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At Booming Toptal, No Stock for Employees or Investors (theinformation.com)
188 points by artfulhippo 63 days ago | hide | past | web | favorite | 185 comments

A lot of Sillicon Valley startup fundraising ends up resembling an iterated prisoner's dilemma. Most startups fail and it's likely that you might have to work with people a few times before you get it right. The [generally] dominant strategy for Iterated Prisoner's dilemma is tit for tat[0], and consequently you see a lot of people cooperating when when it might be more lucrative to defect is because they know that they might want to work together again. Basically, neither side wants to burn the bridge.

This guy seems to have reasoned that for him, it was more optimal to defect, and it seems to have worked out. TopTal succeeded and he didn't raise any more money. His reputation with VCs is torched, but he doesn't need to raise any more money. If TopTal had failed, it really wouldn't have mattered because he wouldn't have needed to raise any more either.

You have to wonder if VC will eventually become a market for lemons[1] as founders who know they have a big opportunity only offer investors unfavorable terms. Obviously no startup is a 'sure thing' but it does seem like founders increasingly have a lot more information than their investors.


[1] https://en.wikipedia.org/wiki/The_Market_for_Lemons

You're assuming that this was a rational, conscious decision on his part. I've had some dealings with him that would lead me to conclude that this is just his personal inclination. He threatened me & my company over a wholly imagined transgression (and ceased completely when our attorney asked for documentation).

Believe me or not, the main point is that working backwards from behavior to the thought process that led to it is a difficult if not impossible endeavor, and there's no reason to assume rationality in the absence of information to the contrary. I wouldn't draw any great lessons from this particular situation.

People who defend the "rights" of internal personal imagery over that of reality can get stuffed, in my book. If you didn't do the imagined deed, then it never happened.

Off topic but what an username!

Also this behavior might work in the US, but if you screwed over a bunch of rich and powerful people in say, Russia, you'd probably end up having an "accident", changing the leadership of your company to someone more favorable to said rich and powerful.

If he died, his estate's administrator would essentially be forced to sell some shares in order to pay the hundreds of millions of dollars his estate would owe in taxes. Presumably, this would trigger the SAFE for both the investors AND employees. I wonder if the guy realizes he has a defacto decamillion dollar bounty on his head.

I think there's also a good "death bed" test.

If your actions lead to you dying alone and everyone who you knew remember you as "that guy not worth remembering" - then you did bad for yourself.

You could say it's a more democratic version of the Russian "methods".

> ...if you screwed over a bunch of...

That is usually gonna go poorly for you in any culture.

> founders who know they have a big opportunity

Firstly, that kind of founder/opportunity is exceedingly rare. It may as well not exist for purpose of discussion.

Ideas are literally worthless. You become successful via execution and execution at scale (unicorn scale) requires many moving parts with many people. That means there's no sure bets at the early rounds. There's not a specific formula that "works" so it's all subjective and VC groupthink. VC "works" only because they take high risk with limited downside via all the things Toptal is complaining about. Without those onerous terms, there would be no VC (as we know it) and it would be an order of magnitude or 2 harder to get funded.

Certain business models require high amounts of capital in order to create leverage/growth. Think of Uber, WeWork etc. All the founders made out fabulously rich due to the ability to leverage growth on the back of VC money. Organically growing, profitable business may never need to take outside money. It really comes down to the market and growth strategy.

Certain business models require high amounts of capital in order to create leverage/growth. Think of Uber, WeWork etc

The business model of selling $1 for 50c and hoping that later you’ll be able to sell it for $2 because... reasons.

That model works if there are economies of scale.

Say that your one dollar cost at one million users is $0.80 fixed costs and $0.20 incremental cost. Adding more users will eventually make the model profitable, and this is how Facebook works, for example.

But now the strategy is known, it would be harder for everyone to get investors and employees to even agree to work with him for any conditional future promise of equity on something like investment.

>>But now the strategy is known, it would be harder for everyone to get investors and employees to even agree to work with him for any conditional future promise of equity on something like investment.

Seemed to work fine Anthony Levandowski


From the article, note how Levandowski pulled the stunt below and managed onwards to Otto:

In early 2011, that plan was to bring 510 Systems into the Googleplex. The startup’s engineers had long complained that they did not have equity in the growing company. When matters came to a head, Levandowski drew up a plan that would reserve the first $20 million of any acquisition for 510’s founders and split the remainder among the staff, according to two former 510 employees. “They said we were going to sell for hundreds of millions,” remembers one engineer. “I was pretty thrilled with the numbers.”

Indeed, that summer, Levandowski sold 510 Systems and Anthony’s Robots to Google -- for $20 million, the exact cutoff before the wealth would be shared. Rank and file engineers did not see a penny, and some were even let go before the acquisition was completed. “I regret how it was handled…Some people did get the short end of the stick,” admitted Levandowski in 2016. The buyout also caused resentment among engineers at Google, who wondered how Levandowski could have made such a profit from his employer.

That's true. But it's not this guy's problem. He's super rich and therefore isn't interested in raising more money. I guess it's sort of like a tragedy of the commons type situation.

I think the article misses the point: are we now in an era where you actually expect to get stock when you join a company?

As a former Toptal employee: IMHO the co-founder in question was widely regarded as a horrible manager, often pushing people to burnout and generally imposing a culture of secrecy and mistrust. The VPs they ousted were nothing better. I personally went through several burnouts while there, but also that was a springboard to a much better career afterwards. Yes, we've put in 9/9/6 for years in the founding years, but we were also compensated quite generously.

>I think the article misses the point: are we now in an era where you actually expect to get stock when you join a company?

If you join with the expectation of stock or are sold on stock as part of your package then yes. Based on the article, people were offered stock contingent on another funding round. That round never happened. If they were sold on promises of getting that stock and a round happening then they're right to be pissed.

This has, as I read it, nothing to do with a company that just decides to not give out promises of stock in any form.

> If they were sold on promises of getting that stock and a round happening then they're right to be pissed.

Does a statement of the form "you'll get X if condition Y" imply "we will seek condition Y so that you can get your X"? I don't think that it does.

For example: companies offer dividends if they make a profit. But that doesn't imply that the company will seek to make a profit in order to confer dividends. It's nice when they do, but there's no implied promise of working toward profitability just so that the dividend condition will apply.

That depends on what exactly the company said to candidates and how upfront they were about the terms.

In my experience companies do far more selling than just sending out an offer. Furthermore, the offer in my experience doesn't include the paperwork for equity unless you request to review it.

Every single employment offer I've sent or received that included equity stated so in the offer letter, expressed either as a % or an absolute number of shares.

Did it include the detailed paperwork for the equity which would include all terms such as requiring conversion to a corporation? Or was it just a number that you assumed didn't have any gotcha clauses attached?

I’d say at about half of my jobs (tech) compensation included some equity and at about half it did not. I wouldn’t say it’s expected but it’s nice when you get it.

When employees don’t have an equity stake, it can make for awkward moments. I’m reminded of a company all-hands, where the CEO announced a record quarter, and apparently the company’s stock just went up 60% or something. The handful of senior execs who did have equity cheered and did some lame hi-5’s while the rest of the employees shrugged and silently looked at each other like “should we be applauding now?”


I don't know if it's still true, but Netflix supposedly offers a really high base salary with no equity. I think the logic is that you can just buy the stock yourself with the higher salary if you believed in the company enough to want equity.

That's not exactly how it works. They give you a total comp number, and then you choose the cash/equity ratio yourself, which you can change each year. A lot of people chose the all cash option because they didn't understand there equity option, so they changed it to give everyone a little bit of equity regardless, but you can still opt to get extra equity in lieu of cash, and change that election every year.

I think it is an amazing plan. I was able to choose more equity because I had a working wife and no kids. Others chose more cash. One guy chose 100% equity, and is now retired.

> One guy chose 100% equity, and is now retired.

being able to choose 100% equity would suggest a particular level of financial independence before even starting. how long did they work without a salary? did they regularly sell equity as a salary-replacement?

Or perhaps a working partner and a willingness to get by on one income. Know a couple who did this in NYC for a couple of years on non-dev salaries and the trade-off definitely opened doors for them.

How is this any different from taking your entire paycheck and dumping it into a single stock each month? It's effectively a gamble, and often employees are too emotionally invested to make a rational financial investment of that scale.

It was a gamble, but we had a lot of leverage because we got major discounts with pre-tax money.

He lived off selling his Google stock, where he worked before Netflix. :)

Netflix stocks are totally insane, as you're not really getting stock but instead a complex leveraged financial instrument in the form of an call option, that you have to pay for based on a Netflix estimate of the option premium.

Yep that’s why they switched it to giving everyone some equity. But those of us who understood the financial instrument being offered dis really well for ourselves.

Don't you pay tax when you actually get the equity? How is it different to getting cash and then just buying the stock?

It's different in that at Netflix the equity comes in the form of non-transferrable 10-year options which do not trade on any market. Furthermore, the option premium is estimated by Netflix at fixed at a constant value, rather than being set by a market.

If it was straight stock, then yes it would be rather equivalent to getting cash and then buying stock right away.

> If it was straight stock, then yes it would be rather equivalent to getting cash and then buying stock right away.

I guess this is purely academic for Netflix, but one difference in other companies is that the grant is made ahead of time, and the stock price can rise or fall before it vests.

If (say) you expect the stock to rise with the market, and you expect the market to rise at 7% a year, you might also expect your income from vesting stock to also rise at 7% per year over the vesting period (typically four years) regardless of any raises or promotions.

I have heard of some companies adjusting subsequent grants based on changes in value of invested stock, though. I think policies there vary.

Netflix still does this - they pay top of the market in cash, no stock, and encourage employees to bring them competing offers so that they have even more hard data on what the top of the market is for a Netflix employee. They also have an ESOP, so you do still have some privileged access to the stock.

Compensated quite generously in an absolute sense, but relative to other early employees, who worked just as hard, at companies with similar current valuations and who did get equity? That seems unlikely.

Also, if I were an early employee at a startup, yes, I would expect equity.

Most startups, by a large margin, fail either outright or equity wise (ie: sell for less than was put in). Many more sell for only a moderate amount which gives a relatively small equity payout (after dilution, etc.).

The average compensation of employees at other similar companies was probably lower once you account for all that.

You can't judge the outcome of buying lottery tickets by only looking at the winners.

I would expect to get stock if I joined a FTSE 100 company, if not most of the FTSE 350 as well.

Why? I worked in some FTSE100 and Fortune 50 in UK and you just get salary. But you can usually buy stocks at a discount.

Share Save schemes are very tax advantaged and zero risk share options in the UK

I have made tens of thousands and made e made over 100,000 effectively tax free.

I think you missed out there

> are we now in an era where you actually expect to get stock when you join a company?

Yes, the last time I checked we moved on from the feudal era, at least in principle. There should be at least the illusion that employees have skin in the game by giving them a stake in the company.

I'm I missing something? It seems to me that everyone involved knew what they where getting into specially the investors. You hear about the cases where founders get screwed all the time. This is a case where a founder gets to keep his company. Good for him.

I for one think it's a bit greedy after all he did not build the company all by himself but silicon valley investment is all about greed. It's just another day.

Luring employees with promises of equity and then not delivering sounds like a bait and switch.

Definitely a bait and switch, even if legally it is all above table and the employers should have relied on what the paper said not what people said.

Having that contingency about taking more funding might not create any legal obligations but there is certainly an implication there.

If I cover your tab and you say you'll pay me back next time we go out, "I'm never paying you back" is an equivalent statement if there's an unspoken "but we're never going out again" at the end of the first statement, but it wouldn't be my first interpretation.


That said, if an Engineering Director is getting 0.02% then, assuming TopTal is worth $1b, you'd have a Director cashing out at <$200k pre-tax right? I'd imagine run of the mill ICs had a percentage such that they didn't accept it thinking "and when this pays off I'm done forever"

But they weren't lured with the promise of equity. The promise was that they'd get equity if there was a subsequent funding round.

The investors, especially, have zero right to complain.

FTA: “I was told the conversion [of Toptal into a corporation] would happen in a number of months,” said Aaron Diek, who is based in central Texas and says he worked for Toptal in 2014 and 2015, when Toptal said it was generating $80 million in revenue per year. “I asked on a number of occasions, and the answer [from Du Val] was always ‘it’s coming, it’s coming.’

This seems to be par for the course for any startup that drinks its own Kool-aid. I've been told many times at every organization I've been at by enthusiastic co-workers believing the exit is right around the corner. It never was and all of those previous orgs have either gone bankrupt or had really unfavorable acqui-hires. I believe in enjoying my work environment, being paid fairly, and doing work that positively impacts society. Beyond that, I treat every share of equity as toilet paper in the negotiation stage -- when it comes to a private company organized as a startup/VC-leech.

I also use this approach and I love how little leverage equity brings them to the negotiation table. You want to give me equity, nice, but I'm still working for my preferred salary under my preferred conditions.

This is exactly what Malwarebytes did to me for years- their CEO constantly told me I was going to get stock but it never materialized.

It's definitely a live and learn situation, but it does suck that learning the lesson is so expensive (while the people who lied their way into having employees end up making out really well for their dishonesty).

Maybe that employee has a case for relying on that statement to his detriment if it was a misrepresentation or an outright lie. On the other hand, it's possible that Du Val had a good faith belief that the conversion was going to occur. Who knows? We'll probably never find out unless there's a lawsuit.

that is not true. my options have NOTHING to do with additional funding, but with converting the corporate structure of the company - which Taso, CEO, said he would do, multiple times, back then - he's not changing his tune.

Thanks for chiming in. It sounds like the article may have conflated the investor and employee deals. To be fair, the conversion to a corporation usually happens at the same time as raising the next round.

So, it sounds like the deal with the employees was simply that you'd get the equity if and when the LLC converted to a corporation. Notwithstanding whatever other representations were made, was there anything in the equity offer that would trigger/force the conversion to happen? In other words, was there any kind of guarantee that the conversion would definitely happen?

1. This is a very unusual structure in the first place. The company do issue new common stock at funding rounds specifically for stock options but they don't make employees wait for it. 2. This is a common practice for venture-backed companies so people might expect that. Lawyers might say nobody lied to them – but Silicon Valley is not about lawyers.

I think it relies on people thinking there are only two possibilities. Bankruptcy or another round. They didn't realize success without a round could happen. It's a loophole essentially.

I don't know man?

Just Devil's Advocate here, but as an employee going into a startup it's kind of well known at this point that you're only likely to get what's written in black and white. Would you go to work for a company that promises to start paying you at "sometime in the future"? I kind of agree with WheelsAtLarge, you had to have known what you were getting into. Personally, I wouldn't work for someone for free for any length of time unless it's volunteering. Anything else just sounds fishy.

Similarly, if someone promises you equity "later if [blah blah blah]"? I'm just saying, that sounds pretty fishy.

Whenever I talk to new grads, I tell them to value their equity compensation at zero for a small startup, for exactly that reason.

But, it's similar to a lottery: you should expect to lose, but an organization can't run a lottery and pocket the winnings itself under the pretext everyone should have known they were throwing away their money.

But that's not what happened here. It's not that they were told one thing but should have known to expect another. They were told one thing, and that one thing happened/didn't happen. It's totally cut and dried.

Employees aren't sophisticated investors, particularly new grads entering the workforce.

If it was clearly monopoly money that was never going to be going into their pockets, why did the CEO bother to offer it to them? The obvious and accurate answer is he knew they would value it at sticker price (or, at least sticker price discounted by the usual startup lottery shenanigans) while it would never cost his company a cent.

The fact that he managed to con a bunch of people using what amounted to insider knowledge is likely legal, but we still call a legal con a con.

The fact that it might never happen doesn't make it monopoly money. I once had a company that issued a convertible note which basically said, "If we raise x amount of money then it triggers a conversion to preferred." We didn't raise x amount of money, so it didn't convert to preferred. Pretty simple stuff.

I think most of the employees were under the impression that if the company did as well as it did they would make a significant amount of money. The CEO tried to encourage this view and did nothing to discourage it.

But in this case the organization is pocketing the money because everyone joined the organization without being given any lottery tix at all. That's the issue.

The boss told them that they would get lottery tickets later, but only if a hypothetical third person showed up and gave the boss even more lottery tickets. My point is not that the hypothetical third person never showed up, which in and of itself meant that the employees wouldn't get lottery tickets. My point is that the employees should never have joined the company in the first place on the basis of such a ridiculous promise. It was entirely predictable that they would get none of the lottery tickets. No one is going to pay more than they have to, nor will they pay up after they have what they want out of you. Just ask any prostitute.

> It was entirely predictable that they would get none of the lottery tickets

No shit.

You've been in this space well over a decade. If someone offered this comp package to you, you'd likely anticipate exactly how it'd play out. (Maybe... looks like the investors got scammed this time too, so perhaps it was a practice that people typically respected.)

I guarantee that, when employees accepted their comp package, they weren't doing it with the understanding that they would never see a cent of equity if the Toptal succeeded well beyond anyone's expectations. So, yes, it was a devious move on the CEO's part, but at some point deviousness becomes sociopathic. Ripping off your workers is one of them.

It sounds like fraud.

Conditional promises of equity, where the conditions were never met.

At the very least, he ran a scam on his employees, who he lured into the company with the promise of a big payoff if it became successful.

If "everyone knew" what they were getting into, why did he feel the need to give them what amounts to monopoly money to convince them to work their asses off for him?

>lured into the company with the promise of a big payoff if it became successful.

Sounds par for the course for startups

Yes, but usually the employee sees something if the company is successful.

It's like playing Powerball, winning, and then the lottery agency saying "just kidding."

Not really... usually the employee sees nothing. I also don't know if the employee really deserves to see anything - lots of people work dev jobs and see nothing over salary for it, why should you make bank if you did you job just as well but happened to be in a wildly successful company... Concurrently I think that founder compensation is absolute BS at the moment, their contributions to success are far less effective than their compensation would suggest.

Because devs working for startups that pay heavily in equity are usually not making what they would make if they were paid 100% in cash.

Sometimes. Sometimes they are given equity (or options on the equity) - other times there is an "understanding"[1] about equity as happened in Toptal. Once you have equity... it's worthless, or near to - it only becomes valuable if the company does well... and if your effective equity isn't diluted in successive rounds - which it quite often is. You've surrendered a portion of your salary for a potential to get paid if the company does well (maybe) - and it's doing well is, in a large part, out of your hands. There is far too much good-faith being required from employees in these sorts of setups and, if everything goes as planned, why should you get a payday while the person who went to work for a perfectly good company that failed gets nothing? That could have been you!

1. So, some deceptively worded stuff that ends up being worthless.

Rationally, Sounds like he played the game and won. He didn’t make any false promises (but I’m sure didn’t correct anyone either).

Values wise, to me sounds like a bit of a dick, esp with the early employees. Good for him, he made a billion dollars. But he knowingly took advantage of people who chose to invest years of their life with him. Not cool. He doesn’t have to keep being a dick either - just give employees a generous bonus (like 1x annual salary) when they reach x years if they did well and a thank you, not that hard. That’s all people want.

I bet he made a lot of false promises just not in writing. I he was trying to mislead people the whole time. And specifically tried to compensate investors and employees in ways that he intended to never pay them in a way they thought they would be compensated.

There isn't much difference between directly lying to someone and knowingly leading them on while allowing them to have false ideas of the facts.

Both from a moral and legal perspective.

I don’t feel that bad for the investors, or really even the employees. A lot of startup equity is worthless anyway.

But screwing over your cofounder and COO—your partner who’s been on the frontlines with you effectively running the company for eight years—that’s incredibly scummy. That’s a real psychopath move. How can someone be so greedy?

> I don’t feel that bad for the investors, or really even the employees. [...] But screwing over your cofounder and COO—your partner who’s been on the frontlines with you effectively running the company for eight years—that’s incredibly scummy.

Are you identifying only as a co-founder, and you don't think that startup employees deserve to also benefit from success, such as they would by having equity in the company?

I think the idea -- of startup success being all about the founders, and employees are just commodities -- is not unusual, but I don't understand why.

Don't startups hire developers, for example, who have key insights, make technical decisions, and often put in above&beyond effort -- which has substantial effect on the startup's success?

The company is currently suing the no-equity cofounder COO for fraud. Perhaps the lawsuit is entirely baseless and this is just another part of the CEO fucking his cofounder over, or perhaps there's actually a good reason for the cofounder to not get any equity. We really don't have the ability to judge based on the information we have, and calling the CEO a psychopath is a bit much.

Like Snapchat, Twitter amongst many other companies co-founders have done? Or bands like the Beatles?

I am a teenager, and know nothing of starting or running a company. That said, from what I have read, is it not true that investors who hold equity constantly apply pressure to maximise profits, often leading to companies doing... unethical things?

Whenever I've complained about a company being unethical or user-unfriendly, a friend of mine who lives in the US and knows more about this stuff always points out that because of pressure from investors, companies are often forced into such practices, and theorises that any company that takes outside investment in exchange for equity is always going to end up this way.

> ... companies are often forced into such practices, ...

No company is forced into doing anything unethical. What it boils down to is group think. A group of deciders convinces themselves little by little that their current behavior is OK; mostly because of money. And so little by little they slip into the doing unethical behaviors.

It really depends on the company culture, sector, etc. There's a lot of dynamics in here.

Public companies are generally more prone to this issue, as all the ethics become abstract to shareholders. They are not involved in the dirty work.

A lot of times, companies do the right thing not because of morality, but because doing the wrong thing has a risk (from a PR disaster to a regulatory issue).

If the culture of the company is willing, the whole concept of morality is reduced to a risk/benefit formula. And they start to learn how to reduce risk, and it's a downhill from there.

> A lot of times, companies do the right thing not because of morality, but because doing the wrong thing has a risk (from a PR disaster to a regulatory issue).

I think we've all seen that at this point in time public outcry and PR disasters matter very little in the larger scope of things for such companies (Equifax, Google, Facebook, et al.)

Yeah. That's right. The pr disaster cost is getting cheaper and cheaper, allowing companies to get away with more and more.

Some people certainly do unethical things to keep their investors happy. That's not really a problem unique to investors, though; other companies do unethical things to keep customers happy or keep their employees happy.

The investors got screwed. Why would they apply pressure to hurt themselves?

Even if this guy turns benevolent tomorrow morning and issues his options, they're screwed tax-wise. I can't think of anything I like about this, from the utter selfishness of the founder to a16z funding such a company with such bad terms for the employees. I'd like to know who the VC was and read an explanation from him.

I'm reminded of Steve Blank's article Startup Stock Options – Why A Good Deal Has Gone Bad


Discussion of said same:


Is there anything about Toptal that isn't scummy?

Would love to know what you find scummy about them. I've been a freelancer in their network since 2014 and haven't found anything more egregious than any other agency from my dealings with them.

I've hired freelancers through a variety of platforms about which I have various complaints. I spoke at length with folks at Toptal and bailed because what they offered me was this: You have to pay us money right now. Then we're going to offer you a choice of something like 3 different people. They'll bill $90/hr and will probably be the same eastern European devs you can find on UpWork for $50/hr. Then you have something like 48 or 72 hours to choose one of them, and if you don't, we keep your money. Fuck that.

I briefly freelanced with them in 2014/2015 and I found it to be no better than E-lance or the like. They definitely didn't (at that time) do have any better clients, and they constantly pressured me to lower my rate (which I considered already to be low).

I've had a few projects from them, one very large with a Bay Area client spanning a year. In the early days they would suggest a lower rate but now they change it to whatever I ask. I'm not sure what your rate is, but mine is competitive with Bay Area agency rates. Definitely better than Upwork (Elance) since I wouldn't be able to find the type of enterprisey clients I find on Toptal.

When I was doing it they claimed that $65 per hour was a "good" rate for the Bay Area, and constantly pressured me to lower my rate to that. There were a few clients with names anyone here would recognize, but they were looking on Toptal specifically to get cheap labor for poorly specified work. Most of the clients were more like the stereotypical E-lance "small business" (read: one-person operation looking for cheap developers to build them the next Facebook for the equivalent of a $500 fixed fee).

> $65 per hour was a "good" rate for the Bay Area

I'm confused, I thought Toptal workers were remote. Why would your location factor into the rate a client is willing to pay?

FWIW I charged even less than that as a remote contractor and it goes really, really far in countries like Vietnam or Thailand.

My location wasn't the issue: I meant that Toptal was insisting companies located in the Bay Area would not want to pay more than about $65/hr (plus Toptal's surcharge). It was laughable, considering I was at that very moment working full-time at a company with a base salary with an hourly rate equivalent that was more than $65/hr, plus I got bonus, stock, and perks/benefits.

As far as I was concerned, Toptal wanted contractors who'd bill like the were competing with E-lancers for business, while Toptal was marketing them as "top talent. "You get what you pay for," and while you (for example) might be an exception, "top talent" isn't going to charge bargain-bin prices for their labor.

> "top talent" isn't going to charge bargain-bin prices for their labor

Purchasing power differences in the world are insane: $65/h in Vietnam can represent a much more luxurious life than $200/h in San Francisco.

In fact, the global top 1% starts at US$35k/year!

At $65/h ($130k/year) you'd be able to buy a home outright in about a year, send your kids to snooty private schools, hire a maid and a private driver, etc. in a large part of the world.

That doesn't mean much: a top-flight developer in Vietnam isn't going to underprice his or herself to that degree just because it costs a little less. If one can live that good on $65/hr, then $80 or $100 is that much better.

I think they've definitely changed. I remember them low balling me on rate in the beginning. Also it depends on the recruiter you talk to. I'm definitely nowhere near $65/hr :)

> $65 per hour was a "good" rate for the Bay Area

It's like $130k/year, I don't think you can even find an average engineer at this price

I'm curious what their percentage cut is.

Depends but it's been between 30-50%. They add that on top of the rate I request.

Thanks. It sounds really high for basically minimal risk and not even actively sourcing the clients, but I guess that's how these businesses work.

They do two things that make it worth it: if you set your status as available, you will actively be sold to potential clients, so you don't have to do any sales and they do all the payment collections, ensuring usually net 20 payment. This is especially helpful for the larger clients that usually take their time to pay.

For me, Toptal has been a good safety net, not necessarily where I go first to find new work. And the vetting process adds some credibility to my name.

100% the investors are sophisticated + informed enough to understand the risks of convertible notes. There are similar risks for a founder when accepting convertible notes. I'd guess the investors could all call the debt in at this point (like one already did) but they have no incentive to do so since they'd rather hold out for a conversion event which could still happen.

The risk to a founder is having the debt called and not being able to pay it back and/or having the valuation of the company not where you'd predicted - depending on the terms a founder could actually lose their company in this case. NAL.

Really it just seems _too bad_ for the employees and cofounder that feel like they're getting screwed. It isn't like "get it in writing" is a new concept though. I'd guess they either drank the Koolaid early on or they had a gut feeling they were getting screwed for years before this all came out. Either way, a shitty place to be in but not new or uncommon with cut-throat founder/investor types.

They should go found companies themselves! Get a big ol' piece of the pie!

It's a dick move, but surprisingly legal. If A then B, so ... if not A then not B. He will make bank with this company but I wonder if people still want to work with him in the future, I guess so but who am I to judge?

The logical equivalent of if A then B is its contrapositive, if not B then not A, not its inverse, if not A then not B.

I was Taso's roommate on Ramona st in Palo Alto for 6 months back when he started his company with his founder who was familiar with running a consulting company. It's really the ultimate arbitrage - take a cut of a kagillion foreigner's hourly pay to enrich yourself. Good for him. One day he sort of disappeared and I never heard from him again. Glad to see he's doing well.

Well, if you want any further insight into the CEO, check out Toptal's investment page: https://www.toptal.com/investors.

He minces no words and comes off quite aggressively. Very much a "my way or the highway" tone to that page.

They seem sort of like StackOverflow or Basecamp from a bootstrap perspective, without the warm fuzzy feeling you get from interacting with either of those companies.

The guy may be a class A Ahole, but I really like that message. Like, really like it. He's essentially saying "yes, I know the shenanigans you play, and I'm not going there."

Though, I doubt it's a business that will "scale to tens of thousands of employees around the world". That seems like a reach.

It's a recruiting agency. It's not scalable by design.

The content is fine. It's obviously spurred by experience or by an influx of offers.

The presentation is shite. Just have an autoresponder.

It reeks of Netflix' culture deck.

The term "reek" is normally negative in connotation. I have seen (at least on HN) the famous Netflix culture documents praised as straightforward method to assist in defining culture. Not that it "solves" culture in some magical, systemic way (i.e. naive founders saying "Look we have a culture deck, culture done!"), but still have only heard it referenced as a useful communication tool.

So having never seen it spoken of poorly, I am interested in your perspective.

Yes, I did mean to invoke the negative connotation of "reek".

The netflix culture deck isn't a bad ideal, not at all. It may not suit some, but that's ok. I think it has some real problems but I won't go into that here. Anyway, let's not let perfect get in the way of good. If it were the reality, it would be better than the way most companies operate, by a long shot.

But just like with Valve, the theory is different than the practice.

So just as we (HN) hate the person with the fancy car, fancy watch, designer clothes, who are "obviously" just doing this to signal virtue, I loathe the type of org that engineers by blog and cultures by pushy slide deck. It's fine to desire that culture (even if it's impossible), but you look like a buffoon by insisting on being so pushy about it. And that's what Toptal is doing.

I am not a netflix employee, but I know a few former and one current employee.

I worked at a startup company for a year in the Midwest that was in the exact same situation, growing 50% YOY with only a little pocket change for speed funding all owner by the founders.

The founders had the same exact idea, founders own 100%, employees own nothing, and they wanted to tell everyone how awesome they were because of it. Key difference was that apparently our city's chamber of commerce that had a lot of skin in the game trying to brand themselves and did some PR work for the founders before they ran their mouth on how wonderful their company was. The message was, after a few edits:

You were going to be paid well but we will never put you into the golden handcuffs our friends on the coast love. (Google "We don't coast" for context)

He sounds like an asshole but really being able to work for a privately owned fast growing company without shitty options being paid well is pretty great in the tech world.

>He sounds like an asshole but really being able to work for a privately owned fast growing company without shitty options being paid well is pretty great in the tech world.

But not as great as working for a privately owned fast growing company with good options and being paid well, no?

(And if not options, strictly speaking, how about profit sharing?)

Source: I run a bootstrapped software development company and everyone has profit sharing.

Is being paid well not good enough? Companies tend to give out stock as part of a package in lieu of all cash. If you have all you want in cold hard cash, what’s the problem?

>Is being paid well not good enough?

I would say no. Since the employees are one of the keys to the success of the company, why should they not share in the additional profits above and beyond what is planned for the year?

>Companies tend to give out stock as part of a package in lieu of all cash.

Some do. In my experience, it's been about 50/50. Startups obviously tend to lean more toward equity and lower cash, while larger companies pay well and ofter options or RSUs.

I pay market and do profit sharing.

>If you have all you want in cold hard cash, what’s the problem?

I'm not quite sure how to respond to this. If you make a good salary, would you turn down even more money?

> Since the employees are one of the keys to the success of the company, why should they not share in the additional profits above and beyond what is planned for the year?

That's a pretty peculiar viewpoint. If you went to a restaurant, ordered and paid for a burger, received your order with a bite taken out of it, and the cook said "Well, I worked really hard to make the hamburger that you ordered and it turned out extra well. That means I deserve a bite." when you complained, would you find that reasonable?

(It's not even entirely hypothetical: https://www.npr.org/2019/07/30/746600105/1-in-4-food-deliver... )

Your analogy falls apart. Re-read what I wrote: "share in the additional profits above and beyond". Let's say we expect to make $1MM for the year. We need to keep a reserve to pay people when we are between contracts, rent, taxes, SAAS, etc. I then work out I can pay 5 people $100K each (this is an example, not actual). If we then make $1.2MM per year (for any number of reasons) how is it peculiar that the employees should share in the extra $200K? That's nothing like your analogy.

As far as financial accounting obligations go, shareholders should certainly share in the extra $200K. Profits are part of owner’s equity.

So the simple question is, if an employee does not own any part of the company, are they entitled to a share of the extra profits?

If the employees want to be entitled to a share of the extra profits then one obvious solution is that they need to become shareholders. Normally a share of owner’s equity is given in exchange for money. Instead of buying those shares with money, that’s what startup employees are doing when they take a lower cash pay in exchange for shares in a company that is unable to pay them full price.

I see your argument, but we’re describing a situation where a full-priced if not handsomely paid employee takes zero risk with a steady “what they want in cold hard cash” salary and then when the company does extra well they are entitled to a share of the upside.

I can recognize that giving employees a share of profits may very well be what businesses need to do in 2019 to recruit and retain the best talent. But their salary is what was agreed upon for the work to be done. So let’s call it for what it is — it’s something nice to do. It may even be a talent-recruiting and talent-retention tool that gives your business a competitive edge. But it’s not a financial obligation.

> We don't coast


A lot of defensive answers to obvious questions. The slogan may be completely positive in its inception, but I'd wager it's catching on for deeply negative sentiments.

Similar to Midwestern right-wingers referring to people from California as "Foreigners".

So there's plenty of history behind the four... five? catchphrases they've been trying to use (and I think they gave up on catchphrasing for now). But for a time they wanted to stop the brain-drain coming from the uppity hipster areas going to SF and friends so they used we don't coast to keep the brains here and the white collar economy strong. Then the all craft beer came and we stayed here so the slogan became history. It wasn't about white dog whistling afaik

okay, Omaha, define "paid well" and "paid well without golden handcuffs".

and for the coastal record, "cost of living" means nothing to me when federal thresholds like achieving accredited investor status don't factor that in at all. I'll figure out how to stash away enough dollars getting paid a lot of dollars in a high cost of living area.

Exactly! We have a nation state budget for branding and marketing but nothing on business growth and we still can't write a statement about no employee ownership without coming across super condescending.

Hey, I see your Cost Of Living jab and raise you $500/mo rent on 6 figures. I bet your farmers markets don't even have free corn. Checkmate, athiests.

You're a good sport.

I was mainly trying to predict and counteract a cost of living rebuttal.

I need to make $200,000+ per year for 2+ years, OR have $1 million in assets not including my house, just to be able to attempt joining the capital class in a private equity homerun. Otherwise I'm stuck with shitty common stock options (except where you live), public markets and bitcoin. Cost of living reduction means nothing to this reality. Only coastal companies are going to pay coastal employees this much without hemming and hawing and making you jump through a bunch of hoops to prove you are so exceptional.

Places aren't going to prevent the brain drain from anyone that understands that. All they do is get selective evolution of people who are stuck due to chronic problem (financial, health, likely both over time) of their own or their loved ones.

> $500/mo rent on 6 figures

thats pretty good, I try not to think about it

It's pretty cool that's there's any company at all able to make such bold assertions.

There are actually plenty, most of them have the same rules, they just don't say it that way. In other words, they are tactful.

I'd say any of the bootstrapped software companies hold those philosophies (they don't need the investment, so they can set the terms).

I don't agree with him, but it's refreshing. I'd take inartful honesty over bullshit artistry any day of the week.

This is almost certainly not written the way it is because he is an asshole (though I have no idea, he might be), but rather because investors seeking to make an investment can be a massive waste of time. They'll say they are open to your terms, but then try to negotiate once you're down the path. A self-funding, growing company has no need for investors, and that situation is not where venture capitalists typically find themselves - usually the companies need cash and VCs have power. It is more typical for PE firms, but usually only when founders want to cash out (or at least begin cashing out) - obviously he's not there yet.

I've seen other companies who have clearly wasted a bunch of time with investors before and have to be super clear about their situation to prevent more wasted time, e.g.: http://buildinglink.com/marketing/public/investors

The company I work for is in the same situation, but no complaints from me since I understood early that I need to ask for high salary raises along with the option rewards, and not let the execs convince me to just take more options.

There have been talks of an IPO or acquisition for years, and hopefully, it happens, but they feel a bit like a carrot on a stick; the revenue goal for going IPO is always increasing.

Man, this guy is a sociopath. For everyone (including the CEO) saying "but they all knew what they were getting into", consider why would the CEO even bother putting those terms in there (e.g. the equity on conversion to a corporation - which according to comments in this thread he specifically told employees he would do -, the convertible note terms, etc.) unless it was specifically to deceive the investors and employees.

If that's the way he treats folks who are supposed to be on the same side, I'd hate to see how he treats his enemies.

Regardless, absolutely terrible experience here myself.

Related discussion yesterday, including thread on a theinformation.com article: 114 points by ivanech 1 day ago "Toptal sues co-founder Breanden Beneschott for fraud (pacermonitor.com)": https://news.ycombinator.com/item?id=20708596

Is striking not an option for Toptal's employees? I imagine, especially at the size the company is operating, it'd probably be a very effective way for employees to make their voice heard and have negotiating leverage.

Plus, this seems to apply to all employees. Not even the co-founder had shares— this guy seems to be alone at the top.

Probably not. It sounds like they're scattered all over the place, with only heavily monitored company channels to contact one another (e.g. the Slack channel that shames people for spelling and grammar mistakes). There's no water cooler.

How does he avoid it being a Sole Proprietorship and being on the hook personally for any lawsuits against it?

LLC's only need one owner. The liability protection is still there. The drawback to LLCs is their income is the owner's income. He must pay taxes on the profit every year, at his personal marginal rate. What's left after taxes is his, not the company's. He can avoid taxes by investing back into the business, but the company can't have retained earnings. If the company runs short of cash, he must loan the money back to the company (or find someone else to borrow from).

You can have a one-person corporation where the founder is the sole shareholder, officer, and employee and still be protected from legal liability. A very large proportion of LLCs are in exactly this category, as well as a decent number of S- and C-corps.

You just have to file the appropriate articles of incorporation, continue paying your taxes, and make sure that company business is done in the company name out of the company bank accounts while personal business is done in your name out of your personal bank account.

Don't forget throwing yourself a little "shareholders meeting" every year!

Its common to do that right before the company funded annual holiday party.

Where you get recklessly drunk and wake up next to the CEO's spouse!

Yup, and re-electing yourself president of the board of directors.

It’s still a separate legal entity. Sole proprietorship means there is no corporation, just a person doing business with their own assets and getting paid directly.

You can't just setup a corp and get immunity - that's a popular myth. There's many ways you can "pierce the corporate veil". However, as long as the company has officers, has all their paperwork in order, etc, it's a legit corp (regardless of how many investors there are)

You absolutely can just set up a corp and get immunity. Piercing the corporate veil is hard and requires hard proof that corp is a sham. The courts even respect obvious abuse of the system so long as the paperwork is done correctly (see https://en.wikipedia.org/wiki/Walkovszky_v._Carlton).

All you have to do is follow the rules and your corp is valid.

I largely agree with your post, but I was only clarifying how sole ownership of a corporation is different than sole proprietorship.

He kept all his equity, we should be congratulating him for his acumen and prowess in negotiating this so smoothly.

Why are we glorifying giving a fraction of a fraction of a percent to employees who are going to be further diluted or totally zeroed out in any exit?

Why are we treating equity in other people’s hands as validation?

Offering convertible debt that converts into services or something else is a way of financing.

You don't need to aspire for a bunch of crunchbase entries.

There was a time when I thought different like “oh thats not a real seed round if the investors didnt do a share investment, or thats not a real series A” but now I know differently and primarily take a dim view on preferred shares, liquidity preferences and expensive capital - when acting as a founder or employee. Many ideas are more profitable exits for founders if there were no liquidity preferences.

I can’t feel bad for the employees. They signed knowing they weren’t getting any stock. What’s wrong with Netflix style all-cash compensation?

Netflix offers $400k - $600k salaries to engineers to be competitive with total compensation packages of companies that offer part salary and part stock.

Is there evidence that Toptal offered similar salaries? I wouldn't at all be surprised if they were closer to the $150k range, which is not competitive.

If it’s not competitive then don’t take the job. An engineer should be able to evaluate the difference between Toptal and the other offers they have, with the caveat that stock is hard to predict (the Silicon Valley mantra that “equity is worthless” might lead one to choose Toptal at $150K over another startup with $140K + stock). I highly doubt that anyone with a Netflix offer chose Toptal instead, if they did it was a blunder.

"No stock for employees" in a startup actually sounds great to me. The approximate value of that part of the package is about zero, but few people realize that, and a lot of employees get taken advantage of when startups offer lower pay in exchange for minuscule (and dwindling through dilution) equity. Receiving competitive amounts of hard cash would be better for 99.9% of the people.

Is there any evidence that Toptal offered a competitive salary in relation to total compensation packages elsewhere? A good senior engineer can get $300k+ at FB or Google. Most startups would offer $160-$200k plus equity. If Toptal "wasn't playing that game," then surely they were offering $300k salaries?

I'm not saying it did. I'm saying that, unlike a typical startup employee, Toptal employees knew exactly what they were getting into, no cap tables, dilutions, liquidation preferences, or other bullshit. That seems fair to me.

How do the investors not have stock? Convertible note which never converted?

yes exactly.

How is "all of Toptal’s stock [is] in the hands of one person" when Toptal "attracted funding from well-known investors including Andreessen Horowitz." Doesn't funding from a16z typically end up with a16z owning stock?

[unfortunately can't read the whole article behind the paywall]

My guess (and this is just a guess, as I too can't read the article), is that the investment was a convertible note, and they actually paid back the debt instead of allowing it to convert into equity. But I am no expert and I don't know the facts — I was just wondering the same thing and this was the scenario I landed on as a plausible hypothesis.

Same guess. The investors either 1) got there principal back with no interest or 2) they still have there money in and it only get a value upon raising money or a sale. Likely it’s #1. Investors didn’t get screwed. They just didn’t win.

The funding was in convertible notes which convert to equity in the next funding round. Presumably these agreements don't have any provisions for other exits.

In which case the investors have not been screwed because they are sophisticated enough to know the possible outcomes - that's just business.

I suspect the VC team would say "well played that man".

Do you really want to burn a bridge with a16z/AH in the tech industry?

They may say "well played" in so many words, in public. Privately? They may be marshaling their bottomless war chest to unmake you.

He openly states he has no trouble with interest from investors: https://www.toptal.com/investors

And I can't see why his existing investors wouldn't be interested - although they would perhaps take more care with the terms.

His ethics don't seem to be weird, compared against stories about some other founders.

I can't see why you make predictions about how he should act or how VCs would act (what's your expertise?)

That first link about investor interest is entirely his word, which is worthless according to his former employees.

If read/listen to MA or BH at any length, they heavily emphasize the value of relationships and a network.

This behavior seems absolutely anathema to their stated ideals.

Not really a big deal tbh. Instead of stock ask for as high of a salary as possible.

This was posted yesterday, but the article was hard-paywalled. We asked The Information if they would unlock it for HN readers, as they have been doing recently (e.g. https://news.ycombinator.com/item?id=20630974, https://news.ycombinator.com/item?id=20423483). They agreed, so now that HN readers can actually read the article, we rolled the clock back on this discussion.

Edit: sorry, I pasted in the wrong link so it didn't work right away. It should work now, meaning everyone who clicks on the title above should get to read the article.

What does "hard-paywalled" mean? It's still paywalled to me, even though the link has utm_source=hackernews and the browser sent a Referer header.

It means there are no workarounds.

I think I swapped in the wrong link—sorry. Should be fixed now.

paywalled for me as well

>What does "hard-paywalled" mean?

Paywall that can't be bypassed (eg. private browsing or social media referral)

It's still paywalled, FYI.

Sorry about that! Should be fixed now.

+1, I still can't access it.

+1 here too


Meta: this site seems to be paywalled from the first article. How does this get upvoted to the front page? Is this some great site that I'm missing out on that people are subscribed to, or are people just smashing the upvote without reading the article?

The Information's content is top notch but access is $400+ per year [1]. The quality of the stories they write is great but the number is very small and most stories are niche. They also break stories before the mainstream tech press.

I get the feeling most of their customers justify it as a business expense vs a personal one. All of the quotes in their subscription signup flow are from well known founders or execs that subscribe (unclear if they get it for free for the endorsement).

[1]: https://www.theinformation.com/subscribe/one

I recall seeing a comment of dang's wherein he mentions that this site regularly disabled paywalls for visitor coming from HN.

https://news.ycombinator.com/item?id=20708064 is the unpaywalled version.

If you email the mods about this comment at the Contact link in the HN footer they'll fix the link and the dupes, often in <5min during business hours. Posting about may eventually work but I see you posting this in multiple threads here, so FYI.

I still get a paywall.

Odd - it worked at first for me, but I guess they cut it off pretty quickly.

None of these links are bypassing the paywall unfortunately.

FWIW I still hit the paywall when I click on that link (and the other one referenced as bypassing the paywall)

Already submitted to HN, which seems a better place for discussion:


How exactly did Breanden Beneschott end up with zero shares? Was he just not paying attention or what?

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