Big Tech Companies Pounce as the Allure of Startups Fades
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1. We’re at the end of a bubble and doing a slow pop. Multiple companies that have raised a lot of money don’t have the revenue or unit economics to be sustainable. Employees with compensation tied up in stock aren’t going to do well. Had a friend leave two companies within 6 months (didn’t bother vesting) that both raised over $100 million because the executive teams were celebrating $900 deals.
2. Startups don’t exit anymore. Waiting 8-10 years for an exit is unacceptable. It might be okay for founders who take a couple million off the table at the B round or VCs who keep the IRR on their books, but for employees it’s a fail.
3. Founders as rockstars. The narrative is hurting the industry. People I like and respected raise money and become narcissistic assholes. Last founder I worked for who I considered a friend told me “he was like Elon Musk or Larry Paige, a technical genius, and not to question his leadership”. This was after he fired his cofounder and chased off the one other employee of our seed stage startup.
4. Risk vs. Reward. As an employee with founders trying to keep 50% of the company to be like Zuck, companies never exiting, and no idea what the terms of later rounds are, working at a startup is becoming stupid. Saying it’s about the mission, it’s about learning not earning, when the VCs and founders are doing great is disingenuous.
We’re at the end of the cycle. I’ve seen 3 now: 2001, 2008, 2016. Hopefully in the next round the powers that be will figure out how to better reward everyone who takes risk working at startups. Right now employees take almost as much risk as founders for much less reward.
Previously VCs got most of the cream, founders got to ride out the public markets for their pay day, and early employees had to hope they were working at a Microsoft.
Does that actually happen? I've always wondered if founders walked away from failed startups having made a couple million off the funding rounds... How common is that?
Often the only way you find out is if you have access to and read through the company documents. Another way is having a friend that works in finance and has visibility into this kind of stuff / you monitor SEC filings or other finance services or heard it through the rumor mill.
The logic is to incentivize the founders to go for the big wins that the VC formula is set up for.
[1] The VCs are bound to an business model and we who take their money are bound to support their outcomes. That's not a bad thing, but it constrains options.
[2] I found out early on (this is about to be a conclusion based on extremely limited data) that any VC that hadn't himself been through three down-turns, two as a VC, were 1000% worse than useless on the board. You don't want to get stuck to the hip with a wet-behind-the-ears rockstar-wannabe VClet going into a downturn.
Like big companies started to do it last time around, the startup will have to start giving RSUs instead of options without too much unreasonable limitations on sale of those RSUs on the secondary market. That would allow to much more easily (and realistically) valuate and realize your actual compensation.
Every time startup makes me an offer (and i almost don't interview with startups), a typical option loaded one, i always kind of wonder - "you wanna me forgo $50K+ in total in exchange for what? Shouldn't i get a stock like other investors? Because applying my time and skills at discounted rate is like investing the monetary value of that discount.". The only time when startup matched the total (of a concurrent offer from a public co.), several years ago and i should have taken it, it was a really early stage back then a unicorn of today. One can say being generous is a sign of unicorn :)
Based on my experience, the median offer for 1st engineers at an early stage startup is around $100K + 1%, vested over 4 years. My guess is that the same engineer's market rate at Big Co is $150K. It is nearly impossible that 1% is worth $50K /year.
Most startups will try to convince you that you should price common shares according to the company's last valuation (or more), but by my estimation, this is off by at LEAST a multiple of 2.
Here is why:
- Common shares are worth ~25% less than preferred shares due to liquid preference
- Inflation -- earnings from common stock are paid out on average 5 years from now. you should apply a 20% discount to the company's current valuation due to this.
- Risk -- startups are inherently risky. unless you are already wealthy, you should be further discounting for this.
Here is a spreadsheet that models out each of these discounts: https://docs.google.com/spreadsheets/d/1fA95D0YR9RWF7JGrP1W9...
In reality, you should be pricing common shares at closer to half the company's last valuation. Unfortunately, in my experience, employees are willing to buy into the hype and are currently valuing their shares at TWICE the company's last valuation.
Don't count on companies being an agent for change in this area -- employees just need to get smarter. Companies will follow suit by raising offers.
Also, although I agree that common shares are overvalued, I don't buy the undertone of your message -- that employees ought to make more BECAUSE their founders are getting rich. How much founders make and how much employees make should have little to do with each other. The former is dictated by how good of a business the founder has built, and the latter is governed by how much your peers are willing to work for.
Imagine for a second that you become employee 10 in a new startup that you believe in. You dedicate it 15 hours a day for 5 years, everything went awesome, and now the company is worth 5B. Your stock options would be worth millions in case of a liquidity event. Great, right?
The thing is, it's 5 years later the company is probably 300-800 people now, and therefore is a very different company than the one you joined, and if it's still growing, it's be a different company still next year. But there's no liquidity event: You cant exercise your options because you can't pay the taxes. If you want to exercise anything, the company has to go public, and you sure don't control that. So you either wait in a job that probably doesn't fit you anymore, or your stock compensation was worth nothing. Therefore, whether the startup does great or not, you have to apply the 'I might want to quit' discount. If I am assuming 8 years to IPO, which is not insane that discount is going to be huge by itself. I'd not rate my chances of staying in a job for 8 years as 1/10. And that's without considering that, career wise, you'll be learning more changing jobs every couple of years or so.
Let's compare this to a public company: Their stock compensation has none of that complexity, especially now that RSUs are the way to go. You can sell them for cash immediately at the stock price that day. The downside is minimal, and chances are your first block of shares comes after one year, so if you hate your job, you sit there a year, sell your shares and quit.
Given how much stock the bigger companies are awarding developers, you have to completely ignore compensation to go to a tiny startup: You kind of have to bet in the world around you changing to make exercising options early to be more or less free, along with believing that the startup will go the distance. Those are odds I'd not take
Employees don't even know they are making that bet, though! Most don't even know the details of what they are getting, let alone how to evaluate it. I've been working with AngelList to help fix this, much more coming very soon.
[1]: http://startupljackson.com/post/135800367395/how-to-get-rich...
Facebook, for example, has an entire org that focuses just on internships and new grads. They are offered space and time to learn and grow. Some may still fall through the cracks, but far less so than at a startup that doesn't have the resources to hand hold.
At a big company you can learn how to be a team player and specialize in areas that are interesting to you. At a small company you learn how to become a jack of all trades and must cover your bases.
This also puts you in a position to exclude your entire gain from federal capital gains tax if the liquidity event is at least 5 years out:
https://blog.wealthfront.com/qualified-small-business-stock-...
So when it imploded, not only did they lose their jobs, but their investments.
[0] http://www.nytimes.com/2001/11/22/business/employees-retirem...
This isn't true. You should switch because you want a raise and don't like the people. The raise situation can be fixed most of the time staying where you are so really you should only switch because the people situation has changed and you no longer like it. Switching because you think you will learn anything new is the wrong reason to do it. Programming hasn't changed since the 70s. You are not gonna learn anything new building the next CRUD app powered by mysql instead of postgres.
No, but you will if you switch to embedded development, mobile development, devops, etc. Programming has radically changed and expanded in scope since I've been doing it, and I wasn't even alive in the 70's.
As an example, I personally have worked on: cryptography & secured systems, iOS apps, industrial automation (code controlling manufacturing machines), configuration management, payment processing systems, smart card programming, language design and implementation, devops, and of course full stack web development. I'm not old, just turned 31, and this is only the small sliver of "programming" I've gotten to learn about professionally.
Switching jobs to learn something new is a totally valid reason. Thinking that web development represents all that there is to learn as a developer is like being a "Java programmer" or ".NET programmer." There is a whole world of other things out there.
It's also possible that there are really large challenges being undertaken which require resources that actual start-ups with 10 million in VC can't do. Things like autonomous cars (Uber isn't a start-up anymore IMO), rocketry, aerospace, energy, foundational biology. Is it possible that many great minds see these as more worthwhile pursuits?
But now, commodities have already crashed. Money is starting to flow back into housing. It stands to reason that the easy money in tech has also left. 'Everyone and their brother' are starting to move on to the next get rich quick scheme.
The current technology cycle started in '08, and most of the really big players today were either in search mode then (AirBnB, Uber, Instagram, Whatsapp, Kickstarter, Pinterest) or were in the early phases of growth (DropBox, Heroku, YC). A lot of them didn't raise Series A until late 2010 or early 2011. I think it's fair to call that the restart of the startup market.
I worked at a Sequoia-funded company at the time. It was bad... hiring ground to a near-halt, and attrition was used to shrink the engineering department. Eventually, I got laid off over a year later (February 2010), and by that time we weren't any financially better off than when Sequoia made that presentation. The reason for my layoff was because our VCs had given us less money during our Series D than we were expecting.
I absolutely hate how political and bureaucratic my current company is. It's so difficult to get anything done, because of the micromanagement and second-guessing for the sake of "collaboration." It's dreadfully slow. Nearly all management has family and kids; most of my direct coworkers don't. Two are engaged, one is married with two kids. I'm gay and am not planning to ever have kids. So I have a ton of free time in comparison to my straight coworkers.
My plan is to start my own company in a few years. I don't think I can tolerate an atmosphere where I can't set my own pace. I'm a pretty competitive person who likes quick results. I get the feeling I'm out of place in my current environment.
If you want to work with a team that spends all of their free time at work, you may find it challenging in most places, but especially big companies. Having work/life balance is pretty important to most people, especially when you're just collecting a paycheck and not invested/owner in a business.
Paraphrase #1: Salaries at startups aren't very high, without considering options.
Paraphrase #2: Yelp is having to raise compensation to compete against startup job offers.
Past the very early stage, the first statement is untrue. I sincerely doubt that Uber is paying less base salary than GE. Certainly it is in the ballpark -- because every well-funded startup out there (there's a lot of them) pays "market rate" which nets out to "we match salaries for everyone except Google employees."
Uber/Yelp are no longer startups. I think the article is referring to companies much earlier in the life cycle.
Yelp has to pay a lot more, not to beat their startup salary, but their expectation of a big payout.
There is nothing innovative going on in Chicago unless you're in the financial speculation industry, and its at least well paid.
No point in me ever sticking out a Chicago winter ever again. Challenging, exciting work isn't geographically constrained there.
* I admit this moves the goal posts a bit when I said there is no exciting work going on in Chicago. I never even knew HERE was in CHI doing that sort of work. I hope they consider remote workers in the future. C'est la vie.
My beef with Mapillary is that their crowdsourced imaging license is too restrictive compared to the competing OpenStreetView project.
We are talking data in the many many many petabytes range. 100Mil images is a tiny fraction of what HERE has. Also I am not sure if mapillary also has the high quality LiDAR data. My understanding is that they reconstruct from images, which has a much lower density and accuracy.
They also do have offices all over the world. I mentioned the Chicago office because you were saying there wasn't interesting work in Chicago.
Pretty much every Big Co. in SV offers these perks and more. And yes, they also have windows.
Your just naming big tech companies in SV. Most of which have horrible perks and known to be cheap. I mean Cisco? HP? EA? Seriously? (the only one that has great perks on your list is netflix)
Not Apple. They have OS/X.
Without getting into the relative availability of these things (I think you are underestimating how available they are in big companies).
These are extremely cheap to provide. The perks that cost a lot for companies to provide, health insurance, better pay, better retirement options, education reimbursement, etc. Are where real comparisons between perks should be made. In my experience those are systematically more common in big companies than small ones (that is governmental policy makes it easier for big companies to provide these).
Larger companies often can provide a better work/life balance because they have more resources to do so. Now, that isn't always the case--many of them abuse the hell out of their employees because they can, but there often isn't the same "working 80hr weeks" you get at startups.
I've found that increasingly the dollar value of my free time is one of the most valuable "perks" a company can provide.
The best 'perk' is working for a company where it's expected that you will work normal hours most of the time instead of as the exception. As I get older and have a family and more interests outside of work, this becomes the most critical factor. A lot of the classic startup perks seem designed to keep you in the office.
I see a lot of replies insisting that big companies have the same perks as startups plus the standard benefits, and that's great. It makes happy for the legions of employees working there (and me if I end up back there someday). Our experiences are anecdotal, so I wonder if this is actually a widespread thing at large companies. I doubt it, but I hope I'm wrong.
Since when does Google == All Big Tech Companies?
My father-in-law started a psychological testing firm in the 80s that had all these things. With no programmers, imagine that!
I work at a mid-size (~500 employee) telecom. "The [company name] 15" is a meme here because there's always so much free food in the kitchen. Every time anyone meets with clients/partners/etc., they always have way too much food catered, and the leftovers get put out for the rest of us. New employee orientations are especially awesome because they always order like ten times as much food as the newbies can eat. And we get donuts and klobasneks in the break room every Friday morning... plus every day, the break room is stocked with cereal and milk.
I like to post about the stuff I find in the break room on Facebook, and I've had multiple people tell me they gained 15 pounds just reading my posts.
> I could never go back to a cubicle with no windows in sight!
That's a mixed blessing. I consider cubicles a perk, and while windows are nice, the lack of windows isn't a deal-breaker for me, and they have their downsides.
At my last employer -- a 12-person defense contractor that put the "small" in "small business" despite having been around for 20 years -- I sat facing the window. We had four people in the room, with an empty seat for a fifth, none of us with our backs to the walls: we all faced the edge of the room. Three of us faced plate glass windows. Yeah, sure, the view was pretty. We worked on the 12th floor. I faced a freeway and a light rail line, with a rail station visible as well. It wasn't uncommon for us to stop work so we can gawk at a nasty accident on the freeway, so we can speculate on why the police have the freeway closed off, or to marvel as a hawk flew in front of our windows. That's the good. The bad is that the glare could get blinding at times. And all of us were afraid of closing the blinds because we didn't want to interfere with somebody else's view, so we just sucked it up and worked in glare on various days.
And then there was the office layout itself. Nobody had any privacy, and we could all see each other's monitors from our desks. I never worked on the same project as two of the people in my room (and they usually were on separate projects themselves): it wasn't uncommon for other members of their teams to walk into our office and have an impromptu design meeting with them while the rest of us tried to tune them out. And, no, we had no meeting rooms readily available to us: we rented a handful of offices in an executive suite that we shared with other companies, so any meeting rooms had to be booked well in advance and cost us $$$.
Now, at my current employer, I work in a cube farm, and I love it. I have my own space, I can see when someone's coming up to me, my cube doesn't get used as an impromptu meeting room, etc. Sure, I don't have my awesome view anymore, but it's not terribly important, and I'm no longer dealing with glare. If I really need to look outside, there's a window not too far away from me anyway, and when the weather gets bad, a lot of us gather by that window so we can check out the storm.
Free lunch/snacks/drinks might save you a couple hundred dollars a month, max, if you use them everyday. A little resourcefulness with leftovers, brewing some coffee at home, etc, and that perk is worth way less. It's worth little compared with your paycheck.
After doing different office layouts, I have come to enjoy cubicles or separate offices, more and more. Open concepts are not unique to startups, anyway.
This part doesn't make sense to me. Wouldn't it be the opposite? Doesn't the "want to get rich now" crowd prefer the start-ups and the "want to get rich later" group prefer the larger, stable companies? (Spoiler: Chances are, neither of these groups are going to "get rich", sorry.) The people that big companies ought to be going after are the ones who TRIED to get rich early, ended up holding worthless lottery tickets, and are content to toss them away for a little stability.
Why? Broad generalizations really don't help here. Here is a counter: Its likely that people who have worked at BigCo's are better at working with their bureaucracy, they know that they won't get immediate results but understand the system and are willing to work with it to get things done. So they are more likely to succeed in that environment.
It'll be an interesting observation to see if that comes to pass, but insofar as I'm concerned, they're training front-end students for startups building platforms.
Many of my bootcamp colleagues at small stage startups regretted the decision.