I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be part of what my friends and I were building. Had I had the chance to 'de-risk my life' with some equity to replenish my empty bank account, which was empty from taking an early employee salary, I may have been able to stay but in the end I had to get out.
Getting out for an early employee after funding rounds is expensive because buying options can hit you with massive tax bills on top of the cost of buying the options. Worse, the stats aren't great for a chance on return. Your lotto ticket gets expensive and risky as soon as you decide to leave.
Articles like this one hammer home more and more to me how little VCs actually value early employees. Paying out founders to stay is a strategic move. Keeping them is worth it because they are the face of the company and turmoil at that level hurts their payout. Burning out early employees is not a concern because you can just swap them without drama. In fact, with the way options are structured and the 'industry wisdom' to hold off purchasing, it feels like a strategic move to burn out early employees since many employees that are forced out often can't even buy their options. They are left with nothing after all that work and risk. From a purely cynical view this is a great thing for VCs since now the company got all the benefit of an early employee and just lost all the costs.
I don't know about the other three points, but I can guarantee you point 1 of 'right sizing perceptions' is wrong.
This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.
This reminds me of how I have seen a few asks lately for roles where a company is looking for a CTO for their “AI startup”. How an “AI startup” (whatever that might actually mean) can _start up_ without a CTO is beyond me, and raises some very big red flags about what that company might be up to.
Mostly someone has a Phd and convinced people to give them money to 'change the world', then need someone who has actually built things beyond a script in a python notebook.
Gosh. So much this! The difference between the "average" PhD graduate in data science and the "average" software engineer with genuine experience delivering production software that people use at scale is quite something. I have nothing against data scientists, but in the same way that I wouldn't get a software engineer to build a complex model (above a certain level of complexity), neither would I get a data scientist to build a production app (above a certain level of scale). Both of these things are specialist activities that require a lot of experience, wisdom, and nuance to get right. Being good at one does not (necessarily) mean you will be good at the other.
It’s not necessarily a red flag. Sometimes the founder/CEO is technical and decides to solo it with hired engineers until not having a real CTO is a flight risk, or until they’re too busy to be contributing code anymore, or both.
That is fair, assuming the CEO is technical, or technical _enough_. However, I see a lot of non-tech CEOs trying this on and in those cases, it is a red flag for me.
There are a lot of "tech businesses" that are actually using pretty pedestrian tech. What they are _actually_ doing is business model innovation with an underlying tech platform. Often, that tech platform can be commodity or relatively simple tech. There are other startup propositions, though, where the tech _is_ the thing, and if you get the tech right, then some of those other things end up being secondary (not irrelevant, of course) just not primary. This is assuming that you really have punched a hole thru the door with some amazing deep tech breakthrough, which not every company is doing, contrary to what they may claim.
There is a YouTube video [0] (which goes back to 2019) that does a pretty good job of making this point. Well, much better than I can.
To be fair to your original point: you're right that marketing and sales are hard. I'm just adding the subtlety that there are some tech businesses where the tech is _also_ hard, and perhaps even harder.
I don't think we disagree. There are definitely deep tech businesses that are very hard to pull off.
My point is - asking "how did they do it without a CTO" is weird, they are hiring a CTO to do it, and they're bringing their business experience and funding - valuable stuff that a tech guy probably finds annoying. The number one suggestion on this forum is to sell before building and when somebody does it, users get wide eyes?
I guess it comes down to what "it" is. My sense (and this is just a personal orientation) is that if a CEO came to me and said, "Hey, I need a CTO for this new business I'm building", the very _next_ thing they say is really important.
If it is a) "Right, I've had this braingasm, and you need to build it, and for the privilege, you get 5% of the company!" versus b) "Right, I've had this idea, done some market validation, lined up our first 3 customers, and now we need to do some technical feasibility and put a team together to build this, and as CTO, I need a 50/50 founder, what do you say?" then I will pick b) over a) every time.
To be fair, those scenarios are cartoons on purpose, but I just wanted to make the point by highlighting the extreme cases.
As far as "sell before you build" goes, I think that really does depend on the problem you're solving. If it's a tech-powered business model innovation (where the tech is a commodity), then we are in 100% agreement. If the tech is a bit trickier and you need to show something special before funding (let alone clients), then I take a slightly different tack.
I'm not sure I get the last point about wide eyes, but I suspect it's immaterial to the bigger point.
Interesting... My initial reaction about the startup looking for a CTO was the same as yours. I was a founder and CTO, so it seems odd that you would not already have that in the mix... however I can see how there could be an idea, a market, a sales strategy, and a tech idea without the actual tech. In that case you would need to find a CTO to build that tech.
Of course the real gotcha is that there is no 'idea, market, sales strategy' that will be perfect, and the work is finding out where those ideas are wrong and fixing them. The lessons from my successes and failures says it is only worth doing that as a founder, because the failure risks are both high and unpredictable. Time is expensive, so spend it where there is both risk and reward, not just risk.
The most successful startups that haven't been founded by technical people I have seen usually didn't even have much of an idea - but they had customers and kept talking to them and created a product vision out of that. All startups should be doing that.
I recently applied to a seed stage YC company that was offering me 1.5% equity for a founding eng role which they felt was generous. So basically I get to do all the work for like 1/50th of what the founder has? Get real lol. I even pointed this out to them and they said "it's totally normal, that's the way it's done". Like oh okay, as long as everyone else is getting ripped off too.
I went through exactly the same discussion in my last job search, and was assured that the offer was in line with industry standards. Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever. I liked the team and I think it would have been a fun job, but not quite fun enough to work nearly for free. I don’t think I’ll ever work for an early startup as an employee.
I recall a discussion where a founder kept insisting that a 10% offer for a pre-funding startup was beyond standard and that I should be lucky to get such an offer.. the experience left a bad taste in my mouth.
Ultimately, this individual needed someone to shape and build the core of their product and the net of a series B would have been at most a wash compared to current employment.
> Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever
this is why they don’t belong in start up land
running and working in a start up requires a certain type of insanity
The OPs complaint is not that the risk is high, the OPs complaint is that the risk relative to their market rate is not balanced. Often you can end up working for junior founders and would be better off as a founder yourself.
If the founder views you as replaceable, then why not work at a big tech which would pay you dramatically more? Successful startups are not often populated by the irrational.
> So basically I get to do all the work for like 1/50th of what the founder has?
Who raised the money that the company is using to pay salaries? When investors put money into a seed company, they're largely betting on the founders' perceived skillset and previous experience (or other bona fides like education).
One thing that most people don't realize is that being a founder means that you're inextricably tied to the company for its lifespan. Losing a founder is terrible optics and can be a death sentence for a startup. Regardless of the actual reason, every subsequent investor conversation will involve an explanation of what happened.
If you want more equity, you should ask for it! And you definitely shouldn't take a job where you'd feel under-compensated! But realistically, if you want a "founder-level" equity, you have to start your own company.
In my opinion, you should take the difference between their market salary and the salary they're being offered, and consider that an investment by the employee at the upcoming (not past) valuation.
For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (Of course if they already have the YC investment, then that would go down dramatically)
If that equity vests over 4 years, then frankly maybe 28% is a better starting point.
But what's fair isn't really relevant. What's relevant is what the market demand and supply is. If there's some dolt who would happily take 1.5% as a first engineer ("founding engineer") for a $125k salary cut, then the founders would be idiots not to take that deal. And frankly, if that $125k salary cut gets them their dream job, then maybe they're not even dumb for doing it.
I think what you are actually describing is that you should value equity at zero. If to work at a startup you would need 28% equity you are describing a founder. That's fine but there is an enormous difference between these two things. There is also the question of where the $125k comes from to pay your base.
Value equity at zero? I am not sure what you mean by that. If an employee sacrifices $500k to work at your company, then it would make sense to compensate them with $500k worth of equity is my point. The 28% is tongue in cheek, if you're so early that the amount of equity needed to compensate your first hire adequately is 28%, your company hasn't really started yet, and maybe you should just consider them a founder.
Bingo - if you need the kind of person whose market rate would be 28% of your company. They are a founder, if your don’t need that person… fine, but the “this is the industry standard” line is bogus.
In my experience, "fair" is almost irrelevant within a capitalist business.
Good capitalist businesses buy at the cheapest price they can, and they owners focus on balancing competing resources (control, dividends, ownership, status, information, etcetera...). However: people run businesses and people are not rational economic actors.
A good question is: what amount of equity can you negotiate? What do you have that will convince owners to share their ownership with you?
If you are negotiating with VC, then I think the game board and the rules of the game are already rigged against founders and employees. VC sets the rules and the mileau to play the long game, and employees are lucky to get a few leftovers.
You can be a founder or join a self-funded startup, that will give you a better chance of "fair" treatment, especially if you have the skills to join people that have high integrity.
In theory if you can marginally add 10% to the business value you should be able to argue to get some amount of that. However measuring an individuals effect on a business is usually really difficult (even consultants or businesses that specialise in increasing value usually only capture a tiny percentage of the value they add).
Also different people bring different resources to a business, and anyone with a monopoly on a resource can negotiate for more shareholding. There are idealistic economic theories for how people should bid in multi-party negotiations. Note that even though multiple people may each increase the value of a business by more than 50%, that doesn't mean each should get 50% of the shares (and obviously can't if more than two want >50%).
Generally if you need to ask for shares then you have already lost the game. Either found a business and put yourself in charge, or have something the owners want and demand ownership.
Disclosure: made small amounts of money as part of a self-funded startup joining high integrity co-founders. I've had little experience of VC funded companies or employee shares. Our SaaS business was doing something we'd done before and it was started decades ago when things were "easier".
> a lot of early stage founders looking for a "founding engineer"
I always just assumed that the Entrepreneur, Founder & CEO had come up with an amazing idea like "build an startup (Ai probably) that makes a lot of money" and got some funding - but don't know what software is, don't know how to code and isn't really sure what Ai is does or can be used for; so need someone to put the pieces together to execute their vision with (for) them.
Opportunity to get in the ground floor with a future Unicorn - must have 25 years experience, Salary $25,000, 2% equity with 5 year lock-in.
Having been in this exact position multiple times now (once quite successful, others not), you should probably consider it a wash.
Unless the company hits unicorn AND your shares become liquid (secondaries don't count—you generally won't be able to sell enough shares to make a meaningful dent), you'd make just as much or more at a FAANG firm with way less risk.
Of course, I say this while not at a FAANG firm, because I prefer startup type work.
> So you would get paid like at another company but get equity on top and it's not a good deal? How comes?
If it were truly market rate (total comp not just base salary) then sure, it's a good deal. How likely are you to find that in an early startup? It must be pretty close to zero percent chance. But if you find it, sure, it's good.
You'll still work harder and be more stressed but it'll be a different learning experience which is always nice.
A lot of it comes down to management/team quality. Do you want to spend an awful lot of time with these folks? Do you think you'll learn from each other? Do these folks seem to know what they're doing and are the building a product that interests you? If you can say yes to most (all?) of those questions, then all-in-all, it's probably a wash. If not, run.
Depends on the options available to the candidate. Typically someone joining a startup very early probably has the skill to get FAANG salaries with less stress and more free time. There are also hundreds or thousands of mid size companies that pay very well nowadays, its not just FAANG.
Yeah but smaller startups might be more open to non-US applicants, FAANG and other more established companies don't seem to be interested in hiring abroad.
That's what makes the early startup scene the only thing available for some.
How come? Most large companies have big legal/HR departments that are very efficient at the whole visa application process. A small company won't have that expertise/staff. I mostly see startups being more concerned about the visa status of applicants.
Remote + non-US is not as welcoming, so the hurdles are way higher as it's not fitting the usual way. While startups have no prior experience anyway, so it's easier to convince 1-2 people instead of changing a whole system (I believe).
Most early stage companies turn out to be poor companies for employees. Long hours, toxic leadership, unclear roadmaps etc. Working at a small firm doesn't guarantee high quality.
I was recently faced with this exact offer at seed stage vs a series B with a similar salary. YMMV but what I found when I ran the numbers is the series B offer had a lottery ticket with a similar risk/reward profile to the seed stage. Of course I got less total equity, but it was way more likely to ever actually materialize. Plus being employee 80 at a Series B is a lot easier.
Leveling up seems like a good reason for someone who’s stagnating at a bigger company. My experience is startup people want to recruit their most respected former colleagues, who by virtue of being respected are also getting promoted in place.
Titles obviously don’t transfer back to big companies, we had plenty of ex-cofounders and CTOs hired into the same junior roles as anyone else who could LeetCode.
It depends on the role and company, if you want to get paid 200k per year for the opportunity to do X - then sure. In practice, you may end up doing basic work at a lower quality than a large firm. Such experience doesn't translate the up-leveled title to a more standard position.
And at a large corp you can get laid off just as easily. Any business can toss you out at a moments notice. It's not unique to startups.
At least with a startup you are going into it knowing that you have a higher probability of thing going south financially. With a big company, you might not get any warning at all.
If the salary is market rate for that person, I suppose it's by definition a fair deal. I've seen startups hire "founding xyz" two years after they started. Looks to be a vanity title in many cases.
Total comp needs to be market rate, not just salary. And non-preferred shares should be valued lower than preferred stock. Lumping non-preferred shares with prefereed shares is one of the bigger lies startups tell employees.
>> What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?
OR....you could just become a founding engineer by actually founding and keep 90% of the equity. You can get that salary with an equity raise, its worth not being the low-person on the totem pole.
But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that.
So I am not sure it's that easy.
Of course, the idea is to keep the same work/life balance one would have at a more established company.
It is that easy. Employee 1 is getting paid below market. That’s why they offer 0.9% equity. Meanwhile, the founders are also getting paid. No one is working for free. One of the first things VCs tell you is to make yourself comfortable so you can concentrate on the company. That’s literally one of the reasons why VCs tell founders to sell equity early, to make up for lost income, while Employees 1+ has to ride the rocket into the ground.
the lottery ticket analogy doesn't quite hit the mark imho.
I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people.
even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that.
with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket.
I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you'll walk out worse off than you were when you walked in.
if a startup or VC truly gave a shit about anyone outside the c-suite, they'd have an employee ownership program of some form and assign actual equity, not just options. I've yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.
What would you suggest to someone who wants to work at interesting (non-evil) companies, wants a decent comp ($200k+) and doesn't mind being one of the first to lay the foundation with the possibility of upward mobility in the future?
be a founder or a consultant, not a founding engineer. build up a set of specialized skills in something you love doing, network your face off, keep lifestyle inflation under control, and keep a large amount of your savings liquid(ish). if the right people and opportunity comes along, be ready to tap those savings and live off them for at least a year while you build the company or be selective about your next consulting job. like the old cliche says, luck is where opportunity meets preparation.
if you're not that ambitious and simply want to live comfortably, then go to those early stage startups and negotiate for higher cash comp and a smaller slice of the options.
you can make great money as a SWE, but there's a massive leap between that rung on the income ladder and the ones above it. it takes a dedicated effort to get there.
Sorry I'm a total dumbo when it comes to startups, but what do you 'vest'? I thought vesting is for stock options (maybe stake?).
And your startup is not on the stock market, and won't ever be unless it gets a billion-dollar valuation.
Even stake might be worthless, if the company fails, despite you building a kickass backend for it.
most startups don't offer actual equity even though that's what everyone calls it. they offer options. the idea is that the options you'll receive will have a strike price much lower than what the stock will be worth in future funding rounds or when the company is acquired or IPOs. the vesting schedule defines when you can start to exercise those. typically you'll receive 25% of your options after the first year, then the other 75% will vest every month after.
and yes, liquidity in a private company is always going to be an issue.
all of this is why I tell everyone that their options are worthless right up until they're not. anyone who's burned out or looking at a new opportunity shouldn't include them in their decision making process.
Yes, you vest stock options, and given that risk for startups is very much front-loaded, vesting schedules that are back-loaded are a big red flag for incentive misalignment. And that's ignoring all of the problems with stock options as opposed to RSU's.
The baseline is something like a 4-year vesting schedule with a 1 year cliff and monthly after that, uniform distribution. Anything more back-loaded or worse than that is a red flag.
> Getting out for an early employee after funding rounds is expensive
Early exercise and 83(b) is a must, or forget about it.
When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it'll be after board approval but as soon as that happens).
If they don't allow that or if the price is too high for your comfort level, don't join that startup.
Every startup CEO must demystify 83(b) for their employees.
If you don't have cash on hand to pay for early taxes, the company can pay a signing bonus or something for those who elect 83(b) to pay for the upfront taxes.
OR
Just pay market salaries and leave the choice to employees to do whatever they want with cash. You want to buy our company stock great here's the grant. You want to put your money in S&P index go ahead.
The employee equity part needs a lot more simplification. I don't know why it is not as simple as
Here are 2 options for you
Salary 200K
OR
Salary 100K Equity 100K
If equity 100K
exercise 83(b) - pay taxes at 200K income
OR
defer taxes for the subsequent exercise dates. (Could land a huge tax bill)
OR
defer the exercise date for a liquidity event/secondary sale.
Those who value risk will take the last option and those who don't will stick to full salary.
83(b) exercise, when presented like this, doesn't seem all that rosy.
There could be some legalities that I am unaware of, but broadly this should work.
The irony of being an early engineering employee (and any engineer really) is that the better job you do the easier it is to replace you with someone who can maintain what you built. Accepting a below market salary and then doing a great job is a huge risk.
In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren't so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales.
And if the startup is not growing, you can stop worrying about the equity package
> Accepting a below market salary and then doing a great job is a huge risk.
By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.
I’m really sorry to hear about your burnout, I hope you’ve made a recovery and are at a better place now.
I thought it was the prevailing wisdom here on HN that being the first employee almost always is bad for the employee. You’re right, the cards are stacked against them
In my experience there has never been a good time to be a founding engineer even in companies that have later made it. It's much better to join the company 1-3 years prior to IPO/Sale where you get many of the benefits but significantly less stress. If I had worked at startups I would have been taking a 30-40% pay cut compared to the roles I did work and none of those startups have gone anywhere with most crashing and burning.
I’ve heard this a few times. Could you elaborate why? Surely at that point, less you are hired to a very senior role, you are going to get a very small equity % and a lot of the capitalisation growth has already been priced in? In exchange it is far less risky.
Do you just go for the market salary and treat the equity as a minor plus?
I can also guarantee you points 2 & 3 are pretty wrong as well. Funny (and also sad) how different peoples realities can be. I have been worn out sitting on both sides of the table to tell you the truth. (One thing I will say is that within VC, the vast majority of the folks actually doing the work are sympathetic and helpful to companies, working with early/senior employees, but it gets lost up the food chain so to speak and there's usually just one or two people making decisions at the end of the day about a particular deal or a whole portfolio- and these people are generally very self-interested.)
I'm not the GP but was one of the first engineering hires in a startup. In my case I got caught in the cross-fire of one of the co-founders backstabbing the other which meant that by the time we closed the series A I had been diluted by 80%. To 'make this up to me' the company gave me a new grant that would counter the dilution. The downsides were that this restarted the vesting clock and the new options would cost a year worth of savings to exercise - this was much more than the few hundred dollars my original grant cost.
Fast forward four years of toil with multiple cycles of doubling and then halving headcount as well as endless leadership changes. We are now on our fourth CTO in as many years. On the upside things are starting to look up! The newest sales team have worked out how to sell the original product we built, not the bells and whistles we pivoted to on the wisdom of the overpaid CPO. We can now celebrate as we have about a year's worth of runway and can confidently project being cash flow positive in about six months.
The new ex-FAANG CTO earning three times as much as anyone in the original team has great news! As a result of the positive development we are now able to hire an extra development team in South America! This shouldn't cost us too much and they can start on the next greenfield effort. The existing developers need not worry about being replaced as the existing team has all of the experience with the money making side of the business, and besides the new devs will be working on a parallel offering anyway.
Four weeks later and we've onboarded two offshore devs. The VCs have demanded we cut our burn rate and my position is being made redundant. I have 90 days to exercise but my options are underwater, both when compared to the funds we raised a few months ago and also the FMV. Essentially to buy them now I would be worse off than someone walking straight off the street.
requires having cash to tie up indefinitely, privilege alert
we did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS the election was beautiful.
Do they even pretend that they care about anything other than money? Like... ever? Maybe to family and friends (not even sure), but I mean professionally?
Getting out for an early employee after funding rounds is expensive because buying options can hit you with massive tax bills on top of the cost of buying the options. Worse, the stats aren't great for a chance on return. Your lotto ticket gets expensive and risky as soon as you decide to leave.
Articles like this one hammer home more and more to me how little VCs actually value early employees. Paying out founders to stay is a strategic move. Keeping them is worth it because they are the face of the company and turmoil at that level hurts their payout. Burning out early employees is not a concern because you can just swap them without drama. In fact, with the way options are structured and the 'industry wisdom' to hold off purchasing, it feels like a strategic move to burn out early employees since many employees that are forced out often can't even buy their options. They are left with nothing after all that work and risk. From a purely cynical view this is a great thing for VCs since now the company got all the benefit of an early employee and just lost all the costs.
I don't know about the other three points, but I can guarantee you point 1 of 'right sizing perceptions' is wrong.