Sounds like the market is telling startups that early engineers are worth more than 0.1% of stock options.
I'm an older, successful dev in Chicago. I recently corresponded w/ a local startup CEO on linkedin. My skillset seemed to be a good fit for the role, but their stated top salary would be a 20K pay cut for me. So I ran a quick estimate, based on expected exit and expected dilution figures that I found on the internet (I know, grain of salt...), added a risk premium for myself, and found that I would want about 7% equity, in order to be interested. They said no, of course.
My point is that (some) startups can't or won't pay for the technical skills they want. And that's their problem, not ours.
You wanted 7% equity to make up for 20k? That seems a little excessive...
Seems reasonable for a company with estimated current valuation of around $300k.
5 years to exit * 20K yr opp cost = 100K total opp cost
I think my payback should be twice my total opp cost, so I want 200K at exit
1% chance of exit at 600M valuation after those 5 years
I would expect my initial equity to be diluted to 50% of original value.
Hence, I want 6.7% equity at the beginning of the 5 years.
Note that, IMHO, I am being very conservative in calculating my opportunity cost for the lost salary.
I also neglected to make explicit my use of the expected value of the exit in my calculations.
I hope this helps to clarify my thinking.
Ah, I see, I wouldn't have taken that into account since I'm not sure it quite works out that way. It seems you've intertwined probability with opportunity cost, is that correct?
EDIT: Thanks for the breakdown, by the way! I really appreciate the insight.
Averaged over all startups, of course, 1% is a reasonable estimate (might even be high). So another way to put this is, a savvy top developer just isn't going to join an average startup, period. They'll have to be persuaded that the opportunity is an extraordinary one. The bulk of startups will have to make do with less-experienced developers. This is why pretty much every startup now needs a technical co-founder.
Why would someone work long hours for low pay with higher risk for 0.1% of high-risk small business?
A: those companies aren't cool & won't make you a millionaire by 35 on stock options (whereas a startup might)
The most financial exposure these individuals have is reading the $Xmillion Series X funding, or $Xbillion exits that they see on TechCrunch on a daily basis. Their risk is assessed on those headlines.
I trusted the founder when he would make big promises for the future. He didn't bring up equity until the last moment once we already were ready to quit and join. In hindsight these are clearly common business tactics (get the person to accept before going into details), but as a young engineer I had more trust in older more experienced folks like the founder. Even when there were huge alarm bells ringing in my head, I said yes. It's hard to describe how a good salesman can have you saying yes to things you aren't comfortable with.
In the end the company crashed and burned after losing all it's founding team who all work at top companies now.
I recommend a book that describes some of these tricks pretty well. It helps protect me from such manipulation (some of the time):
https://www.amazon.com/Influence-Psychology-Persuasion-Rober...
Seems the endgame's going to be higher equity grants. If VCs won't fund something unproven at 350/head and devs won't work for peanuts, higher equity grants seem the only option.
I think it'll be just like Hollywood, in that projects are evaluated as much for who they've managed to recruit (e.g. a movie with Brad Pitt is fundable) as on other business fundamentals.
It's striking how much of business views "labor" as ancillary to success. That might be true if you're running a pizza joint but it couldn't be farther from the truth building a software company, or making a movie.
Or starting a medical practice
Or starting a hedge fund
Or starting a law firm
It might be the most important thing for any new venture, across history. There is a good reason that the start of the story about Jason and the Golden Fleece describes assembling his crew of Argonauts.
Startups insist this is "standard". Well I hope it's standard for them to fail until they actually value engineers. I don't see why engineers need to be a monastic underclass to subsidize founders and VCs.
Its comp they can take away, block or otherwise control.
Nowadays I only look at companies that can offer RSUs. Until the re-write the tax code to stop taxing people on fictional gains, options are crap, especially with companies remaining private far longer than you are likely to remain working there.
Maybe it can be, but I haven't seen it, nor has anyone I know working in the valley.