[HN Gopher] Understanding Startup Offers ___________________________________________________________________ Understanding Startup Offers Author : medtner Score : 107 points Date : 2021-09-24 16:30 UTC (6 hours ago) (HTM) web link (withcompound.com) (TXT) w3m dump (withcompound.com) | bruce343434 wrote: | Addendum: Understanding _American_ Startup Offers | sys_64738 wrote: | Moral of story: avoid startups. | synergy20 wrote: | Chatted with some early-stage-then-IPO-ed engineers yesterday, I | asked "aren't your company IPO-ed and you should have retired?", | the answer is, after multiple dilutions in rounds of fund raises, | his options ended up worth just a few thousands, not useful at | all. | | There is no way the startup you have been working for will keep | your interest a priority, and you never know if your share will | reach zero in the process of multi-stage VC rounds. | | Unless you're the founders who will always be at the negotiation | table for new rounds, I saw no point to work for startups, not at | all. | clpm4j wrote: | I think the main advantage of working at a startup is when | you're relatively young and inexperienced - you're being | compensated in the experience and accelerated job titles that | you can then leverage to ramp up your career by joining other | companies or starting your own. Getting an exit is a cherry on | top. | dhd415 wrote: | In my experience, getting a FAANG job accelerates your career | as well or better than titling up quickly in a startup. | Having a FANG position on your resume is more of a known | quantity for future potential employers than being promoted | quickly in an unknown startup. | glassconclusion wrote: | I'm working for an unknown startup and I feel like I will | placed in a pool of entry level candidates if I decide to | join a big corp. | dhd415 wrote: | I would expect that your startup experience would place | you well among a pool of entry-level candidates once you | made it past the resume screening stage. Where the FANG | position is going to help you is in getting past that | stage. Fairly or unfairly, having a FANG position on your | resume is kinda' like having a degree from an elite | university in that recruiters will view your resume more | favorably. | freewilly1040 wrote: | I don't think people at established companies care about | gaudy job titles at startups. Being a director at some | chaotic mess of a company (and much of the time that is what | startups are) doesn't signal competence. | | The opposite can be true, when IC's at startups who have not | truly learned their craft jump to management too early. | clpm4j wrote: | Yeah true I suppose there was some bias in my assumption. I | was thinking specifically about relatively well known Bay | Area startups... say you're a Senior or Staff Engineer at a | startup that has raised from top tier VCs then | hypothetically you might be better positioned to be come | that #1 or #2 engineering hire at the next hot startup, or | you'll be able to get more meetings with those VCs should | you start your own thing because you're already a "startup | person" rather than 1 of X00,000 FAANG engineers. | majormajor wrote: | I don't think startup job titles are worth much but they can | be massive skill accelerators. | | If you're in the first 5 years of your career you'll have | more opportunity to learn more technologies at a small | startup where everyone has to do everything than at a FAANG | (especially compared to Google where you will only learn the | Google internal stack). | | You can leverage that into a much higher paying job in a way | that you wouldn't be able to leverage experience at a mid- | level company. | Hermitian909 wrote: | Even this is becoming less valuable as bigger companies start | to invest in training and mentorship. | | Three people I know how graduated college recently working at | big companies have senior engineers dedicating multiple hours | a week to mentorship and a lot of learning opportunities. | They're growing much faster than junior engineers thrown into | the deep end IMO. | | The faster title advancement doesn't mean much IMO. Working | at a big company I can say that outside of a certain group of | other big companies we just don't trust titles to have any | correlation to abilities. | [deleted] | ctvo wrote: | > _Chatted with some early-stage-then-IPO-ed engineers | yesterday, I asked "aren't your company IPO-ed and you should | have retired?", the answer is, after multiple dilutions in | rounds of fund raises, his options ended up worth just a few | thousands, not useful at all._ | | Assuming series a engineering role, .30 - .50%, even after | dilution, for an IPO'd company, we're assuming 1BN+, to walk | away with a "few thousands" is hard to calculate. | | A few hundred thousands is more likely (taxes) and even that | isn't a worthwhile trade-off for most folks. It'd need to be in | the millions to make it more attractive than big tech at the | moment. | bbno4 wrote: | Is there one of these but for UK? | keeptrying wrote: | These set of questions are very thorough and will help you avoid | 80% or more of the bad situations. I had to figure out all thsi | on my own and most startups won't answer these questions even | after getting an offer. | | Some more question you might want to ask: - is there a double | trigger clause? (If not then the founder can restart your vesting | after an acquisition and do other nasty things.) | | - can I exercise my options after beating while I'm at the | company. (You'll be surprised but I've seen companies that don't | allow you to exercise while you're employed there which means you | can kiss qsbs goodbye and you can't leave comoany if it gets too | big else you'll lose the options) | | - can I sell my exercised stock on the secondary market? (Some | companies don't allow this) | | 95% of people don't ask these questions and can get screwed. | fasteddie wrote: | This is a great, clean explainer. | | Series B seems to be the sweet spot to me if you would like to | avoid working at a FAANG but want similar EV in your comp | package, assuming you are decently good at guessing winners. | | At that point the company is meaningfully de-risked but the | equity offers are still pretty good for mid-career folks that you | end up with millions in a good exit. | xtracto wrote: | I've come to prefer post-Series A startups. In my experience | Series B tended to be the moment where the startup beings to | establish "controls" and bureaucracy for things. It is when you | start setting OKRs, it is when you start having 2 or more tiers | of mid-management and "policy documents" start flying around. | | For me, post Series A is the sweet spot when there are exciting | problems to solve and you still have good leeway to make things | happen without too much red tape. | lankinen wrote: | Great post! | toomuchtodo wrote: | It would be helpful to explain how an early employee (whether | still employed or separated from the company) is able to obtain | the following documentation from their company to demonstrate | QSBS treatment to the IRS (or if a letter indicating such from a | finance department or the CFO would suffice): | | > Even though reporting QSBS is simple, you should still keep | financial statements and other supporting documents to support | your claim. Detailed balance sheets for the company from its | incorporation through the close of your investment will show if | it has more than $50 million in aggregate gross assets. Equity | documents (type, date, etc.) are also important to demonstrate | that your investment qualifies. [1] | | [1] https://withcompound.com/manual-company-equity/qsbs | ganoushoreilly wrote: | This is a good point. A lot of founders seem to want to protect | or hide this information. Usually that's a red flag for me, but | it's common. I think it needs to me more normalized and | formalized. | [deleted] | rdli wrote: | The post says "an alternative career accelerated through | learning, wealth, and reputation" ... and then doesn't talk about | anything other than equity. | | The article says "Equity will be your largest driver of | compensation at a startup." as the rationalization of why it | focuses on that. | | Based on my past experiences, I would say that the learning, | network, and reputational effects resulted in far more wealth to | me over the medium-term than any incremental change in equity or | salary. | qqtt wrote: | It would be interesting to see some analysis comparing pre-IPO | offers versus standard FAANG-style engineering offers and see | what the monetary difference actually is. | | In the not-so-distant past, start ups were pretty much the only | avenue to secure a multiple-million dollar personal liquidity | event, in the off chance you join a successful start up, work | your tail off, and the company gets to a point where that exit | happened (which was and still is rare). | | But nowadays, with software development offers being what they | are are large public companies with outstanding growth prospects, | the argument that you need to join a start up to fast track | earning millions is pretty much out the window. Not only do | people who are working at large stable companies like Google & | Facebook have the generous perks and large company work life | balance stability behind them - they are also soundly beating | almost all "successful" start up offers in terms of compensation | over the long term. | | I would love to see some real life practical numbers with start | up offers at different stages of funding and how that would | really compare to simply working at Google or Facebook over the | same time horizon. | | It seems the only reasons to work at a start up these days are if | you really really love building products, want to wear many | different hats, are frustrated by the pace of big companies, and | are stifled by the big company processes that dominate the day to | day life working at these companies. | | Compelling reasons to work for a start up for sure, but | compensation is not even in the top 10 reason to join a start up | anymore, IMO. | joshuamorton wrote: | Dan Luu wrote about this a few years ago: | https://danluu.com/startup-tradeoffs/ (from 2015, but has been | updated a bit since then). | | I think the big challenge is that accurately evaluating a | startup offer is very, very difficult. And it can be really, | really contextual. As an example, I know someone who worked at | a company that went public fairly recently, and their result | was vastly worse than the EV of a big company, but they also | had a below average startup EV because they left the company | and didn't purchase all of their options when they left. | | With Google or Facebook, the question is really just stock | growth and grant sizes. | | With startups its growth and grant sizes, yes, and the expected | type of liquidity event(s) and the time horizon on that event | and your plans and company culture over that time horizon, also | any additional funding rounds can markedly affect things and... | enra wrote: | The challenging part about equity that every company is | different, takes bit different path and has different chances | of success. | | My anecdotal example that I don't know anyone who made | massive/post-economic money by joining a public company. You | can probably make six figures easily, and potentially low 7 | figures in some years. The only people I know who have mode 8 | or 9 figures are people who have joined startups early or | relatively early before the IPO, and the startup became a | $20-100B company. | | Seed stage, as one of the first senior engineers, you might get | 2%-0.5% equity. At $20M valuation (common YC valuation at the | moment). That's $400k-100k value vesting over 4 years (which | might sound low compared to FAANG offers). The point is the | upside potential, not the value. FAANG companies might grow 5x | in 5 years. Startups can grow much more. That's why the whole | VC market exists. | | Hitting $1B means the company valuation went up 50x, hitting | $10B means 500x, hitting $100B means 5000x. So your initial | offer could be worth several millions to hundreds of millions. | Even if you join later, when the company is valued $500M-$1B, | you might still get 50-100x upside. | | The math is more complicated since usually companies raise | multiple rounds which then dilutes the existing shareholders. | Roughly 20% at seed/series a, and then less after that. | qqtt wrote: | With things like dilution mattering and stock options being | popular vehicles for early stage start up it would be really | interesting and elucidating to have practical examples to | compare against. | | It's easy to understand a FAANG style offer in this context. | | You join Google in 2017, you get RSUs pegged at 800$ a share | valuation, about 150k$ a year vesting, by 2021 those shares | are worth 2800$ so you've earned about 2.1 million (not | exactly as taxes come into play). | | You join AirBNB in 2017, valued at 30 billion, you get a | similar offer, fast forward to today and AirBNB is now worth | 100 billion, you might have made 2 million (again, not | exactly, considering taxes and potential dilution). And | AirBNB is one of Y Combinator's most successful start | ups/exits. | | From some quick google searching - there are thousands of Y | Combinator companies and only ~29 are worth one billion or | more. Of those billion, they are all at this time late stage | and trying to guess which up and coming Y Combinator company | will be next to crack 1 billion is a very risky endeavour. | | How does the tax implication of stock options really impact | your net gain, and does that practically move the needle for | a comparison against a standard FAANG offer? | | Would be interesting to look at some cold hard numbers. | Absolutely joining a 20M valuation YC company and sticking | around until it grows to 1B would be incredibly lucrative - | but how lucrative in a practical sense, given real offers? | Dilution? Tax implications? Would love to see this analysis. | preseedthrwwy wrote: | throwaway for obvious reasons.. | | I joined a seed company w/ a $10m valuation in early 2014, | starting offer was 1%. after series a, b, c, and some | smaller retention grants, I had about 0.4%. Left before | fully vesting, so ended up with 0.3%. Company was acquired | for $4b and I made $12m. After taxes, netted about $7.5m | | Joined another seed company with $10m valuation in 2016, | starting offer was 3%. after a few dilutive funding rounds | and some generous retention grants, ended up with 1.2%. | Company also acquired for $4b and I made $50m. Will | probably have about $35m from this one after tax. | | Obviously I was _incredibly_ lucky in picking those two | companies, but maybe those numbers shed some light on | dilution, taxes, etc. I wouldn't have made anywhere near | that much if I'd joined those companies after series a, let | alone b or c. I encourage anyone I know who wants to make 7 | figures to work for faang for a few years. If they want to | make 8 figures, start a company or join as the very first | hire (as I did) if you're not willing to take the risk of | being a founder. | lostdog wrote: | Wow! What companies do you like right now ;) | clpm4j wrote: | This is a good 'best-case' example that anyone could hope | for, and like you say - you probably need to be one of | first few engineering hires to have a shot at this type | of outcome. | preseedthrwwy wrote: | absolutely agree - wasn't trying to give the indication | that I think my situation is a likely outcome | quokkafriend wrote: | What is next for you?! | quokkafriend wrote: | Yea I think this is a top 0.1% survivorship bias. Hitting | 2 startup lotteries in a row at that kind of exit. Kudos. | glassconclusion wrote: | Shouldn't be this more like 0.01%? Two startups as an | early employee and hitting almost 50M. Wow. just wow. | devnulll wrote: | I bet this goes the other way, especially at the exec | level. That is, the best indicator of startup success is | past startup success. Certainly funding is easier, | building the team is easier, and the emotional decision | making is easier. | | The phrase serial entrepreneur is often used. | enra wrote: | Yeah I wish YC or someone could provide some anonymized | data on this across companies. And it's true that out of | all startups, only probably 1% make it big. But the markets | are growing fast and just this year there has been ~200 IPO | which I think mostly are $1B+. | | From a tax perspective, RSU are probably worst. They are | taxed on your W-2, effectively a bonus. If you make a lot, | you pay max bracket federally and in your state. In | California I think it can be ~54%. | | Joining seed/pre-seed company that hasn't done a priced | round likely is the best. Employees get to buy shares, not | options, at the nominal price, often $0.0001 per share. | There is no taxes as there is no gain. After a year those | turn in to long term shares, and you can hold them forever | without paying any taxes. When the company is public, you | can borrow money against it so you don't have to sell. If | you sell, you pay long term capital gains, and if QSBS | still exists and you hold the shares for 5 years, you have | $10M tax free federal credit. | | With options, it depends on the timing and the cost to | exercise. Joining early, and exercising options early, is | usually also good since now you own the shares and only had | to pay the fair market value which is 20% of the investor | valuation. Again now you can hold the shares forever, get | QSBS or pay long term capital gains when you eventually | sell. | | If you join late, likely you should still exercise if you | can/want to. If you don't exercise early, then you might | have to pay taxes on the gains of the fair market value | from the time you were granted the options and the time you | exercised. Or you could just hold the options if the | company allows. Then after the company is public you can | just exercise and sell, and pay the short term capital | gains similar to RSU. | freewilly1040 wrote: | I think YC has not put out information like this because | the data would show joining a startup as a regular | employee is not remotely worth it vs publicly traded | companies. | [deleted] | [deleted] | nostrademons wrote: | "In the not-so-distant past, start ups were pretty much the | only avenue to secure a multiple-million dollar personal | liquidity event" | | I'm actually not sure this is true, and wondering if this was | reporting bias. When a startup exits for a billion and all the | employees get rich, you hear about it on the news, and you can | do the equity calculation yourself based on public funding | round press releases. When a big company quietly gives a multi- | million-$ comp package to a valued employee, they have _zero_ | incentive to share that news with the rest of the world. | | My wife grew up in Silicon Valley, and somehow all of her | friend's parents have large real estate holdings. These were | people active in the 70s-90s, big company employees, no exits. | But there was one guy who had a beautiful house in the Saratoga | foothills with an artificial waterfall between his two swimming | pools; "Oh, his dad was a rainmaker at Intel." Or another | friend of the family who had made some key inventions at HP, | and retired early. Or the innkeeper we met in Alaska who had | simply worked big companies in Silicon Valley, no exits, saved | his money, but then when he turned 40 he bought a sailboat, | sailed around the world with his family, then when he reached | Alaska bought 2 old warehouses and converted them into a B&B. | noodle wrote: | I think it's true if you add the caveat "only avenue for an | average person". Not everyone gets the big liquidity event in | the startup game, but also very few people actually get | multimillion dollar comp packages at well established post- | IPO companies despite how much it seems to get discussed | here. | nostrademons wrote: | The startups that succeed do not generally have average | early employees. Remember that founding a startup and | successfully taking it to a large exit is a decidedly non- | average outcome; the average startup fails miserably. | | I think that if you're seeking non-average wealth you | should first strive to be non-average. There are a number | of pathways to exceptional wealth, but all of them require | being exceptional in some way. | esonderegger wrote: | One of the things I rarely see mentioned when discussing career | prospects of startups vs large corporations is how different | their hiring filters are. | | If you are self-taught, lacking credentials, and don't live in | a major market, it can be difficult to get in the door at a | FAANG. Whereas start-ups can be much more likely to take a | chance on someone with a non-conventional background. | | So for some of us, large corporations aren't even an option | until after we've taken that startup job and the startup has | done well enough that people have heard of it. | ctvo wrote: | > _If you are self-taught, lacking credentials, and don 't | live in a major market, it can be difficult to get in the | door at a FAANG. Whereas start-ups can be much more likely to | take a chance on someone with a non-conventional background._ | | Don't self select out of these jobs. I've been an interviewer | at FAANGs. We take talent where we can and count ourselves | lucky. | | Our recruiters call everyone given enough time. Reach out to | one directly on LinkedIn for an even better chance at an | initial screening call. Ask for a referral from someone | already working there in your wider network. Ask for a | referral from Blind. Ask for a referral from HN. | | From there it's your ability to pass the interview, not any | set of credentials (different thread please on the interview | process). | leetcrew wrote: | I just went through the job search again, and I found the | exact opposite to be true. for context, I went to a | regionally-known (at best) state university and have just a | few years of experience at a small company you've probably | never heard of. so not quite "self-taught" but pretty far | from what you'd think of as a the typical FAANG employee. | | I applied to at least twenty roles at startups and | small/medium-sized companies that seemed like a good fit for | my skills and wrote thoughtful cover letters for each one. | not a single one of those employers responded, not even to | reject. | | I also applied to a couple FAANGs, thinking it was a pretty | long shot. but I ended up getting two on-sites, one of which | I converted to an offer. there's definitely some truth to | what people say about the unreasonable/irrelevant DS/algo | problems, but I found it comforting to know for once what I | was actually being assessed on. | | not sure whether I got lucky with the FAANGs, unlucky with | the smaller companies, or what, but just thought I'd share | that anecdote. not the outcome I was expecting at the | beginning of the process. | quokkafriend wrote: | My equity grants as a non-eng (but involved in prod dev) have | ranged from 0.05% to 0.6% over the course of 10 years in | startups (age 25-35). All Series A to Series B. | | My take is that unless you are very good at judging leadership | teams and company prospects, that joining a FAANG or a Series | C+ scale-up (and even that takes thoughtful research and luck) | is the better play. | | Early stage at my past grant levels has to hit a unicorn | valuation for the equity to match FAANG packages. I'm not even | sure a $1B exit is enough after dilution, investor preferences, | and god forbid down/flat rounds. Certainly not at the grants | that I started at in my career. | | Plus keep in mind that FAANG stock also appreciates. I see some | folks not accounting for that growth and only startup valuation | growth. Comp packages for mid level ENG and PMs are 400-500k / | yr, not even including appreciation! | hinkley wrote: | Maybe it's like people using their tax refund as a savings | strategy. If you're good with your money then fixing your | withholding and increasing your savings rate nets you more | money in the long term. But you have to have self control to | save the money instead of just fighting temptation once a | year. | akomtu wrote: | A typical 4-year vesting plan at 500k/year gives 2M in | "nominal" dollars. 2x that to account for stock market | growth, 2x for work life balance (startups demand 2x more of | your time than FANG), 3x for dilution and other startup | shenanigans, 5x for the risk (how many C series get bought | for 1B within 5 years?), and you need a 60x2M offer from a | startup to just match FANG. 120M looks outrageous only | because it's fake money: 95% of the time you won't get | anything. | fatnoah wrote: | I spent the better part of 17 years at startups, with grants | ranging from 0.2% all the way to 1% (VP Eng in a Series C+). | The latter exited, but options were worth $0 due to | liquidation preferences. I did get a cash bonus equal to | about 2x my salary, so that was nice...it was also about the | same as the sum of my last two stock vests (i.e. 6 months) at | the FAANG I'm currently at, and whose stock price has doubled | since I joined. I currently make 4X what I made at the height | of my startup career. | | Unless I'm coming in hot with good equity and an imminent IPO | OR I don't need/want the money at all, I can't see going to | back to startup life. (I also wouldn't trade that startup | experience away, either) | hinkley wrote: | I learned long ago that the most successful tech company I | know is probably not the one I work for. Also that layoffs | tend to follow drops in the stock price. | | I don't buy shares on margin, so why would I want my nest | egg invested in the company I work for? If I get laid off | I'm poor twice over. | jdavis703 wrote: | I don't know about Facebook, but my friends at Google seem to | have terrible work life balance. Seems like they only get a | breather when they're between projects. | nostrademons wrote: | Google in general has pretty good work/life balance. | | I think the challenge is that you're responsible for | _launching_ on a feature team at Google, and the lead up to a | launch has a ton of work that needs to be done often under | tight deadline pressure, plus the codebase is crazy complex. | If you 're a self-motivated, detail-oriented, slightly | obsessive individual of the type Google loves to hire, you're | not going to rest until it's all done. | | Infrastructure/logging/analysis/reliability teams have it | much better at Google, in terms of work-life balance, but the | tradeoff is that it's harder to justify your impact when it | comes to promotion time. | joshuamorton wrote: | This, I've basically never felt external pressure from | management or deadlines in my job. | | I have however, on more than one occasion, found myself up | far too late (or in the pre-pandemic times having nearly | missed the last bus home) because _I just want to figure | out what is causing this damn bug_. It could wait until | tomorrow, no one would care if I waited until tomorrow, | there is no pressure for me to fix it today. But I want to | solve the problem. | mcgingras wrote: | I have an offer that vests over 6 years with a 1.5 year cliff. Is | that normal? I'm used to 4 years 1 year cliff, but the CEO said | that 1.5/6 are common for companies that "want employees who care | about the long term" | majormajor wrote: | No, have had multiple recent better offers than that. They're | trying to rip you off. | | If they want to keep you motivated for the long term even if | value isn't increasing rapidly then they can do bonuses, | refreshers, etc. | [deleted] | matheist wrote: | I've never heard of 1.5/6 being a thing. Would be a red flag | for me but of course I only have the context you mentioned. | | Refresher grants could also motivate employees to stick around | for the long term! | devnulll wrote: | No, I don't believe that's normal. That sounds like a CEO | trying to take advantage of the labor force. | mcgingras wrote: | Thanks everyone, that's what I was thinking as well, but I'm | fairly new to startups so I wasn't sure. | xtracto wrote: | Mhmm, I wouldn't put it like GP (someone wanting to take | advantage of...). The large majority of employments DO NOT | give stock options. Shit, in most countries that's unheard | of (in Mexico for example, someone with a similar offer | would think of the stock options as the cherry on the | cake). | | Nonetheless, given YOUR market, you should check whether | the other parts of the compensation they are giving you are | right. For example, there was the case of Mailchimp a | couple of days ago: They gave no stock to their employees. | However, in theory their compensation package was good in | other ways. So if the company is offering you a good salary | + benefits (what about 401k matching? PTO? sick days? gym | membership, WFH and whatnot), that will give you the full | picture. | freewilly1040 wrote: | 4 year vest, 1 year cliff is the standard, and even that is | going away at some places. | | An employer who wants to keep you will demonstrate that by | compensating you well and giving you an opportunity to augment | your skills. | | This offerer sounds like someone who has experienced turnover | problems and has decided that it's everyone else's fault. ___________________________________________________________________ (page generated 2021-09-24 23:00 UTC)