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How to Choose a Startup to Work for by Thinking Like an Investor (triplebyte.com)
302 points by Harj 6 months ago | hide | past | web | favorite | 151 comments

The metaphor of early startup employee as investor seems really smart at first but is ludicrous in reality.

It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. VCs can sprinkle (relatively) small amounts of money across dozens or hundreds of startups. If one fails then the impact to the portfolio is negligible. In fact, VCs expect that most of their portfolio probably won't pan out.

Good luck diversifying as an employee. Working part time at even 2 startups is obviously laughable.

If you're in it for the money, working at a startup is probably not for you. It really is akin to gambling. There may seem to be more information available than gambling, but there is so much unknown and hidden information it's damn near impossible to make a 'rational' decision.

That's not to say you should never work at a startup. Startups are often great learning opportunities because you usually have both broad and deep scope of responsibility. There's also often better alignment between management and employees because people tend to be working stuff that is materially relatable to the bottom line. It can also be a career accelerator if the company grows headcount rapidly and you suddenly become a 'senior person'™. YMMV.

The best part is stock options. Not only are you not diversified, now you get to concentrate your portfolio by buying stock in the company that provides your income.

Stock options: for concentrating your income and your investments when you're excited and biased.

Decades of experience has taught me that stock options are essentially wallpaper. Sure, if a company wants to give me options, I'll take them -- but they are in no way a substitute for real compensation, and I won't accept them in lieu of something real.

That said, if a startup is doing something that really turns my gears and I like the company, then I'm absolutely willing to work for less pay in order to be a part of that.

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but that's another thing.

In software instead, that's incredibly common: several of my coworkers (late stage private company) are in mostly for the thrill of working on our technology since we operate in some interesting niche, and I know for a fact they are paid much less than me (30%+), even if they have a bigger impact than me on the company (and they are also older, with more experience!).

It's so common that many times employers use it at their advantage, by preferring people that can be sold purely on the tech rather than the tech AND the market rate for the position.

To me, both the financial aspects and the technical challenges must be absolutely satisfied in order to join a company. Maybe I'm too practical because I'm not a trust fund kid and grew up dirt poor, so I know that in my limited ~20y engineering career (assuming ageism) I need to make enough so that I will be able to retire comfortably, while making sure I work on stuff that stimulates me so I can give my very best.

I think there are. Teachers (pretty much as a whole) and public defenders seem to fit here.

I know multiple photographers whose passion is landscapes/nature and only grudgingly supplement that income with weddings/portraits.

With regards to teachers or photographers, that's not a fair comparison in my opinion: in those cases, low wages are mostly dictated by high supply vs low demand, so from an economic point of view it "makes sense". That's much different than software engineering or medicine, where there is a scarcity of supply (and the only reason why software salaries are in the 6 figures).

In other words, teachers are not willingly giving up a portion of the compensation that they could otherwise be making doing the same job somewhere else. In software instead, that happens ("Oh, you work on FOO v2.0, I'll happily take 40% less than what I could otherwise be making doing this job in another company").

I don't know about public defenders, you might have a point there.

From my perspective it looks like a good amount of teachers decided to give up a portion of the compensation earlier (i.e. they gave up good pay not when they're looking for another job in an industry they're already in, but they decided to give up good pay upon joining the industry).

It's like how artists/writers/game developers/etc. decide to go into their field even though they know that they could be making much more money in any other field.

It's still just supply and demand. Sexier products draw more candidates. The only reason you're taking 40% less to work on something cool is because if you don't, someone else will.

Most people eventually have to decide whether they want to make 150k writing CRUD apps or 90k writing algorithms.

doctors without borders unusually have a very well paid job and do the free consultations on the side, like writing code and publishing it on github

Also a physician working with Doctors Without Borders doesn't do it for a chance to get really rich.

"Less pay" generally entails something that's still reasonably lucrative. One could potentially make 20% more at one or two FAANG companies. Frankly, the big difference is in the RSUs. It's not unusual to see $100k/yr RSUs going to a senior engineer at one of them whereas at a startup, the equity is most likely worth nothing.

Basically, startups are a terrible place to work. I wouldn't recommend them to anybody. However, there are some folks, myself included, that love them.

Tech or IT or whatever you call it tends to happen at a glacial pace in structured organizations. Most IT projects fail. Most folks don't care. They want to come to work, do their thing, potentially excel at their thing, go home at the end of the day, and enjoy their life. At a startup, someone that's eager to contribute can really make a difference. One inspired idea has the potential to really move the needle when it comes to the success of the business.

How about: Doctors Without Borders? Docs who enter general practice in underserved areas rather than metropolitan dermatology? Legal pro bono work, or most prosecutors?

They forgo some income, or work for free.

But for public service, not because there is a 0.1% chance they'll get a lot of money.

You might have a fair point. I am, however, empirically convinced (but have no data) that the examples you are quoting are a very small portion of their respective professional market population, whereas, always empirically, I'd say that the amount of software professionals who willingly choose to be underpaid purely because of their attraction to some kind of work is much much higher, probably in the 30%+.

Someone doing pediatrics might have been better off skipping med school and being a nurse practitioner, or a taxi programmer. Or when going through it, specializing instead in dermatology. Now imagine your town without any pediatricians and GPs and emergency staff ;-)

Doctors pick specialties and the balance of $, time, stress, location, marvel, and giving back all factor in. Think city dermatologist vs small town pediatrition.

Source: married to an md phd, meaning ~half the potential salary is both forgone and that time is used to be in public labs solving cancer. Hours still stink tho and every day is life and death, so aggrieved programmer discussions of hours, burnout, compensation, and ability to own equity come off sounding similar to how bankers do. Clearly real for those living it, but odd from the outside.

There are a few factors that you are overlooking. A lot of startups (and small companies) aren't on the 'SV Unicorn Track', particularly so for startups focused on 'hard' problems. Energy, biotech, aerospace, etc.. These types of startups often have to cobble together funding from a variety of sources (grants, strategic partnerships/investments, niche VC firms). The pay is lower because it has to be, funding is limited and developing the product (and sometimes just a prototype) can take years, so there is little to no revenue.

Something to consider as well, is that while the salaries might be lower, they are often not that far off from what one would make in their respective industry. So someone working at a biotech startup will probably be making a lot less than a FANNG engineer, but would probably be pretty competitive with their peers in 'BigBiotechCo'.

And the other thing to consider is that engineers, and in particular programmers, tend to be pretty bad negotiators. Its possible that your co-workers would gladly take a 30% raise if they knew they were making that much less. I highly doubt they are 'trust fund kids' (those folks tend to found crappy startups, cause if you are set for life, why would you work for someone else?). And if they are older (as you imply) its also possible they were starting to feel the impacts of ageism in tech, and took a low ball offer as a result. Or perhaps they have saved up enough from previous jobs and just don't care that much if they are maximizing their pay, and are more focused on working on cool things and with non-toxic co-workers!

> A lot of startups (and small companies) aren't on the 'SV Unicorn Track'

Yes. My willingness to work for less pay if the work is interesting enough only applies to those sorts of companies. The stereotypical SV-style business has no appeal to me regardless of what sort of work is involved. Been there, done that, learned my lesson!

The most obvious example is academic research. Many engineers, doctors, lawyers, and economists take massive pay cuts to work in an academic environment.

Plenty of lawyers quit Big Law to work in human rights law or as public defenders because they find the work more meaningful. All lawyers are also required to do pro bono work and different lawyers and some treat it as pro forma but many go above and beyond because they feel the work is important.

> I'm not a trust fund kid and grew up dirt poor

This applies equally to me.

Here's the thing -- a job that isn't fun and interesting is a job I can't tolerate regardless of how much it pays. Life is too short to suffer on a daily basis.

But I do have a minimum amount of income that I can tolerate as well. I have to earn enough money to live, after all. How much the minimum is depends on the cost of living in my area.

But does the “enough money to live” include money to cover your future living expenses as well? As I was saying, I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism, and won’t be able to claim any social security benefits due to the massive deficit in federal budget.

Hence, what I really strive to make now is actually 3-5X my cost of living expenses every year, so I can ensure a decent retirement down the road.

Based on that math, I really can't afford the luxury of taking a job that will just cover my yearly expenses. In my case, I really have to go for jobs where swes make $300-400k/yr, and I live pretty frugally myself (I spend 60k/y post tax in the Bay Area). I don’t think it’s safe to assume software engineering is a career that you can keep up until your 60s, unlike teachers for example, so you have to plan for it.

I’ve seen several people actually employ this logic and justify to themselves a 120k software job at a cool Bay Area startup, because it fully covers their living expenses in the Bay, despite not letting them save even one single dollar for retirement. I think that’s very irresponsible though, and they’re in for a sad surprise when they’ll discover in their late 40s that employers don’t consider them as hireable as they once were, and now they have to drive Uber to not become destitute (not that there’s anything wrong with that, but it’s hardly a great outcome).

> But does the “enough money to live” include money to cover your future living expenses as well?

I've covered that through savings over the decades. But, honestly, I don't expect that I'll ever retire anyway.

> I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism

That's not inevitable. I'm in my 50s and am in as much demand as I ever have been. The key (at any age) is that you have to keep your skillset up to date.

Not all companies want experienced people, but companies who strongly prefer younger employees do so because they know they can take advantage of them, and so aren't the sorts of companies I'd be willing to work for anyway.

> In my case, I really have to go for jobs where swes make $300-400k/yr.

Yow! You must live in an area with an insane cost of living! If that were me, I'd move to somewhere more reasonable. Software engineering jobs are everywhere.

If Google or MS give you options, or RSUs, or whatever, they are essentially cash. You'll be able to liquidate them at market price as soon as you vest. So in those companies stock options are a real form of compensation.

For startups whose stock has 0 actual value in a market, then yeah stock options are worth nothing.

Stock Options are just that - an option to buy a share of stock at a future date. They are a bet on a future outcome which contains lots of risk.

Restricted Stock Units are cash. They are new shares issued to you with restrictions on exercising them. Once they vest, there is no value in not selling them immediately. The tax consequences are the same if you hold them, and you gain the value of diversification by selling.

The above should tell you something about the calculation you are espousing. Yes, the very risky asset called stock options is much less likely to hold any future value. The risk implied should also tell you that for a rare good pick with lots of well managed influence to the outcome, you can succeed with fantastic gains where you cannot simply by holding public shares.

YMMV. The only way to win the startup lottery is to work very hard to influence the outcome. I can't think of any other lottery like that.

> The tax consequences are the same if you hold them

The gains that occur after vest-and-release are capital gains. Capital gains for assets held over a year are much lower than ordinary income rates for most people receiving RSUs. (It's still reasonable advice to diversify in the typical case.)

I think I'm either misreading your comment, or there's a misunderstanding here.

When RSUs are issued, they typically appreciate in value due to either an increase in share price or a discount or both.

When the RSUs vest, one of 2 things happens: either the number of shares is reduced by a sum equivalent to pay income taxes, or (more rarely) income taxes are paid by the recipient later at tax time. In either case, the shares didn't exist in the recipient's account before that vesting date.

If the shares are sold, those funds can be used to buy other shares if desired. If they are held, they are just normal shares in that company. In either case, they appreciate as capital gains instead of income, starting with the point in time when they were either purchased or vested whichever the case may be.

When the RSUs vest, what typically happens is both of the things you describe. A number of shares is withheld at vesting and the value sent to the Treasury as an income tax withholding. The following April, you true-up the full tax liability with the full number of shares treated as ordinary income. (The withholding is typically at the supplemental wage rate [22%, used to be 25%], which is frequently not enough to cover the full amount of tax due.)

Your initial comment suggested that you didn't distinguish between the ordinary income and capital gains taxation for the pre and post time periods. It turns out you did understand that distinction, but I didn't glean that from your prior text.

I agree with you, and this was my initial response when i started reading the post.

VCs also get far more information about the company and can demand way more control. How many employees of a startup get a board seat, even if you're non-founder employee #1?

Even those diversified portfolios aren't going to have huge returns in most cases.

I think the lesson is that if your value proposition is exchanging your skills and time for money (ie, an employee) you can't parlay that into startup style returns without essentially winning the lottery. If you can pick the next unicorn for employment purposes don't waste your talents on actually being an employee

On the other side, as an early employee you can have a much bigger impact on the odds of success than an investor. If you think a company has huge potential, but it's missing X/Y/Z, and you're an expert in X/Y/Z, then you have both a unique insight and unique leverage to make a success out of something that might not have been without you. Looking for situations where you make the difference is perhaps one way to have the whole thing feel like less of a lottery.

I think this is a good point. If you are the ‘secret sauce’ than you may have an edge over an investor. There is perhaps the question of how you know that the company has huge potential with any confidence but I can think of a number of situations where it may be generally indicated. You should also command a stiff premium for catalyzing the company’s success. =)

> It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can.

As an employee though you can contribute your sweat equity on a daily basis, rather than needing to make your contribution upfront. So if you figure out the startup is a scam after day 3 of working there full time, you're free to quit immediately with basically no sunk cost. If investors could drip out their cash on a daily basis then most probably wouldn't put in the work to be fully diversified. So yeah, it's a difference, but I think it's a little overstated if you're just comparing the raw numbers of startups each group has equity in.

What I think is a bigger difference is that employees don't have to worry about IRR. If as an employee it takes you an extra two years to get to liquidity, that makes basically zero material difference in your quality of life. Whereas as a professional investor that can destroy your business. On that basis I think this piece may overstate the value in looking for signal. As an investor, placing your bet on someone who is going to be successful but not for another couple years is basically the same as a loss. But that's not really true as an employee.

I don’t agree with your point about employees being able to ‘get their money out.’ If you have short stints at many startups I am young to see that as a serious red flag as a hiring manager. You can do it at one place but I think even if you do it twice in succession it’s going to suggest a pattern. Disclaimer: I’m not a software engineer so it may be less impactful than I think.

RE: your point about IRR, I also don’t fully agree. Yes it’s bad when when you don’t show return for many years as an investor but as someone who was personally waiting for a prior employer to go public I can assure that a difference of a year or two is not ‘zero material difference’ in my quality of life.

Why would it be a red flag? Many companies have horrible cultures and dysfunction and you only get to see it after starting full-time. It’s very common to realize you are not compatible with the particular dysfunction of a certain job and need to leave even just after a few months just for basic reasons of taking care of yourself. This can easily happen at multiple consecutive jobs.

I’ll even go further and claim that in tech and especially in start-ups, hiring is deliberately deceptive. As a candidate you are at a severe information asymmetry disadvantage when you have to decide to join, and companies very often manipulate that situation to bait and switch on overqualified candidates, lie about or hide financial details, emphasize the wrong things to create halo bias in your decision making, etc.

Given just how egregiously bad companies are, just in general behavior, I don’t see why it’s surprising or controversial or “a sign” of anything to see a job history with a lot of short stints.

In fact, if a hiring manager or HR staff looks at a resume with short stints as a bad thing, that actually seems more like an indicator that the company is bad. They are thinking, “this person doesn’t patiently swallow company bullshit for keeping up appearances on the resume... they’ll never stick it out in our horribly toxic culture...” and it’s very telling that companies think this way instead of fixing their bullshit and being realistic about candidates needing to hop between jobs when company culture is bad.

It's actually easier to "invest" as an employee than as a VC. VC's have to wait until the next round, and have to compete with other VCs.

As a potential employee, you can see a company wildly succeeding (twitter in 2009, uber in 2012-13, slack, github, etc) and yet they will have <200 employees and their stock options will be granted at a 409a valuation around ~100million. Its a pretty reasonable bet at that point.

You will hit some underperformers/duds (coinbase? bird?), but you will have worthwhile stock options a good chunk of the time.

If this is true why not just be a VC? You could pick all these unicorns at a great value. Even if you don’t put any of your own money in the fund you will make vastly more on the fund fees than you would have as even CTO.

I think you’ll find that consistently picking unicorns is essentially impossible across a long time frame.

If any VC could have bought $TWTR at a $280MM cap in 2010 they would have. Only employees got that deal. Twitter was already a unicorn, but the internal paperwork hadn't caught up yet.

It's arbitrage, not clairvoyance.

Investors spend all day hearing startup pitches from companies who would gladly accept a check from them.

Engineers spend a grueling month or two getting onsite offers from maybe 8 companies at the most and one or two offers.

Agree 100%, a very misleading metaphor.

Came to say this.

No one can predict with certainty which startups will fail and which won’t. If someone did there would be just one VC firm that grossly outperformed everyone else. The truth is you get the smartest people out there, make the most careful bets you can, and you still lose or break even 9 out of 10 times.

Anyone who is joining an early stage startup primarily to get rich has got their eye on the wrong prize. Join because you like the early stage craziness. Join because you care about the mission. Join to learn. If you want to get rich, work at Fang for 10 years. That’s a lot more certain.

Even if you are not in it for the money, joining a big company gives you good income right away. Speaking from experience, the quality of life change when you don't have to worry about daily expenses is enormous. Being able to buy high quality groceries, eating out when you want to, spending time/money on hobbies, etc. can improve quality of life significantly. Besides these selfish reasons, it's also possible to donate a much higher percentage of your income for good causes.

Between my wife and I (both software engineers), we have played this VC startup game 5 times. Never again.

That's missing the point. You can't get the same deal as an investor, true, but you can still do the due diligence they do. Or at least you should try to as much as you can.

The entire premise of VC investment is predicated on diversification. VCs wouldn’t do diligence if they could only invest in one startup. They wouldn’t exist.

Startups are often great learning opportunities

This isn’t really true. The experience you can only get at a startup is learning to work with VCs, the board, early strategic partners and so on. This will be dangled in front of you like a carrot but as a mere employee you will never get meaningful exposure here. Unfortunately, like “dilution”, this is something that founders hope you don’t know so they can exploit you.

I worked at three startups before taking the current break I'm on - one I left before my stock was worth anything (would have paid out a small amount in an acquisition), another, the stock is now worth zero, and the third has a shot at being worth about a year's salary if current late-stage valuation is to be representative of a potential buyout/IPO (I'd say odds are alright this will happen). While I try not to think about it, because honestly the experience was worth it, I would have made far more over the last eight years of my career staying put at BigCo.

With that being said...

All three times, despite considering myself a pretty rational person, I got this strange psychological delusion when joining the startup that it was going to somehow magically make me rich. I think it's probably the "honeymoon" stage of joining any company. Things are awesome! The culture is fast-paced, chaotic, and offers plenty of opportunity! This is a rocket ship! It kind of matches the "what if" feeling of buying a lotto ticket. It's impossible not to imagine what might happen.

I think if I jump back into startupville, my cynicism toward the "get-rich-fast with these private options" will outweigh the bright-eyed, bushy-tailed sensation of my 20s.

IMO there's only two paths that really makes sense now when considering a private co. Either a) join super early (e.g. penny strike price) with a meaningful % of total company (at least 10 bps) OR b) join late stage growth co that offers RSUs over options (e.g. "Softbank" stage cos).

Joining a "middle" stage co where you are offered expensive options is the worst, since you've missed out on the early upside and you take on a ton of risk due to cost of exercising.

And really, only a) offers a meaningful shot at “getting rich”. A late stage growth company is not going to 100X its equity value in 5 years. No rank and file employees are getting f-you money there.

If there’s one thing I’ve learned after two decades in the industry it’s if you care about earning good money, you can either 1) gamble on the 0.01% chance that you picked the right startup or 2) get on to the Senior Executive track as early as possible. Then it doesn’t matter what company you join because they all pay their executives f-you money.

Even with (a) it's tough. If you're employee 1-13 you're getting maybe 10-20bps. At a unicorn valuation that is $1-$2m before you take into account dilution, liquidation preferences, taxes, etc etc etc.

Only a single data point, but I was #13 at a (now) unicorn and was offered 45 bps for a new grad role. This was 7 years ago, though, so maybe the market's changed.

(I, in my infinite wisdom, traded it down to 25 bps for 15 k$/yr more in salary. Whoops)

If you're employee 1, you should be getting 1% or north of that. If you're employee 13 you're probably getting 25-50 bps if you negotiate.

Outside of a very senior employee #1, I think the point is that even achieving a unicorn valuation does not guarantee extremely early employees much wealth, at least more than you'd get going down a more traditional big co path.

If you are picking lottery tickets I would agree with you. What I think the point of the article is, is that investors aren’t picking lottery tickets and neither should you. Given 1000 startups to choose from, your EV is negative as compared to working for BigCo. You can’t work for 1000 startups, though, and investors don’t invest in every startup asking for money either. They’re selective and expect that this process will result in positive returns over simply putting the cash in public tech stocks.

Can you narrow 1000 companies down to 20 that have a better than average chance of success? Sure you can! And you should, and you shouldn’t treat the options as worthless.

I totally agree, which is why I have not worked for a startup or small business for close to a decade. And I’m by nature a gambler! It’s just they in the current climate the %unicorn x %share x valuation expected value calculation is not favorable to employees. Even for employee 1-10.

All it would take i think is for companies to start offering larger stakes to employees, with the other two factors remaining the same, and the math might make it worthwhile. But they won’t do it.

I wouldn't consider 10 bps (0.1%) meaningful. Early stage is very, very risky.

Depends if it's pre- or post-product/market fit.

Joining a startup that's overwhelmed with demand for its product - particularly if you can see the usefulness of this product yourself - is usually a good move even at 0.1%. Joining a startup that's still iterating on the product (and maybe has a couple customers but just lost a big one and they have to work really hard to sign the next one) may be a bad move even at 10%, because there's a good chance that equity will be worthless.

The article doesn't really mention it, but a great question to ask any potential employer is "What are your biggest problems right now?" Scaling is a great problem to have, because it indicates lots of demand and has solutions that are relatively well-known in the industry. Customer service is a pretty good one - it shows that the company has customers who care enough to want service, and if the CEO is willing to admit this is a problem it'll probably get fixed. Hiring, code quality, internationalization, testing, service outages, brain-dead tech stack, anything that's specific to the problem domain itself - these are also pretty decent problems to have as long as the CEO is attentive to them. Unhappy customers or staff turnover is a caution - you should dig into this further to see why they're leaving, and if it looks like the problem is solvable. Same with financing - many hot companies run low on cash at various points, and you only need to make sure the company isn't going to die, but if the company loses more money than it makes on each transaction that's a huge red flag. The biggest problems (particularly for an engineer) are anything to do with sales, marketing, partnerships, or "growing the business", because the root cause of this is often that customers don't really want what you're making, and nothing short of a major pivot fixes that.

As a side bonus, asking this question is often a big positive signal for the hiring manager, because it shows you're serious about solving problems rather than just collecting a paycheck.

Yes, I agree. I was assuming "pre-market fit" "few or no customers." In this case, 0.1% is hardly worth the risk.

Yes. I generally like to make a reverse calculation when evaluating such offers. To get $1 million out of this risk, the company has to exit for $1 billion if I have 0.1% stake. How likely is it? And that's before considering dilution, preference stocks, option exercise problems, etc.

Joining a BigCo can give $1 million (above startup salary) in 5 years with a very high probability.

And AFTER considering all those other factors, you may need to see a $10B exit to get your $1M.

Ditto! I have been at a startup that was pretty successful and generated a payout for me of about $1M post taxes.

The original grant plus all the refreshers would have originally amounted to ~$8M (I was within the first 3 employees), but joining early means that at each and every single round you'll be massively diluted (20%+, and there are many of those from a seed round up to a series D/E), and this is without counting the liquidation preference (which in my case was a good 1X non-participating) and other stuff (e.g. emitting new shares for the newly hired fancy CEO that will help us sell the company, refreshers will have a higher cost basis, ...).

If you join early, expect your relative slice of the pie to shrink by roughly an order of magnitude. In the best case.

Agreed. 10bps is considered low for me to get for as an advisor (I've been told that directly). The "founding engineering team" (ie, up to 8 people) is getting more than that.

unless you are a founding engineer, that is not out of the norm even for the earliest employees (unfortunately)

nothing is "very very risky" unless you are taking your entire salary in equity. if you are making a competitive base I think you'll survive any misstep choosing the wrong early stage co in the long run.

I was employee #5 at a startup and I got 0.5%.

Another startup offered me 0.1% and a mediocre salary. I had to put the phone on mute while I laughed.

I wouldn't pick an early stage co to join just based on the % of the company they offered. 0.5% in something worthless is still 0.

I wouldn't either... The team was good and the product was technically interesting.

(The startup that offered me the 0.1% didn't have either of these qualities.)

joshe 6 months ago [flagged]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

Either your explanation is unclear, or you do not understand RSUs.

> RSUs [...] evaporate if you leave or are fired from the company. You can not purchase them like stock options.

RSUs do not evaporate. Vested RSUs are yours outright. You cannot purchase them because they are already "purchased".

> So you have to stick around until the company becomes public.

In both cases, the RSU or the stock underlying an option, it is equally worthless until there is a liquidity event.

> Oh they also expire in five years

Companies don't even offer RSUs until they are close to being public. Once you reach a certain threshold of stockholders, you have to report financials. Since this is typically undesirable for private companies, they don't want to jump the gun on issuing RSUs instead of options. If the 5 years does pass without IPO, companies re-issue new grants. (Please: name one company that has actually expired RSUs and what happened)

OTOH most stock option grants expire in 90 days upon termination. This is a real expiry, and actual money out of your pocket (and tax liability) to exercies them, and usually a difficult decision. There are some places doing 10-year expiry but those are still the exception.

> The odds of stock options working out is low, but for RSU's they are much, much lower.

It's the opposite. For a private company, RSUs are much much closer to money in the bank than are options.

joshe 6 months ago [flagged]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

That is not true. You keep whatever you vest (i.e. typically stay at a company at least 1 year). That is the same for stock options.

Typically companies that offer RSUs have achieved scale (your Ubers and Stripes of the world), so yes the upside is lower, but the "pros" are that it's more obvious to you what the value of the grants are and you don't have any cost to exercise them like with options. These companies know that because they are less liquid vs public cos that candidates are right to discount them, which is why they usually offer more than what you'd otherwise receive from a Google or FB.

joshe 6 months ago [flagged]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

> Nope, the "stock units" that you "vest" will expire after a few years.

When they vest, you either get (1) actual shares, (2) the cash equivalent (I think that option may only be available for publicly traded stock), or (3) at your option, retain the RSU for conversion at a later date.

Unconverted deferred vested RSUs might expire (and vested stock options definitely expire), but—unlike options—there’s almost never a reason not to convert an RSU (deferring for later conversion may make sense, but it's essentially always better to convert before expiration.)

joshe 6 months ago [flagged]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

But public company RSUs are as good as cash because you usually can sell them the day they vest. Rule of thumb I think is to favor options from private companies and RSUs from public companies.

There _is_ a "neither fish nor fowl" moment where private companies start giving out RSUs. It has to do with the overall value of the company and the size of the offer package, and rules around how much you can vest in ISOs in a given calendar year. It also has to do with the exposure to employees (and ex-employees) as shareholders pushing you above the cap that requires you to report as a public company.

At any rate, it is fairly common to get RSUs in a late-stage private company. Uber was giving out RSUs 4 years ago, I believe, and has reportedly filed for a confidential IPO as of last month.


dude, please don't participate if you're gonna do this. It wrecks the conversation for everybody else reading later.

This sounds like someone who hasn't actually worked at a startup that made it or has a lot of experience with the issues involved.

Best risk-reward is VP or SVP level at Series C or D company which gets you options for 1-2% of the company... switch every 18 months to diversify and build a portfolio but negotiate 10 year exercise window on your options when you leave rather than the standard 90 days.

Thousands of execs doing that around Silicon Valley working through Daversa and other executive recruiters (who themselves get $85K-$100K per executive hire).

I can't upvote this comment enough. The bottomline for risk keen candidates is to get in with founder's equity and risk averse (and experienced, of course) to work with a headhunter to maximize your chances of building wealth.

That's what I hear too these days. The risk/reward sweet spot in the Valley apparently is either VC (collect management fee for a few years, don't have to show results for a while) or what you said, which is being an executive at a 50+ person company that's shown a very strong trajectory of revenue growth.

Or you could just take a non startup job for higher pay and buy 0.1% of a bunch of late stage startups on EquityZen or Equidate. No need to wait 10 years...

I would advise against that, I tried to dabble with both platforms, but the markup at which those shares are sold is often incredibly high: common shares of most companies on those platforms are actually sold at prices higher than the preferred (crazy), even if such company just went through a very recent round of funding, meaning that the preferred price is pretty much the very top investors valued the company at.

I honestly don't know who would buy that, the idea I got by doing some basic due diligence on those deals is that who puts them online thinks "let's see if we can attract some dumb money to give us some liquidity at an insane premium". If you sell things at a fair price (e.g. selling common shares at the preferred price * 0.8, depending on the current stage of the company), investors will want to give you liquidity way before your offer on equityzen gets accepted and pollutes the cap table (I speak from direct experience), so what's left on those crowdsourced platforms is many times overpriced garbage.

well, getting shares as an employee is even worse. You still get common shares, usually with some trade restrictions / lock up period on top of it... The price / premium on the secondary markets is a market price, and in a market that is more efficient than it used to be. Also, the person selling those shares may be an early employee who has many other reasons to sell than screwing the buyer...

It stands to reason that the premium is based on providing the only opportunity for the would-be investors to buy a piece of the companies at any cost.

Or just stick it in publicly traded cloud companies: https://www.bvp.com/strategy/cloud-computing/index

An aside to this article: along with thinking like an investor, you can also reach out to investors who will often be willing to help with your job search.

For example, as a seed VC there are now about 80 companies at various stages that my fund works with. If someone emails me and says, "I'm a good engineer who wants to join a Series A startup in SF or Oakland that has characteristics X, Y, and Z," there's a good chance I can make a few useful recs.

There's nice incentive alignment here: the VC doesn't get any compensation, they just want their companies and the prospective employee to do well. That means 1) we won't recommend a bad fit to an employee because we want the employee to join and be happy and get their friends to ask us for company recs; 2) we won't recommend a bad fit to a company because we want founders to like us and not feel distracted by us. We're going for quality, not quantity -- and you're welcome to ignore our suggestions. So if you're good at what you do and are looking to join a startup, consider soliciting recs from a few investors with large portfolios.

I wrote a short post about this a few years ago: https://www.codingvc.com/using-investors-to-find-the-ideal-s...

I might regret posting this invite on HN, but if you want to join a startup and want recs, my email is in my blog's header.

> However you will learn significantly more, build a stronger network, and accelerate your career trajectory much faster by joining a successful startup than an average one.

smack forehead Yes, what ever could I have been thinking before! Yes, yes, I should only be joining a successful startup, not an average one!

> steep career trajectories, like Jeff Dean, Marissa Mayer or Chris Cox.

Yes yes! New plan: be Jeff Dean!

> Next, you need to evaluate the strength of the team and market

Unfortunately, this is not realistically possible for most non name-brand candidates. The company is not going to entertain the amount of inquiry (due diligence) you would need to pursue.

> Evaluating the relationship between founders is as important as evaluating the founders themselves.

Indeed it is! Good luck getting access to do that ...

This article is just more hyperbole from triplebyte. I wonder how their business is doing ...


> We've already achieved profitablity

But if I may quote from this article:

> one thing we learned at YC was not to be fooled by large absolute numbers. What matters most is the growth rate.

triplebyte, put your money where your mouth is and advertise your top line growth rate, not the fact that you are profitable. When your fee is on the order of $30k per hire and your infra and operating costs are low, I expect you to be profitable.

Evaluating the strength of the team and the market is something you can do with zero involvement from the company, and you probably shouldn't depend on them to tell you either even if they offered.

Getting a sense of founder dynamics can be harder, depending on stage, but it's easy if you're early enough. I interviewed at Dropbox when it was 20 people and it was obvious what roles Drew and Arash played, as an example. At a larger stage this is harder, but you have more public sources of information at that point.

Regarding Triplebyte's profits, you should be asking how fast they're growing.

Finally, we should all be Jeff Dean. :)

Probably one of your main considerations should be how you are left if the startup dies. There's plenty of good advice here about how to pick a startup that might succeed.

So there's a few considerations:

- Have you got some savings, in case it dies suddenly? You need to be able to pay rent until you find another job. Hopefully the startup is located near these other jobs.

- Does it allow you to build on existing experience? If you can claim you're in the same industry, you're not losing much (perceived) seniority by trying your luck for a bit.

- Does it give you an easy promotion? This is probably one of the main things a startup can offer. Just being able to add "Senior" to your name or "Team Lead" a few years before you would in BigCo might be worth it.

- Do you get to work with the tech that you want for your CV? You probably have an idea of what's hot to have on a CV, and a startup is relatively new, so maybe you can direct things that way?

> It's also only by joining a successful startup early that you can get remarkably steep career trajectories, like Jeff Dean, Marissa Mayer or Chris Cox.

The number of people with these sort of "career trajectories" is vanishingly small. This reminds me of what Phil Greenspan wrote (2006?), mocking the college student's career evaluation process:

"I can't decide if I want to be a scientist like James Watson, a musician like Britney Spears, or an actor like Harrison Ford."

Even top VCs need a portfolio of companies to produce a return. If you asked a VC to bet a whole fund on a single company :) and these are people who's full time job is to pick companies

Yeah, a key strategy for investors is to diversify, and that's exactly what startup employees cannot meaningfully do.

Startup employees could pool their risk by creating their own shared investment fund which held all their shares/options in trust and spread out the winnings. The reward would be far less but more predictable. I doubt many would have the foresight to commit to something like this.

Neat idea, but how would you choose who qualifies to join?

Probably the same way a VC chooses startups.

Start up employees take on far more risk than startup investors. Investors can diversify over 10s or 100s of companies but an employee has to pick just one and bet their career on it.

TripleByte is a hiring agency with a financial interest in placing people with startups of all sizes and financial states. This information should be taken with a grain of salt.

And in my experience they focus solely on tech IC candidates, which is not for everyone.

I’m out of the loop. What do you mean by tech IC candidate?

By working at twenty of them, expecting 15 to fail, 4 to not completely fail, and one to go big?

This is about my career. 8 startups, earlish employee at 6. 1 mediocre IPO, and 1 very successful IPO.

The rest basically failures or zombies that made me no extra money.

Probably a little more lucky than most.

Tons more lucky than most. My last startup job misclassified me when funds got tight. A friend of mine who joined later never got paid (good luck filing a wage claim in WA state if L&I’s system still thinks you’re a contractor).

Perhaps also luck, but I’ve managed to have a spidy sense for when things are going the wrong way, and got out / moved on before it got that bad.

What are some of the signs/symptoms that trigger your spidy sense?

The big one for me was realizing that my boss had lied about knowing how to code. Other red flags include code and documentation quality, how the business sells itself to potential customers (does it greatly oversell it’s abilities), the expiration date of the coffee/tea in the break room (I got food poisoning when I drank the startup’s three year expired tea - the founders were still wondering why they felt like crap all the time when I left), etc.

It’s really a bunch of little things that, when seen as off all at once, will trip your spidey sense to jump ship.

Mostly it's business growth stalling with no clear plan to fix it.

If you don't have visibility into that, there are other warnings signs, like various spending cuts. No straight answers to questions about that stuff.

Not providing visibility into the business is also a warning sign, in my opinion.

I've also left companies when they started making pretty weird business bets that I dind't think would pan out.

Naive question: why not work for a FAANG, try to make close to half a million after enough time, promotions and jumping ship between the different firms, then just invest whatever you're not spending into the stock market or whatever other assets you choose? Take the 400k you're not spending and dump into Tesla and friends, or whatever other sexy stock du jour?

Seems like a much healthier risk profile unless you ONLY want a huge Google-like unicorn outcome as an early employee.

If you can, you probably should! I've come to believe that the best chances of getting a financial benefit (as opposed to just an experience benefit) from working at a startup is to be a founder. If you're "just" an engineer, it's unlikely to be worth it.

It is much easier to get a job at a growing VC-backed startup than a FAANG.

I suppose so. That could be one's foot in the door for a FAANG role later down the line?

I accepted early on that working for a startup will probably not make me rich. Quite the opposite, I may wake up one day and find out that I no longer have a job or my next salary isn't coming. I'm not the kind of person who believes in gambling. Working and living in Europe doesn't really help with the vision that I might join a European unicorn startup, whose stocks might not be worthless one day.

However I do see a lot of benefits that come with working for a startup. You can voice your opinion and be heard. Pushing code to production on your first day. Owning what you do and being able to make decisions. Creating your own environment in which you can learn and become a better developer.

And, most importantly, startups are more open to remote than BigCo Inc.

Monetary compensation might be less, but freedom has a price. If I'm able to work remotely, I can move to a place that is cheaper to live.

Most of the startups I've come across in Europe usually pay at or near to market rates. Maybe it's just my experience (I've mostly been working as a contractor), but I find this somewhat surprising, given that the social structures here mean that taking a risk by working unpaid/lower pay for a startup isn't such a big issue.

I think the author should produce some data showing this is a viable strategy before he gives people advice that could lose them hundreds of thousands of dollars. Other people have pointed out the statistical problems with this strategy so I won't restate them.

The author may sincerely believe in his own advice, but we should note that he did not, himself, get rich this way.

A dropout from elite UK universities, he founded a startup and exited for a small amount of money. Since then he has worked for Y Combinator, invested, and also founded a few companies.

Taggar has never, himself, been anything like a startup employee. And great for him; he seems extremely talented and maybe that route isn't for him. But his company (TripleByte) profits from directing talented people into these kinds of companies.

This is how I've approached joining the last two companies I've signed on with. In the hiring process I ask to speak with finance and the founders to see if the company has the legs to be a real rocket ship. Remember that an interview is just as much about them interviewing you as it is for you to interview them.

How likely is it that you as a potential employee get to see the books and know what's going on like that these days?

Honest question; seems like it's a tougher thing to get access to than for a VC, but maybe I'm wrong.

The article is mainly about revenue growth, and any startup should be willing to share top line revenue and growth rate.

A large reason not to share things is some info is sensitive, for example the share count is a useful number, while the full cap table with each investor’s pricing, terms, and contact info, and other employee grants, would be sensitive and might be more guarded. Same thing about total revenue versus the customer list.

More traditional advice is to ask about the fully diluted share count, so you can see what percentage the options would be, and of course the vesting schedule and purchase terms. Also I’d also ask about cash or runway, which is related to the ability to survive a rough patch.

I was CEO and founder of a YC funded startup and have some experience hiring at the seed stage. For me personally, I wanted engaged people and asking good questions was a positive sign.

That depends on what the company is looking for in you. If you're going to do mission critical stuff or they want you for an important role they might even enjoy showing you their internals. And if they don't want to show you then that's a pretty good indication that you are probably better off elsewhere. Transparency in an early stage start-up is good for everybody, including the founders. If founders are not willing to share their position they are effectively asking you to buy a cat in a bag.

No private company I have ever worked for as an employee has agreed to let me look at their balance sheet or income statement. Most would not even discuss valuation in terms other than # of shares in my offer, which is meaningless.

One CEO I recall even laughed when I asked at the interview (that should have been a red flag in retrospect). I later learned he gossiped about how inappropriate it was for a candidate to ask about company financials.

Same here. This information is only for investors and other "important" people. Most of us are not part of that group.

They (founders),are use to showing investors so it has never been an issue.

Don't try the same with a small business. You will probably get kicked out.

I have asked several companies about financials and they never gave any meaningful information. I got the impression that as an employee you aren't supposed to ask any questions. This is acceptable only for investors and upper management.

The companies who were open were the ones who options/shares became worth something from personal experience. The ones who hide those details had worthless options.

At Figma we're pretty open with employees about this stuff.

,,It's also only by joining a successful startup early that you can get remarkably steep career trajectories, like Jeff Dean''

It's sad that Jeff Dean is the last example the article can give. When evaluating a startup as an investor, I see that while investors get great terms, employees get junk options. So until it changes, I'm just staying with big companies, thank you very much.

Bad advice. You shouldn't pick a startup solely based off these criteria. You are a very minor investor that is the last to get paid. Investors can accept far more risk and reward, and care very little for things like whether the employees are happy.

Does the work look interesting? Will you learn new things?

Do you like the problem space the startup operates in?

How is the culture? Fit or not?

Will you be happy there?

Some good points there. A couple of things to add from my experience.

The asking hard questions is very important. I once interviewed with a startup that just raised $3MM. You pay them a small fee and if your flight gets cancelled they find you a new one for free. I pressed the founder hard on why someone like me would buy that insurance and his answer eventually was for the same reason you buy insurance for your car or house. Once he gave me that answer I knew I'm not going to work there. And this was actually a nice startup with some good people. There are much worse startups with founders who have no clue and god knows how they managed to raise money. One founder once told me he is well connected and one phone call and people write him checks (red flag). Then there are the ones who are really shady and will lie about everything. Be very careful and don't ignore the red flags!

Another important point is that you need to make sure the startup really needs you. In the past I talked with two startups that built their pitch around AI but they had very little knowledge of AI so what they had in mind wasn't really possible and even if it was, the product had millions of other things to succeed before AI was even needed. The problem is that founders sometimes focus too much about their pitch and how to impress investors rather than on their product.

The author writes from the point of view of an investor. How likely it is that as a candidate for a job, they would give you all that service and access to all that information? A meeting with all the founders?

Unless you're a valued, seasoned industry veteran, joining a very early stage startup founded by 20-somethings, would you really be able to access all that the author suggests?

Choosing a YC startup is probably the best bet. If it fails you can use that network to get into another YC company.

I love working for startups, but not working for startups that have VC money -- the involvement of VCs changes the nature of everything.

But then, my goal is primarily to do meaningful work on interesting projects. I have little interest in getting rich.

“If you're happy working where you are, and you don't have any ambition to do anything else, you're probably going to get paid less and work more if you leave for a startup. If getting paid less and working more is unappealing to you, then I would recommend staying where you are!”

There's another option. You can pick a job that isn't a startup, that makes you hate your life, and phone it in every day just to get by. You save your energy and grind away at night on your own company. I say "company" instead of startup because I don't think venture capital is the right thing to pursue for a single founder doing this.

Just have a goal to build a product that has at least 1000 customers paying $10/mon so you can quit your dayjob. The hatred of your dayjob will fuel your motivation to work at night.

A startup is much riskier than taking this approach. You put in 60 hours a week at a startup and even in the very unlikely scenario it pays off and the startup becomes huge - at most you have a 1% stake and become a millionaire. You become a millionaire way easier working on your own project.

So my philosophy is to get a job you hate - work to build the future you want yourself - never let anyone else exploit you to the point where the only way you become a millionaire is if they become a billionaire.

As an "investor" you should consider the range of asset classes available to you when deciding how to invest your time and labour.

See Dan Luu's articles about "big company vs startups" and "options versus cash"



Rather than treating predicting startup success as an intractable problem, I think anyone considering joining a startup should act like a startup investor making a bet on how much the value of equity in that startup will grow over time. Startup investors do this for a living and that's essentially what you are too. You're investing your time and they are investing money.

Hrm, the parallel feels really forced to me. You can invest money in multiple startups at the same time, to hedge your bets. You can't do that with your time if you plan on working full-time.

Its not even about hedging but about diversification. If you are in a position where you can't diversify fully, you should require a higher return on investment in order to take on the risk.

For example. If you could bet on a coin flip 100k times at $1 a bet, you might be willing to accept getting paid $1.01 per win. But if you had to bet $100k on a single coin flip, you would likely need the payout to be much greater before you were willing to take the bet.

Both are viable strategies. You diversify when you spend time working for startups across different sectors in the hope that some might succeed in their own area. You hedge when you work for several competitors in the same area in the hope that one of them will win in the end.

Sure, you can't diversify in parallel but you can in series.

Considering how long you would have to stay to get anything from an equity event (4-8 yrs?) you realistically can't work for 10 startups. If you luck out and work for one that does have some success, you will probably find that, unlike a VC, you don't have "2X preferences" or an anti-dilution arrangement so you get nothing or next to nothing.

In the meantime you may have traded your youth for magic beans - putting off things like getting a house, a girlfriend, etc because you are working long hours for sub-market pay. That is the real tragedy.

>Putting off things like getting a house, a girlfriend, etc because you are working long hours for sub-market pay. That is the real tragedy.

Just wanted to repeat this for emphasis ;-)

If you look at total comp as a function of preferred investment price - exercise price, startup employees are underpaid left relative to big company / deck orb employees (or in other words, are overpaying for shares relative to investors). This is of course not considering any risk premium that employees would have due to inability to diversify.

Do you believe prospective employees, often with little experience in the startup world, can do a better job of picking winners than VCs can?

Actually, what startup investors do for a living is convince rich people that they can accurately bet on the growth of the equity value. This is different from actually accurately betting on the growth of the equity value. VC firm profits can come from fees -- they don't necessarily reflect the performance of the underlying investment.

Place multiple bets over the years

“I think startup employees should re-evaluate the growth trajectory of their startup every year.”

At a bare minimum. Probably more often.

the best advice I can offer is to join a team that has deep pockets. the biggest reason my company succeeded is that they had cash to burn. sure, they were smart. they moved quickly, they dropped failing products instead of holding on to them. they made consistently good decisions. but they also were able to sink millions into the company's products and promotion thereof without going under for years, long enough to stumble upon a hugely profitable model.

no idea how to assess the size of a company's pockets. maybe one that has a founder who has already had a successful exit. every other attribute of a company is basically fortune telling.

Being an early-stage employee gets you all the downsides of being a founder, with only a fraction of the benefits.

I found these questions to be pretty interesting


Just read the conclusions, the writer is not sure what really works.

And why startups condense in America? http://paulgraham.com/america.html

What's considered a good bps for an very senior engineer joining as 20th employee, at a series A company with a couple of million dollars revenue?

This kind of advice is similar to the "get rich day trading stocks" narrative. It only sounds realistic if you are ignorant of the statistical probabilities involved (it seems most people are).

A vast majority of VC funds produce weak or negative returns. And this is after diversifying their fund investment across 10+ start-ups and assuming that 90% are going to be losers compared to putting that money in public equities.

You can't work for 10+ companies at once like a VC can. And even if you could, the odds are still against you. The idea that you'll be able to pick ONE winner at an early stage is, quite frankly hilarious and naive.

Another major reason that you won't be able to pick the winner is because you only get to pick once, and then you are booked for a long time. If you think a better one comes along you now have a sunk cost, and you'll be starting all over again, with a very good chance that your 'better' one will end up being worse. So the odds are very much against you if you are evaluating start-ups serially.

The better way to do it is to evaluate a whole pile of them at once, and then to pick the best one that you can find. And you're going to have to do a lot of work to evaluate those options, about as much as though your future depends on it, because it does. If you're not prepared to put in that kind of work then it really is just a lottery, and you're most likely better off to just take a job that pays you roughly what you are worth on the market, in the longer term that + a good savings regime will be a much surer path to some serious cash than buying lottery tickets at an opportunity cost of 300-500K each.

I think the right way to think about this problem is treating picking the winner at an early stage as a probability. Even though the value of the probability is small, you'd still want to maximize it when you're picking a startup to join, and you can do much better than picking randomly. You can continue to evaluate the probability after joining a startup.

What about the Groucho Marx strategy of not investing in any company which would have someone like yourself as an employee?

it's funny to think of my own finances...I have a portfolio of stock from 3 startups now that has worked out surprisingly well

Which scratch-off ticket should I buy at the gas station?

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