is Enron, where many employees
owned stock in the company, and the company did a lot of contributions in
stock. [0]

So when it imploded, not only did they lose their jobs, but their investments.

[0] [http://www.nytimes.com/2001/11/22/business/employees-
retirem...](http://www.nytimes.com/2001/11/22/business/employees-retirement-
plan-is-a-victim-as-enron-tumbles.html)

------
johnm1019
I have to wonder if part of the trend is that a generation of software
developers came out of college and jumped into the startup scene during its
most recent run. These folks are now forming relationships and starting
families, or wanting to spend more time doing not-software dev things. They
are realizing that stability in your job lets you do and plan other things in
your life. Given that there is no economic certainty in working for a small
start up in a city with an astronomical COL, many are deciding the risk isn't
worth the rewards.

It's also possible that there are really large challenges being undertaken
which require resources that actual start-ups with 10 million in VC can't do.
Things like autonomous cars (Uber isn't a start-up anymore IMO), rocketry,
aerospace, energy, foundational biology. Is it possible that many great minds
see these as more worthwhile pursuits?

~~~
mdorazio
I think you nailed it with your first point. The startup craze (re)started
around 2010. A lot of the 22 year old fresh grads enamored with the startup
scene at that time are now nearing 30, have probably been burned once or twice
by startups not turning them into millionaires, and are now starting families
and wanting to work "normal" hours with people close to their own age. Add on
the fact that most startups are located in areas that are too expensive by far
to make home ownership a real possibility, and you've got a decent size
demographic in the software dev space for whom big companies are starting to
look more appealing.

~~~
randomdata
I'd argue that the startup craze restarted in 2008, on growth in the mobile
app market. The reason: All the money flowing out of failing housing market
went straight into tech and commodities. Suddenly these startups were bursting
at the seams with investment money and everyone and their brother were trying
to get a piece of the pie.

But now, commodities have already crashed. Money is starting to flow back into
housing. It stands to reason that the easy money in tech has also left.
'Everyone and their brother' are starting to move on to the next get rich
quick scheme.

~~~
nostrademons
08/09 were _terrible_ for startups - I had one that folded up in mid-08, and I
was early. Most of the Web 2.0 generation called it quits over the next 2
years. Sept 2008 was the last time you could get easy funding until about 2010
- it was when Twitter did its big raise, then Sequoia's "RIP Good Times"
presentation came out in October.

The current technology cycle started in '08, and most of the really big
players today were either in search mode then (AirBnB, Uber, Instagram,
Whatsapp, Kickstarter, Pinterest) or were in the early phases of growth
(DropBox, Heroku, YC). A lot of them didn't raise Series A until late 2010 or
early 2011. I think it's fair to call that the restart of the startup market.

~~~
amyjess
> then Sequoia's "RIP Good Times" presentation came out in October.

I worked at a Sequoia-funded company at the time. It was bad... hiring ground
to a near-halt, and attrition was used to shrink the engineering department.
Eventually, I got laid off over a year later (February 2010), and by that time
we weren't any financially better off than when Sequoia made that
presentation. The reason for my layoff was because our VCs had given us less
money during our Series D than we were expecting.

------
pyrrhotech
I've worked at 3 startups (~50 employees, ~300 employees and ~120 employees)
and 1 big company. I'll definitely never be working at a startup again unless
I own it. I didn't realize how underpaid and overworked I was until I joined
the big co. Nor did I realize how narcissistic and demagogic my leadership
was. Of course there were some benefits like less bureaucracy, but the pros of
working at a big company far outweigh the cons.

~~~
Cranzatz
I've worked mostly at smaller companies my whole career. Two years ago I
joined a company with 4k employees, which merged with a 50k+ employee company.
It's a very uncomfortable situation for me.

I absolutely hate how political and bureaucratic my current company is. It's
so difficult to get anything done, because of the micromanagement and second-
guessing for the sake of "collaboration." It's dreadfully slow. Nearly all
management has family and kids; most of my direct coworkers don't. Two are
engaged, one is married with two kids. I'm gay and am not planning to ever
have kids. So I have a ton of free time in comparison to my straight
coworkers.

My plan is to start my own company in a few years. I don't think I can
tolerate an atmosphere where I can't set my own pace. I'm a pretty competitive
person who likes quick results. I get the feeling I'm out of place in my
current environment.

~~~
mahyarm
There is different kinds of big companies. Salesforce will be different than
google which will be different than cisco. Some of them will be far more
positive than others.

~~~
draw_down
They will differ, but will they be more different, or more alike?

------
sulam
I love how this article manages to contradict itself completely in the space
of two paragraphs.

Paraphrase #1: Salaries at startups aren't very high, without considering
options.

Paraphrase #2: Yelp is having to raise compensation to compete against startup
job offers.

Past the very early stage, the first statement is untrue. I sincerely doubt
that Uber is paying less base salary than GE. Certainly it is in the ballpark
-- because every well-funded startup out there (there's a lot of them) pays
"market rate" which nets out to "we match salaries for everyone except Google
employees."

~~~
megablast
He is suggesting that people are taking a wage cut to work at startups,
because of the chance of a big payout later on.

Yelp has to pay a lot more, not to beat their startup salary, but their
expectation of a big payout.

~~~
sulam
My point is that this is not the case. I don't know anyone taking a big pay
cut to work at a startup unless they are a very, very early employee,
essentially a co-founder. A company's seed round might be $2M these days (this
used to be an A round) and A rounds are easily $6-8M. It's hard to justify not
paying someone market rate when you have $2M in the bank and a plan that says
you're going to use it to hire engineers.

------
jordanb
I think part of this is perhaps a shift in strategy among big non-tech
companies. They used to be extremely aggressive about outsourcing and
offshoring tech roles. My sense is that this strategy is changing among many
of them as they come to see technology as a core profit center for them.

~~~
dkarapetyan
The only time technology is a core profit center is if technology is the
actual business. Just because a business requires technology doesn't mean it
can be turned into a profit center. Most businesses just shuffle paper but now
they do it digitally. At best that's a cost saving strategy. You need
something else to make it a profit center and few businesses are in a position
to do so and even fewer decision makers have the willpower and foresight to
make it happen at said businesses.

------
samfisher83
This is just like the early 2000s. I bet you could write this same article in
2025.

------
Taylor_OD
I work in Merchandise Mart in Chicago home to 1871 (start up hub) and a number
of large companies like Allstate, Motorola, Yelp, Braintree (paypal) and its
interesting to see the shift in where people are taking job. It seems the
large companies have shifted to creating new exciting teams and thus snatching
up a lot of talented engineers that I have seen going to start ups over the
last couple years.

~~~
toomuchtodo
I used to work in Chicago, and the startup scene was never that great. People
asked me why I left when I could've worked for Groupon or SpotHero.

There is nothing innovative going on in Chicago unless you're in the financial
speculation industry, and its at least well paid.

~~~
mempko
I worked at HERE maps which has a large office (800+) in Chicago and worked on
a computer vision system that processed 3D LiDAR and imagery. There are teams
working on building crazy 3D tools and processing for building maps for
autonomous vehicles. Its sad that nobody knows they are in downtown Chicago
because its pretty damn interesting work.

~~~
toomuchtodo
Right, but you could have done the same work remotely (fully remote) for
Mapillary.com, which is using crowdsourced outdoor images to perform
photogrammetry for 3D representation through their public site [1], as well as
deep machine learning to tag the images for consumption by self-driving
vehicles teams. Same work as HERE, but without having _to be in Chicago_.

No point in me ever sticking out a Chicago winter ever again. Challenging,
exciting work isn't geographically constrained there.

* I admit this moves the goal posts a bit when I said there is no exciting work going on in Chicago. I never even knew HERE was in CHI doing that sort of work. I hope they consider remote workers in the future. C'est la vie.

 __My beef with Mapillary is that their crowdsourced imaging license is too
restrictive compared to the competing OpenStreetView project.

[https://www.mapillary.com/](https://www.mapillary.com/)

[http://www.openstreetview.org](http://www.openstreetview.org)

~~~
mempko
I think the scale of HERE is different than mapillary and the quality of data
is substantially better.

We are talking data in the many many many petabytes range. 100Mil images is a
tiny fraction of what HERE has. Also I am not sure if mapillary also has the
high quality LiDAR data. My understanding is that they reconstruct from
images, which has a much lower density and accuracy.

They also do have offices all over the world. I mentioned the Chicago office
because you were saying there wasn't interesting work in Chicago.

------
cx1000
I agree that working at a startup for equity is akin to the lottery, but the
perks of startups are so much better than big companies. Catered lunch, free
food in the kitchen, kegs onsite, etc. I could never go back to a cubicle with
no windows in sight!

~~~
kasey_junk
> Catered lunch, free food in the kitchen, kegs onsite, etc.

Without getting into the relative availability of these things (I think you
are underestimating how available they are in big companies).

These are _extremely cheap_ to provide. The perks that cost a lot for
companies to provide, health insurance, better pay, better retirement options,
education reimbursement, etc. Are where real comparisons between perks should
be made. In my experience those are _systematically_ more common in big
companies than small ones (that is governmental policy makes it easier for big
companies to provide these).

~~~
shostack
Don't forget work/life balance. As I've gotten more experienced under my belt,
I increasingly value my free time. I no longer have any interest in burning
the midnight oil because a company is constantly in crunch mode due to poor
planning, understaffing, etc.

Larger companies often can provide a better work/life balance because they
have more resources to do so. Now, that isn't always the case--many of them
abuse the hell out of their employees because they can, but there often isn't
the same "working 80hr weeks" you get at startups.

I've found that increasingly the dollar value of my free time is one of the
most valuable "perks" a company can provide.

~~~
jly
Yeah, this is 100% true.

The best 'perk' is working for a company where it's expected that you will
work normal hours most of the time instead of as the exception. As I get older
and have a family and more interests outside of work, this becomes the most
critical factor. A lot of the classic startup perks seem designed to keep you
in the office.

------
ryandrake
> “It does me no good to get rich when I’m 45 when I’m 30 now,” goes the
> thinking of many prospective hires these days, he said. That’s helped him
> make some hires out of companies that would have been tough to recruit from
> a year or two ago, including Uber and Airbnb, he said.

This part doesn't make sense to me. Wouldn't it be the opposite? Doesn't the
"want to get rich now" crowd prefer the start-ups and the "want to get rich
later" group prefer the larger, stable companies? (Spoiler: Chances are,
neither of these groups are going to "get rich", sorry.) The people that big
companies ought to be going after are the ones who TRIED to get rich early,
ended up holding worthless lottery tickets, and are content to toss them away
for a little stability.

~~~
pm90
> The people that big companies ought to be going after are the ones who TRIED
> to get rich early, ended up holding worthless lottery tickets, and are
> content to toss them away for a little stability.

Why? Broad generalizations really don't help here. Here is a counter: Its
likely that people who have worked at BigCo's are better at working with their
bureaucracy, they know that they won't get immediate results but understand
the system and are willing to work with it to get things done. So they are
more likely to succeed in that environment.

------
Yhippa
Let's say that startups do indeed become less attractive as time goes on. Do
coding bootcamps prepare their students for jobs at BigCorp?

~~~
bdcravens
I'm not convinced they prepare them for startups.

~~~
sfaf
As a coding bootcamp grad, I agree. I think bootcamps are better for mid to
large companies actually where you will get mentorship and processes to help
you graduate from being an apprentice to a contributing member of your team.

Many of my bootcamp colleagues at small stage startups regretted the decision.

------
bdcravens
Most of the commenters here seem to think it's a dichotomy. There's many
small, bootstrapped companies, where you can do some cool things tech-wise.

------
CalChris
TL;DR Millenials are turning 30.

~~~
sangnoir
Lots of millennials are in their (early-mid) thirties already.

------
conjectures
If I had any alicorn I'd use it to make a potion that would banish the word
'unicorn' from the English language for a decade.

