- You are a cofounder.
- You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats").
- They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else.
- You want to work a certain way (remote, on the beach, whatever) and they are willing to go this route.
Invalid reasons for working at a startup:
- Getting rich off stock options.
- Making a lot of money in salary.
- Work / life balance.
I could be a cog in a giant corporate machine, or I can have a measurable impact where I work.
I can stay in my lane and do my specific job tasks, or I can run around putting out fires and helping wherever help is needed.
I mindlessly build the specific design product handed me, or I can guide my own work in accordance to the needs of our customers and the business.
I can follow policy and fill out forms when making any decision, or I can just do what's right because who has time to write policies and look over approval forms?
tbf, tech is relatively good at a lot of these. As I understand it, Facebook gives a fair bit of latitude to engineers, and Google used to be famous for their 20% time. But the longer a company exists, and the bigger it gets, the more bureaucracy and controlling it'll get. Every big disaster means a new policy on how to prevent future disasters.
I think pg wrote an essay stating that the most valuable skill in an early startup employee is "helpfulness" (maybe not though -- cursory search didn't find it). You do what needs to be done.
This is roughly your "wear many hats" point, but more than just different technologies, and not just being new. If you just want to have a well-defined, steady, sane-every-day job, a startup is terrible. If you every want to say "that's my job", a start-up is terrible. If you're the sort of person people will come to for help with whatever comes up (and enjoy being that), start-ups can be great.
I think that point can support working for either a big company or a small company depending on what type of impact you are looking for.
I've worked for startups in the past and have had a huge impact on the startup but almost no impact on the outside world because the startups just weren't tackling very visible problems.
Now I work for Google and I have basically zero impact on Google i.e. basically nothing that I can do will ever move the dial in terms of Google's revenue, etc. But I've worked on several projects that have had a big impact outside of Google. For example, I was on a small team (3 people) that developed the Python 2.7 runtime for App Engine (this was a while ago) and I was on another small team that implemented the server-side infrastructure for the Google Home. I also developed the screensaver for Chromecast - which is a tiny tiny project - but still millions of people love it.
Now that I'm at a startup, I'm making a huge impact on the startup, but it's having very little impact on the outside world and the industry. I guess the hope is that one day the startup will have impact on the world, but very few ever do.
Which do you prefer?
I'd prefer having an impact on the company versus an impact on a large number of users, because I would experience the impact on the company every day, but at the big company, the feeling of satisfaction from running into random people who have used what I made would still be somewhat infrequent.
Online forums, discussion groups etc. can makes them very frequent, global, profound and in many cases very visible to your friends & families - who otherwise would not know what you are working at the small startup.
For a lot of people, "I want to have an impact where I work" is more about their own ego and sense of importance than about impact on other people's lives. This is not a value judgment, by the way - wanting to feel like more than just another faceless disposable drone is a valid desire.
On the other hand, if I submit a patch to Chrome that makes it 0.00001% faster, it's a much bigger impact -- millions of hours saved -- but it's an impact you can only see in aggregate statistics. No individual will even notice the effect, so it's much harder to see or feel. It's more abstract. You have to be pretty analytical to get the same level of satisfaction, even if you've done more to benefit people overall.
Can't find a source for that, but have many times corroborated that through a Google search. Peter Norvig is one of them.
Source: happened to me with a YC startup.
Agreed, although things can get much less fun once you end up burned out.
I think this Tweet does a decent job at describing the tradeoffs/challenges:
> Typical designer mid-career crisis.
> * You want to stay hands on
> * You want a relaxed, low stress environment doing “meaningful work”
> * You want to maximise your earning potential
> The majority of roles you see force you to pick just two.
Minor digression: now, not all startups are completely hectic, option-fueled sweatshops. I'm talking about the default picture that comes to my mind when I hear this word. The most successful small startups I know are quite the opposite in fact. Well, I guess having an actual market, solving a real problem is important.
(OK, "scale-ups" are the f*cking worst still as you end up with chaos and inability to get work done).
I recommend everyone spend some part of their career in a 1 to 20-person shop, a 20 to 200-person shop and a 2,000+ person shop. (I don’t have experience in 200 to 2,000.) They are vastly different work environments.
I thought I was a 1 to 20 guy; I’m not. I want enough structure to let me specialise without letting bureaucracy get in the way. Twenty to ~two hundred.
Start-ups are fun, but they’re also stressful. If you get unlucky, they can also leave you materially less wealthy than you could have been with more stability.
Mindlessly building what is handed to you is a culture problem and not a company size problem. Some startups have less freedom than some corporations but both usually grant more freedom to more senior people.
You can still 'wear many hats' at some mega corps too, if the company only has 'engineer' as a title then you are expected to basically do 'everything' . The team you are on will decide what the balance is though.
I think all of what you said could apply to both sizes of the companies.
Go to work for an established, profitable, small company. Make a good salary and have a fulfilling career.
That's kind of odd from my perspective, because that's exactly my niche, and yet, my very first job was at a startup (of about 3 people besides me), where I was a rapidly jettisoned cog, and every since I've gone to progressively bigger and more bureaucratic organizations while seeking, I guess, less definition of my role.
My N is low, they were both non-Bay (NYC) startups, maybe some startups are fun, maybe I'm really bad at picking startups, but I think a startup's culture is often as much or more of a crapshoot than the startup's business.
Was at Google before, and it was fun for only a bit as well, but definitely not as actively non-fun as my last 3 years has been.
I know plenty of startups that have a sane working culture as a key point of differentiation in the job market.
I don't care about getting promoted in my current role (at a small start-up where the eng org is flat), but I'm miserable because there's obviously a clique of people who are "trusted" and take over the technical direction of anything interesting. What's left is basically just implementing their ideas and then having them rewrite it on you or nitpick it in PRs until they practically wrote it.
I’ve worked in places with nasty politics. It’s brutal and awful.
In a smaller place with a flatter org, you’re usually going to have less nastiness, for the simple reason that there aren’t any bullshit roles with organizational power. Bullshit attracts assholes.
When small companies suck, it’s usually because the owner is a jerk.
So I'd call that a startup? It's not like we're not trying to achieve rapid growth, we just haven't found the secret magic yet to turn into a unicorn. Doesn't mean we're not trying.
One popular definition of "startup" (Steve Blank's) basically precludes profitability.
A typical HN startup is wannable Unicorn get rich quick scheme. Maybe we need a new term for that.
In one case I'd get meetings like "hey, I know you have a kid and all, but we're hitting a deadline soon. Just to let you know next week you're probably gonna have to put in extra hours. But I didn't want to sneak it on you. Let me know if there are any days you can't work extra so I can make sure the other days are covered by someone else." and other times not count my hrs if I work 7.5 hrs or 8.5 hrs in a day.
Startups can be kind. It just has to come from up top.
And I'm not even talking about my current startup which is significantly better.
So yeah. Don't think that startups are all shit. I interview the founders. Are these the people I want to work for, I want to make rich, I believe in.
I switched to working remotely for a San Francisco-based startup because they offered me a 30% raise over what my current employer was willing to pay.
Two years later, when working for the startup became less palatable, I went back to my old company. My manager there struggled with the HR dept as hard as they could and got them to just match my startup salary in order for me to come back.
Which I guess is just to say the parent comment is not universally correct.
Startups pay more in salary than non-tech non-finance companies do in total comp. Startups that are far enough along (pre-IPO Uber, Lyft, etc.) pay more than FAANG (the RSUs aren't liquid but you need to only wait a year or two).
Heard this from multiple people but here's an article: https://www.financialsamurai.com/how-uber-employees-failed-t...
[Edit] But... I think you might have missed the point. The reason to join a pre-IPO company is to make far more money post-IPO when the stock rises. Joining Facebook in 2008 or Google in 2000 would be equivalents here, and those people became very, very wealthy on the day of the IPO due to this pop vs when they joined. Uber employees who joined 4 years before IPO had their stock drop instead.
- they pay more than enough for my near-term financial goals
- the equity is ok
- they let me work on sidehustles
- I get to work on stuff that is truly make or break for the company, not some bullshit pet project a PM needs to get promoted
That wasn’t my intended point. I want to be a profit center, not someone you keep busy because you can.
At Google, for example, I’d wanna work on search, ads, or data mining. But I wouldn’t wanna work on chat.
At Uber, I’d wanna work on the driver orchestration machinery, not on some opensource side project they have.
I find at startups it’s easier to get to work on the company’s main core thing. And that’s where I like to be.
If the whole company ultimately proves meaningless, that’s just life.
One day I'll reconsider this choice, probably when I'll have a bit more of financial stability (read: bought a house and paid it in full) and can afford some more risk.
Most people seems to overlook the fact that most startups die within a year, and some more startups drag a long death march before dieing.
You might have fun or do crazy interesting things, but if the company goes bust it might not be pretty.
For the moment, I'll stay conservative about this kind of things.
I’ve worked for 5 startups now and my equity payout has been 0, 0, 0, 0, and now I stand I make low 7 figures from the equity on this last company (publicly traded now).
During those startups the following happened:
- I saw my nieces and nephews so little they forgot my name. They were young, sure, but it still stung when they look at you like a stranger
- Messed up a 8+ year relationship with my significant other and we haven’t talked in years
- Let my student debt pile up to take on more equity than salary (dumbass idea for the record)
- Lost friends along the way because I could never do anything
- Missed many family/friends birthdays as I was working
- Worked 80 hour weeks for a long time
What did I feel after I saw my equity/stock rise to above 7 figures?
Stupidity. I gave up a lot on my journey and money can’t get it back, in fact, the money I stand to earn doesn’t enable me to do much more than what my salary already does. I can travel, eat well, have luxury goods if I want (I’m not that type of person but anyways), and so forth.
My point being that this was a.) self-inflicted and b.) not worth the combined opportunity cost of all of those years.
So for every “friend” who made lots of money at Uber or other places, there’s a story like me or a story where someone’s never made anything from equity because profitable exits are fucking hard
The article is basically a rehash of my experience in a start up as the first engineer for a technical founder. I spent the next 6 years growing the company, my skills, and my experiences. I was constantly provided more salary and stock options until I had so many options I could not reasonably exercise them without taking on massive risk. I had to consistently request the status of the option pool to even know what percentage I was granted. When I left the company I effectively had 3 months (Nov 2019 - Feb 2020) to make a decision. I'm personally glad I was conservative and did not exercise them given the outcome of COVID in the US.
I don't regret taking that job at all as it helped me become a very skilled technology professional despite not having a prestigious educational background. It opened new doors which would have otherwise been closed until I had an equal opportunity to prove myself at scale. I do regret the extra hours worked which led to burn out and health issues as well as not being more bullish on salary until later in my career.
Isn't that a "never need to work again" situation though?
eg, you've effectively freed up your future to put time into whatever you want?
I don't think that I would call that "never need to work again" money. It's between 10 and 30 years of my salary.
A good lump sum to stash in the retirement fund. Maybe retire at 55 instead of 65, but definitely not "never need to work again" money.
If you have 2 million, you can conservatively (meaning a low 3% - 4% withdrawal rate) take out 60k to 80k a year in perpetuity. Can you live on 60k - 80k a year? Consider you'll be paying a lot less in taxes since it's all capital gains. If your normal salary was 100k ish, you probably can.
(Obviously as your raise the definition of "low 7 figures" this can change dramatically)
After taxes and everything, it’s not “enough” to never need to work again but yes, I would say I’m very fortunate to not have money as the concern as long as I’m not irresponsible with it.
The point was more that it easily could’ve been another $0 and in theory, the company could fail taking that $1-3M down considerably.
The salary most HNers make is way above the median and is enough to live a very comfortable life. I honestly can’t tell you if the money was worth the personal pain of the last 10 or so years, truly I don’t think it is.
If I ever finish work, it's going to be a complete reboot of me anyway.
So I would add as a valid reason:
- Startup will pay you as much as anyone else, and won't be boring.
Caveat: may only apply to early hires!
I really wish I could, life would be easier, less work, less stress, pay better... None of them will take me so I keep help building and (sometimes) exiting startups.
It's really exhausting. 20 years of this... I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently follow it instead of challenge it.
I've honestly thought about figuring out how I could put things on ice for a few years and get a PhD, because then I'd have the proper paperwork to allow for my disposition and could finally stop this exhausting startup life.
If you are bull headed and drive really hard in a new area, you better be right because you are taking responsibility and accountability for that area (whether you think you are or not). High risk, high reward - sound familiar? This is true at Google, at startups, in academia. So it's really more of a personality thing - if you're ok being obedient, you also don't need to bear the stress of accountability. But if not, well, no degree will alleviate that stress.
I agree with most of what you're say, but I think this can be wrong. Management seems to push stress and blame down to the individuals, even if they are obedient. I see a lot of stress in my job and I'm only an intermediate developer.
This is a valid position and one I can identify with personally, but as I've gotten more emotionally mature over time find it's a little more subtle. You need to include your risk propensity and methodology into the calculation. Even within established companies roles, teams and individual situations are going to be vastly different. Are you willing to take bet-your-career risks? Have you earned some shared vulnerability with the people you want to change? Do you truly care about them and your company? I've learned these are all necessary if not sufficient regardless of the corporate landscape.
I believe there is a third way where you work within the system to affect meaningful change (or bring it down from the inside, depending on how radical your viewpoint). I've come to the realization that small minorities want either dramatic change or none at all; the vast majority are just apathetic, which is your biggest enemy. Start-ups likely skew towards the big change camp. You can make a difference in the former environment but it is exhausting and risks turning you apathetic as well.
"Thinking outside the box" is cute virtue signalling but honestly that's what gets you kicked to the curb.
It will always be that way for any established entity because that act is fundamentally one of disestablishment
it sounds like you've identified a personal problem with a clear goal, the next logical step would be to shop around therapists who think they might help you achieve that specific goal. and i think it's very important to shop them. Maybe even read a few books on how to find the right therapist for you. It's important to not get stuck on one who you don't like or who isn't interested in help you the way you want to be helped. I've found with therapy that sunk cost fallacy is real when you've found one that really doesn't fit with your goals.
It's running off a raspberry pi at my apartment and is really more about giving me access to my network of computing resources here.
I've been meaning to make a generative poetry engine and just put it there without disclosing it. It could probably be pretty believably human if it's restricted enough.
People quit bosses, not jobs and I've always kept my people. So I think I've been pretty good
I did not mean to upset you.
In the startup world they usually call this employee waves. Hoffmann, Christensen & Collins all broke up different people as part of different waves (using different models) and that some people "belong" in certain waves. Others, such as say, Davidow and Von Hippel went into detail on how to insulate new technology from late wavers at established firms in order to successfully incubate it (Christensen talks about this as well). See Kidder's book on the Eagle project and Fergusons book on the IBM PC for some examples. Also search "sony missed ipod" for some really interesting counter-examples.
Also how BBN beat Raytheon for ARPAs IMPs is a fascinating example.
Anyway, I'm a first waver who wants to improve on being a much later waver.
Thanks for unglooming my day!
Mostly because you get to see how different companies approach problems. When you move from company to company you take the best ideas forward.
edit: And I've seen interviewers pause at such titles and comment "are you sure you want to work here, we can't offer you as nice of a title." So it may count against you even.
This is a sector where people with no relevant formal education and three years on-the-job experience sometimes get called senior.
At the end of the day, job titles are mostly for getting past recruiters. Interviewers (if they're any good) will judge you on your actual experience and capabilities.
I'd say the extent of actual impact to business relative to the entirety of the business operations probably remains roughly the same between two people with the same title at a large company and a small company. However, the potential loss (or perhaps gain) suffered from poor (or great) decision-making is likely much smaller on an absolute scale at a start-up, although roughly the same on a relative scale.
But this is not enough for founders to have a peace of mind regarding your commitment.
- If you have already built a reputation, then that's enough for you to argue for a market rate salary.
- Else you would need to trade for some equity.
What are you getting out of this compared to a corp job:
- The work is likely more interesting.
- Away from corporate landscape (if that's not your thing)
- Gaining experience in new domain, doing thing in new ways.
The difference is basically two letters: "No". Most institutional investors have the ability and inclination to say no to a deal. Many executives - or even high-level FAANG engineers - have the ability and inclination to say no to a deal. Your average engineer a couple years out of college does not, or if they do, they don't understand the power of declining a job offer. Start your negotiations with "no". Be curious and open to opportunities, and show a lot of enthusiasm during the interview process, but whenever you feel you're treated unfairly, walk away. People will stop treating you unfairly.
The executives and investors and FAANG engineers have all made good money and seen decent RSU terms, you can't pull the wool over their eyes. Someone who is just getting into tech may be allured by a 50k salary and "1 MILLION OPTIONS!!!!" (There are ten trillion in the option pool).
I think engineers would do well to know that you are a COST CENTER to the business and the people who run it. They need you to make their product so they can make money but they hire you begrudgingly. You are in their power and they want to take advantage of you by paying you the least they can (shady options awards) and working you as much as possible (why did you slip on this feature you story pointed!!!).
Put yourselves in their shoes and you would do the same. Starting a successful business is all about customer growth and making money. If you aren't directly responsible for a part of that then you are a cost. Make sure you are getting paid what you are worth because nothing in this world gets built without great engineers, but the system is run by people who want to have power over you. Be careful.
I also once joined a company to be told 3 months in that the board was not approving any new-hire grants as the valuation/appraisal work had expired - and that it wasn't reasonable for me to ask them to pay 90k just to approve the options they had granted.
At this point in my career having worked in FAANG, I wouldn't value private equity at all unless I could take 20-50% of the company. It's not even a lottery ticket anymore, and has just become a way for executives to exploit information asymmetry.
I'd be curious if any startups have explored venture debt arrangements with employees to guarantee that they receive meaningful deferred compensation. Or if there are other mechanisms to publicly show that the equity is meaningful in most successful outcomes.
This reminds me of a job offer from a startup I interviewed with that offered me a specific number of options, but wouldn't tell me anything that I could use to value them, effectively forcing me to value them at $0.
If the company has meaningful revenue and a solid margin AND they have already paid out to employees in previous liquidity events, it's pretty likely the options have value above zero.
I don't agree. Engineers are sometimes a cost center, but they can also be a profit center. You can help revenue by decreasing expenses by automating something or noticing how the business is wasting money w/r/t tech and taking steps to help fix that.
You can also help revenue by increasing sales by building something, internal or external, that can either be sold or help sales.
But your larger point is correct. When you are starting at a company, know how your efforts are connected to revenue and sales. If your interviewer can't answer how they will be, find someone who can.
I wrote a bit more about understanding the business here: https://letterstoanewdeveloper.com/2018/10/12/understand-the...
I once worked with a process engineer who, a few months after being hired, had identified a number of manual processes as low hanging fruit that could be easily automated. He presented his findings to upper management, argued that they should let him build out a team to automate these processes, and that they could fund it with the headcount he's able to reduce. Management gave him the green light, adjusted his budget each quarter based on how much money he had saved the company over the previous quarter, and over a few years he was immensely successful.
You'll be treated as a cost center so long as you let other people think of you as a cost center, but if you can frame your contributions in a way that makes your value proposition obvious, it's possible to be treated differently while doing largely the same work.
So true! I have to drop this link, as it does a much better job than any number of comments at explaining this: https://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-pr...
If they need money, and this is the best offer they got, then what's the problem with accepting it? They are still better off than not accepting it.
At this point I know what I'm doing enough to not get burnt by these types of scams, and when I was an engineer I was lucky to basically work for FAANGs the whole time where they are very charitable to employees. But when I was 23 I didn't have the knowledge to evaluate pre-ipo equity and some startups prey on this information imbalance to delude people.
Nothing wrong with taking your best offer. Everything wrong with misleading potential employees about what the offer means.
If you have a low offer but no other options that's "fair" in a sense. If you can get something it'd be pretty silly to accept a bad deal, however.
> whenever you feel you’re treated unfairly, walk away. People will stop treating you unfairly.
Walking away from a bad deal certainly prevents you from being taken advantage of in that moment, but it will do nothing to prevent the next company who knows nothing about you from trying to hoodwink you again. While the ability to say no to a bum deal is important, it’s no substitute for actual leverage in these situations.
Executives and highly valued FAANG engineers have more leverage not because they say “no”, they have more leverage because both parties know they can say no, and they’re valued enough for that no to hurt. The startup needs not just an engineer, but that specific one. The threat of a “no” those with leverage gets far more results than from someone without it.
But what it does means is you won't leave until you get a good deal. And when's the last time someone left a good deal for a bad one?
One of the best ways to accomplish this is to avoid shopping for a job when you’re unhappy with the one you have; when your best alternative is “I keep working at the place I like with the people I’m on good terms with” it’s far easier to start from that no and let yourself be convinced.
Best alternative to a negotiated agreement 
But you're right, and I've done that myself. Where I hated a job so badly and just pretended and smiled as much I could until someone hired me out of that situation.
The problem is i didn’t realise there is really no way to tell what a job wi be like until you’ve done it for 1-2 years! Therefore if you think “oh i really want to work for them because they are offering a good job” that’s the weakness I had - in reality you can’t put stock into how good you think it will be. They are trying to sell you on working there after all. By not putting stock into it “ah this is a another job I’ll do my best work but it may turn out shit might be good” then you can emotionally walk away from their offer more easily, and ask for caveats. “Can I move teams if I decide I don’t enjoy the first team after 6 months” and stuff like that could be negotiated before starting. Oh and get it in writing I’ve been burned by verbal “miscommunications” before.
And finally I’m going to say “Haskell Tax” is a thing and similar dynamic plays here. They might be the only shop in town offering a Haskell job but if you make it look like you have other options “I applied for a blockchain job too. It’s c++ and Scala not Haskell but the tech looks really cool” then you don’t appear to need them as much.
I learned this the hard way: Do not let the technology stack be the deciding factor in which job you take.
Skipping the Cobol job is reasonable. Picking the only Haskell job because it is the only Haskell job isn't.
The problem with this is that bad jobs don't often turn into good jobs, so job hunting under those circumstances is usually the best option. I do agree that it's worthwhile to actively look for other jobs even when you're happy with your current one.
This isn’t semantics, token sales are counted for as revenue.
Yes, its too bad that there is a colloquial action called “invest” and a legal term called “investor”
This is obvious when you think about it for a second, but also - lol. ICOs created a capital structure level that's completely outside of the capital structure :)
That’s pretty unprecedented.
They are even more weightless, more fungible, cheaper to produce than both legal and illegal drugs and you can pay people from your illiquid premine and deduct that against your liquid revenue. Primarily because people are willing to be paid in the tokens (unlike other consumer products or even shares), and because they aren't illegal like drugs.
Due to their “property” designation and again non-illicit status, donations to non-profits are extremely flexible too, for greater tax benefits at cost-basis or fair market value.
People should look into making them better instead of looking at what went wrong.
When the consumer market is hot, sell more product.
When the share market is hot, sell more shares.
When the credit market is hot, sell more debt.
Token issuers currently make enough to just stick with the consumer market, but make too little subsequent revenue relative to their primary sale to access the equity and corporate bond market. This can be fixed by a continual stream of token sales for different products, currently the consumers that think they playing arm-chair angel investor dont want to see this industrialized because they think the teams should be married to the “vision” they “invested” in, and liberally call any predictable deviation from that outcome an “exit scam”. But token factories will happen and already exist, and will be taught in Harvard Business School later this decade.
In the token market, this is currently controversial because consumers themselves dont know what they are.
Outside the token market, this is currently controversial because “ICO” “blockchain” are bad words and there also is a general ignorance perpetuated by misrepresented exposure to things going wrong, combined with the same consumer-investor misalignment when those people do “invest” in something. It doesn't really matter, the market can bear what the market can bear.
Au contraire! I stumbled across one of these semi-monthly kludgeposts with a comment section full of angry people early in my career, and it helped me avoid getting mired in any bad startup situations.
I think that getting the word out about this stuff is one of the best things we can do, since it'd be really hard to try and legislate this problem away
Options solve this problem well, by delaying the tax burden until the equity is actually worth something. If it ends up worth nothing, you don't exercise your options and you don't pay any taxes.
Executives get gross-ups, so the tax thing is basically a smokescreen.
If you grant stock options with an exercise price that is less than the fair market value (share price from 409a), then that's considered income by the IRS and employees owe tax immediately.
With ISOs, the 90 day exercise window is required by the IRS. With NSOs, it can be longer, like 7-10 years. 7-10 years is obviously way more employee friendly.
I do think the culture around 90 day exercise Windows is changing. Here is a list of companies with extended windows . At this point I would never join a company with 90 day windows.
I looked at working for startups as though I were an investor, because while an investor is putting maybe 1/30th of their fund into a company, I'm putting %100 of my time into it and it will be my sole source of income and wealth, which means I have way more to lose as an employee than someone who YOLO'd a few million of hedged, other people's money into it. As an employee, my risk/reward has fixed upside (+lottery tickets) and an asymmetric downside that includes opportunity cost.
Most people are just doing jobs, and that's how they manage, but money is made in direct inverse proportion to how much physical work you do. If you are doing work, you are rarely providing as much value as someone delivering just the value of yours and others' work. Arguably, the most value is provided by people who do the breadth-first search for opportunities than the depth-first search for technical "solution" leverage. A company needs both, but as the post implies, figure out if you would invest in a company before deciding to work for them.
I ultimately decided to stay the founder course, but glad to have found what I think is an acceptable compensation structure. Even if requiring it adds friction to deals until docs are standardized, at least people should know it’s an option. I’d be curious to understand if anyone has found a downside, except to the investors that build these anti-employee systems to arbitrage on knowledge asymmetry.
It makes me wonder if YC intentionally penalizes posts like these, because ideas like these make it harder for their portfolio companies to hire employees.
If this article is being penalized at all, that's probably the reason. HN generally penalizes articles about recurring topics. I suspect YC realizes it's in their best interest for their portfolio companies to be fair and transparent in their equity offers.
I'm also suspicious, although most suspect as sibling comment to yours suggests, that it's likely something automated rather than malicious. Perhaps there's too few comments?
Love that this seems to be getting more popular, hope it becomes the norm for companies in the future.
- Find the other people at the company in your situation (size of grant, type of options). Share your learnings with each other. Consider getting professional advice, the Bay is full of attorneys and CPAs for whom this is a familiar situation.
- If you're at a unicorn, you probably have co-workers who are veterans of other unicorns and have been through this before. Ask them for advice (or an introduction to their source of professional advice)
- As a group, consider asking your board to arrange a limited second market sale to cover exercise costs and taxes. Many institutional investors are happy to buy a little extra stock, especially if it helps with keeping senior staff happy and focused on the right things.
- If you're going to be doing anything involving stock without board approval (like trying to build some kind off house-of-cards, pseudo-legal collateral package for a loan shark) you really need to hire an attorney.
- if you only have options, you might not be a shareholder. Your rights and access to information might be different once you've exercised a share.
- You can't extend the 90 day exercise window on ISOs, that's a federal law thing. The company can convert to NSOs to extend the window, but the setup for that conversion is complicated and expensive.
I'm actually in Canada, so I'm not sure on the ISO -> NSO distinction.
I do think your advice about coworkers is good though, I know of a couple other early employees in my position (similar grant sizes, also unable to afford to fully exercise). I've often considered what would happen if all of us decided to push for an extended window (and convert to NSO's)
As for the secondary, I don't actually want to sell. I want the ability to wait until there's liquidity to sell, and do it on my terms. Selling now significantly reduces future upside. What I'm really trying to avoid is getting stuck at one company because I can't afford to leave in the future.
I do appreciate your advice though, always good to chat with someone who's been in a similar situation!
It's not a great feeling, especially when you contributed a lot to the company at a very early stage. I am glad there's companies popping up to help with this problem, like ESO Fund, but in my opinion the companies should be trying to fix this instead.
If I had exercised all the options I would have had over $300k in paper gains for a tax bill. Instead I exercised 10% of what I had the ability to exercise. This is one major reason I will never work at a startup again unless I am the cofounder.
This still happens way too often to tech people. Another way in which that can be arranged is that everybody puts some money in relative to your inability to do so as well.
Putting $10K of your own money or not in at the beginning of a start-up should not have a 90% discrepancy in share allocation as a result.
The way some companies get around it is that, after 90 days, they replace the expired ISOs with nonstatutory stock options which, as their name implies, are not recognized by the tax code. Tax code is complicated but NSOs are ultimately worth maybe 10%-20% less than "equivalent" ISOs.
But, at least until recently, there wasn't standard paperwork for doing this, so the only companies that did it were those willing to innovate on their stock plan. I think a lot of founders weren't trying to screw their employees, but their lawyers weren't comfortable going off the beaten path.
But I think that excuse is fading now. Enough companies have done it to provide precedent.
My circa-2015 startup looked at this and fretted a bit but ultimately sidestepped the problem by giving everyone restricted stock instead of options. That's only really possible at the very early stages when the 409(a) valuation is nearly zero. But for anyone joining a seed-stage startup today, that's what I strongly recommend: Ask for restricted stock, and if the purchase cost is non-zero, ask them to comp you for it as a signing bonus (which is "free" for them since they're buying the stock from themselves). You'll have to pay income tax on the value but that should be pretty small (maybe you can even get the company to "gross it up", but that's real dollars for them). Then you'll never have to worry about exercising stock options or paying AMT. Don't forget to file your 83(b) election within 30 days.
I'm at a company that gives NSOs. Can you explain what you mean when you say that NSOs are worth less than ISOs?
When you exercise an ISO, it is not considered regular taxable income. It is as if you legitimately purchased the stock on the market for that price. No tax is due until you sell. If you sell immediately then you pay regular income tax on the gain. But if you hold it for at least a year, then you pay long-term capital gains rate, which maxes out at 20% (vs. 37% for regular income tax).
When you exercise an NSO, the gain is considered income and is immediately taxable at regular income tax rates, whether you sell it or not. If the company is not public, then you can't sell share to pay the taxes, so if you're going to exercise NSOs, you'd better do it either before the valuation has gone up much (in which case you end up paying mostly long-term capital gains tax), or wait until after IPO (and pay regular income tax). Since investing in startups is very very risky, exercising early probably isn't the right choice for most regular people.
Extra complication: The US has two tax codes that exist in a sort of quantum superposition. Each taxpayer must pay whichever tax bill is larger of the two. The above describes the regular tax code, but there is also Alternative Minimum Tax (AMT). Under AMT, ISOs are not special; they are treated like NSOs. But, the maximum tax rate under AMT is 28% rather than 37%, and doesn't kick in until higher income levels. So if you exercise ISOs before the company has gone public, but after the valuation has raised significantly over the exercise price, you might again have trouble paying the taxes. But if you manage to pay them, and you manage to hold for a year, your overall gain will probably be 10%-20% more than what you would have gotten with NSOs.
Extra extra complication: Let's say you exercise your ISOs before IPO and you manage to pay the AMT. Years later, you sell the stock. Is your capital gains computed based on the ISO exercise price, or the valuation at exercise? BOTH! Under regular income tax, you owe capital gains on everything since the exercise price, but under AMT you already paid for the gains between the exercise price and the valuation at exercise. If you don't want to get double-taxed you have to learn what it means to take a credit for a timing-based AMT adjustment. This is well beyond the point where Turbo Tax gets pretty unhelpful and you probably need to get a CPA, but in the Bay Area there are so many rich clients that a decent CPA will charge thousands (maybe tens of thousands) of dollars to do your taxes. Have fun!
All that said, if your plan is to exercise-and-sell in one action sometime after IPO, then I think ISO vs. NSO doesn't make much difference.
I would still recommend folks to properly understand what it is and how it is calculated so they can double check the numbers, but that really applies to pretty much every tax form.
With this, it actually makes sense to exercise options and stay employed at the startup: you now may not be qualified as a short-term seller when you sell the stock, since you held on to it for a while.
I've seen it suggested that one should exercise on day 1. But that doesn't have to mean you pay for them immediately (after all, you don't get to keep them immediately - you have to wait for vesting...), so you work out a payment plan with deductions every paycheck so that you've pay fully for whatever is vested at the time it vests.
I've seen too many people exercise stock options trying to minimize tax implications down the road, only to see them eventually leave the company for any number of reasons and they end up get heavily diluted to almost nothing in future rounds. All that money basically down the drain trying to chase long term capital gains vs regular income tax rates when the likelihood that they'll make anything is extremely low.
Everyone's risk posture is different, but considering how few startups are actually successful, I would argue it's better to just assume the options are worthless and just deal with the regular income tax situation if you get lucky enough to be around during an IPO or acquisition.
This makes me curious: what's the total typically required to purchase one's options (not including the potential tax implications)? Does it vary wildly from a couple thousand to tens- or hundreds-of-thousands? Lottery ticket money, or significant fractions of annual income?
Second is lineage. Like it or not, cohorts of engineers often stick together and create informal networks that help populate their careers with better opportunities in the future. Going through the crucible with a team is a great way to form bonds that can last decades.
To me, failing to give you all the information isn't a deal-killer on a potential job. But it should flavor your approach to the job, and help you decide exactly how committed you are to the work.
Isn't that actually $10,000, or is there some startup valuation math that I'm not aware of?
EDIT the article has since been updated with new numbers, and the math now works out as expected
That being said, it looks like the article has been updated to use new numbers now.
Sadly in the country where I’ve founded startups (Sweden) the government mandates that the terms must be really shitty, or there are immediate tax consequences that somebody has to swallow.
Only annoying thing is the constant prompt to login with your social accounts.
If you want to work at a startup as a non-founder employee, go into it knowing that you're taking the risk and getting little of the potential upside reward. If the pay is good and you like the company and the work, then do it. But any stock options will be mostly meaningless.
I wish Founders would just let Employees participate in seed stage financing and be in with the same terms as early investors if the employees want to truly risk it.
I mean it makes sense. Let's say your salary would be $120k plus $30k in stock. Rather than giving you stock as options, you could just be given that stock as equivalent value (subject to a vesting schedule) and on the same terms of the Seed Round. No money out of pocket... am I missing something?
When confronted just talked about how that was the business. Was super frustrating. Once I realized how the CEO operated, I left. I waited for my 1 year cliff though.
In the case of a sale, investors with <this term> would get their money back (possibly at an inflated ratio) before the rest of the money from the sale is distributed via equity.
This is important because it means that even if you get favorable stock terms, you might still be screwed (or at least disadvantaged) if there is no money left after this money is paid out.
Can anyone remind me of the term?
It could almost use a part 2 to explain aspects of the conversation (how is the employee making a $300k investment, preferred stock, etc), but I don't think anyone is missing the joke.
The story format makes it clear how employees are getting a worse deal than investors. Still, employees receive cash dividends every few weeks (a salary), isn't that a positive?
Because they're not working there anymore it's "demoralizing to others" if they retain the ownership that, again, they invested a part of their salary for in good faith. You've probably heard that one before.
It is absolutely outrageous to tell an employee that they're getting paid less in exchange for equity and then turn around and declare that the equity doesn't count the same as if they got paid market rates and just invested a portion of their salary.
The appropriate consideration when working for most startups is not that you're getting a cash dividend, quite the opposite - it's equivalent to the startup withholding a significant amount from each paycheck, and "buying" options/stock/whatever with that withheld money - you honestly earned that money, but you're not getting cash but something else instead. Is that something else a good value for that money?
People are usually foregoing part of the salary in lieu of options. e.g. $25k paycut (really conservative compared to FAANG) will come up to $100k over 4 years.
One can consider those $100k as cost of options you get.
What happens if I don't pay the tax but just buy the options? Will I lose my options because I haven't paid the tax?
AMT is essentially a completely different taxation system that runs in parallel to regular income tax in America. If the shares you exercise are worth a good amount, you will probably wind up paying AMT, especially if you live in a place with high state and local taxes.
After calculating your tax liability for both systems, you have to pay whichever is larger of regular income tax or AMT. Usually this payment, or part of it, comes due April 15th of the next year. Your company is not involved in your reporting and paying these taxes, but it's a federal crime to either misrepresent your income (which omitting the exercise from your filing would be) or not to pay the appropriate taxes.
If you haven't realized yet, a lot of this is complicated, so do your own due dilligence and/or work with a tax professional.
The AMT tax rate is 26% or 28%. The "income" considered by AMT for exercising and holding is equal to the difference between your strike price and the fair market value (FMV) of the stock on the day you exercised. FMV is based on a 409a valuation for companies that are still private. For public companies it's the market price for the stock on that day.
I'm not sure what you mean by your having "a low strike price (<$100 for all shares). For 100k shares, a strike price of $0.001 would cost $100 to exercise 100k shares.
To make the math easy, I'll give a hyptothetical...
You have 100k vested shares with a strike price of $0.10. The company has done well for the past 3 years and now has a FMV of $3.10 per share. To exercise 100k shares, you would need to pay $10k. However, if you're still holding these shares on 1/1/2021, you will have an AMT tax liability due 4/15/2021 of ~28% * ($3.10 - $0.10) * 100k = $84k.
Now it's weird how AMT works, so the above number isn't exactly what you wind up paying, but it's close. In general, the case stated above implies you would owe a sizeable amount in taxes if you exercised and held the stock.
People do this if they're leaving a company and their options will otherwise expire, or if they strongly believe the company will IPO or be acquired soon. Exercising starts a clock on the stock you're holding. If you hold the stock for a year after you exercise, your earnings will then only be taxed at the long term capital gains rate (probably 20%) rather than the ordinary income tax rate (usually higher than 20%). Earnings are the sale price minus the strike price (what you paid to acquire the stock or your "cost basis").
The downside of exercising now is 1) you have to pay cash to exercise, 2) you will generate a tax liability without necessarily having a way to sell your stock, and 3) if the price of the stock falls, the AMT you paid winds up being an even greater percent of the value. There is a way to receive credit on future tax bills for previously paid AMT tax that wound up like this, but it's complicated and best to be avoided.
The upside is mostly to obtain the a lower tax rate on the eventual sale. Most employees still with the company who didn't exercise their stock early don't exercise it until they plan to sell it.
Of course, if the compensation is horrendously unfair, the top talent will not accept it.
What is the point you are making here, other than stating the obvious? It's the same for investment, what am I missing?
This is the reason I won't work for startups. If you want me to take a below market rate job then I'm an investor, and you can treat me as such.
I would argue early employees are investing much more, $ for $ than any VC.