At Booming Toptal, No Stock for Employees or Investors
theinformation.com
theinformation.com
This guy seems to have reasoned that for him, it was more optimal to defect, and it seems to have worked out. TopTal succeeded and he didn't raise any more money. His reputation with VCs is torched, but he doesn't need to raise any more money. If TopTal had failed, it really wouldn't have mattered because he wouldn't have needed to raise any more either.
You have to wonder if VC will eventually become a market for lemons[1] as founders who know they have a big opportunity only offer investors unfavorable terms. Obviously no startup is a 'sure thing' but it does seem like founders increasingly have a lot more information than their investors.
The business model of selling $1 for 50c and hoping that later you’ll be able to sell it for $2 because... reasons.
Say that your one dollar cost at one million users is $0.80 fixed costs and $0.20 incremental cost. Adding more users will eventually make the model profitable, and this is how Facebook works, for example.
Seemed to work fine Anthony Levandowski
ttps://www.wired.com/story/god-is-a-bot-and-anthony-levandowski-is-his-messenger/?verso=true
From the article, note how Levandowski pulled the stunt below and managed onwards to Otto:
In early 2011, that plan was to bring 510 Systems into the Googleplex. The startup’s engineers had long complained that they did not have equity in the growing company. When matters came to a head, Levandowski drew up a plan that would reserve the first $20 million of any acquisition for 510’s founders and split the remainder among the staff, according to two former 510 employees. “They said we were going to sell for hundreds of millions,” remembers one engineer. “I was pretty thrilled with the numbers.”
Indeed, that summer, Levandowski sold 510 Systems and Anthony’s Robots to Google -- for $20 million, the exact cutoff before the wealth would be shared. Rank and file engineers did not see a penny, and some were even let go before the acquisition was completed. “I regret how it was handled…Some people did get the short end of the stick,” admitted Levandowski in 2016. The buyout also caused resentment among engineers at Google, who wondered how Levandowski could have made such a profit from his employer.
Firstly, that kind of founder/opportunity is exceedingly rare. It may as well not exist for purpose of discussion.
Ideas are literally worthless. You become successful via execution and execution at scale (unicorn scale) requires many moving parts with many people. That means there's no sure bets at the early rounds. There's not a specific formula that "works" so it's all subjective and VC groupthink. VC "works" only because they take high risk with limited downside via all the things Toptal is complaining about. Without those onerous terms, there would be no VC (as we know it) and it would be an order of magnitude or 2 harder to get funded.
That is usually gonna go poorly for you in any culture.
If your actions lead to you dying alone and everyone who you knew remember you as "that guy not worth remembering" - then you did bad for yourself.
You could say it's a more democratic version of the Russian "methods".
Believe me or not, the main point is that working backwards from behavior to the thought process that led to it is a difficult if not impossible endeavor, and there's no reason to assume rationality in the absence of information to the contrary. I wouldn't draw any great lessons from this particular situation.
As a former Toptal employee: IMHO the co-founder in question was widely regarded as a horrible manager, often pushing people to burnout and generally imposing a culture of secrecy and mistrust. The VPs they ousted were nothing better. I personally went through several burnouts while there, but also that was a springboard to a much better career afterwards. Yes, we've put in 9/9/6 for years in the founding years, but we were also compensated quite generously.
If you join with the expectation of stock or are sold on stock as part of your package then yes. Based on the article, people were offered stock contingent on another funding round. That round never happened. If they were sold on promises of getting that stock and a round happening then they're right to be pissed.
This has, as I read it, nothing to do with a company that just decides to not give out promises of stock in any form.
Does a statement of the form "you'll get X if condition Y" imply "we will seek condition Y so that you can get your X"? I don't think that it does.
For example: companies offer dividends if they make a profit. But that doesn't imply that the company will seek to make a profit in order to confer dividends. It's nice when they do, but there's no implied promise of working toward profitability just so that the dividend condition will apply.
In my experience companies do far more selling than just sending out an offer. Furthermore, the offer in my experience doesn't include the paperwork for equity unless you request to review it.
When employees don’t have an equity stake, it can make for awkward moments. I’m reminded of a company all-hands, where the CEO announced a record quarter, and apparently the company’s stock just went up 60% or something. The handful of senior execs who did have equity cheered and did some lame hi-5’s while the rest of the employees shrugged and silently looked at each other like “should we be applauding now?”
Awk—ward...!
Yes, the last time I checked we moved on from the feudal era, at least in principle. There should be at least the illusion that employees have skin in the game by giving them a stake in the company.
I have made tens of thousands and made e made over 100,000 effectively tax free.
I think you missed out there
Also, if I were an early employee at a startup, yes, I would expect equity.
The average compensation of employees at other similar companies was probably lower once you account for all that.
You can't judge the outcome of buying lottery tickets by only looking at the winners.
I think it is an amazing plan. I was able to choose more equity because I had a working wife and no kids. Others chose more cash. One guy chose 100% equity, and is now retired.
being able to choose 100% equity would suggest a particular level of financial independence before even starting. how long did they work without a salary? did they regularly sell equity as a salary-replacement?
If it was straight stock, then yes it would be rather equivalent to getting cash and then buying stock right away.
I guess this is purely academic for Netflix, but one difference in other companies is that the grant is made ahead of time, and the stock price can rise or fall before it vests.
If (say) you expect the stock to rise with the market, and you expect the market to rise at 7% a year, you might also expect your income from vesting stock to also rise at 7% per year over the vesting period (typically four years) regardless of any raises or promotions.
I have heard of some companies adjusting subsequent grants based on changes in value of invested stock, though. I think policies there vary.
I for one think it's a bit greedy after all he did not build the company all by himself but silicon valley investment is all about greed. It's just another day.
Just Devil's Advocate here, but as an employee going into a startup it's kind of well known at this point that you're only likely to get what's written in black and white. Would you go to work for a company that promises to start paying you at "sometime in the future"? I kind of agree with WheelsAtLarge, you had to have known what you were getting into. Personally, I wouldn't work for someone for free for any length of time unless it's volunteering. Anything else just sounds fishy.
Similarly, if someone promises you equity "later if [blah blah blah]"? I'm just saying, that sounds pretty fishy.
But, it's similar to a lottery: you should expect to lose, but an organization can't run a lottery and pocket the winnings itself under the pretext everyone should have known they were throwing away their money.
The boss told them that they would get lottery tickets later, but only if a hypothetical third person showed up and gave the boss even more lottery tickets. My point is not that the hypothetical third person never showed up, which in and of itself meant that the employees wouldn't get lottery tickets. My point is that the employees should never have joined the company in the first place on the basis of such a ridiculous promise. It was entirely predictable that they would get none of the lottery tickets. No one is going to pay more than they have to, nor will they pay up after they have what they want out of you. Just ask any prostitute.
No shit.
You've been in this space well over a decade. If someone offered this comp package to you, you'd likely anticipate exactly how it'd play out. (Maybe... looks like the investors got scammed this time too, so perhaps it was a practice that people typically respected.)
I guarantee that, when employees accepted their comp package, they weren't doing it with the understanding that they would never see a cent of equity if the Toptal succeeded well beyond anyone's expectations. So, yes, it was a devious move on the CEO's part, but at some point deviousness becomes sociopathic. Ripping off your workers is one of them.
If it was clearly monopoly money that was never going to be going into their pockets, why did the CEO bother to offer it to them? The obvious and accurate answer is he knew they would value it at sticker price (or, at least sticker price discounted by the usual startup lottery shenanigans) while it would never cost his company a cent.
The fact that he managed to con a bunch of people using what amounted to insider knowledge is likely legal, but we still call a legal con a con.
The investors, especially, have zero right to complain.
It's definitely a live and learn situation, but it does suck that learning the lesson is so expensive (while the people who lied their way into having employees end up making out really well for their dishonesty).
So, it sounds like the deal with the employees was simply that you'd get the equity if and when the LLC converted to a corporation. Notwithstanding whatever other representations were made, was there anything in the equity offer that would trigger/force the conversion to happen? In other words, was there any kind of guarantee that the conversion would definitely happen?
Having that contingency about taking more funding might not create any legal obligations but there is certainly an implication there.
If I cover your tab and you say you'll pay me back next time we go out, "I'm never paying you back" is an equivalent statement if there's an unspoken "but we're never going out again" at the end of the first statement, but it wouldn't be my first interpretation.
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That said, if an Engineering Director is getting 0.02% then, assuming TopTal is worth $1b, you'd have a Director cashing out at <$200k pre-tax right? I'd imagine run of the mill ICs had a percentage such that they didn't accept it thinking "and when this pays off I'm done forever"
If "everyone knew" what they were getting into, why did he feel the need to give them what amounts to monopoly money to convince them to work their asses off for him?
Sounds par for the course for startups
It's like playing Powerball, winning, and then the lottery agency saying "just kidding."
1. So, some deceptively worded stuff that ends up being worthless.
Values wise, to me sounds like a bit of a dick, esp with the early employees. Good for him, he made a billion dollars. But he knowingly took advantage of people who chose to invest years of their life with him. Not cool. He doesn’t have to keep being a dick either - just give employees a generous bonus (like 1x annual salary) when they reach x years if they did well and a thank you, not that hard. That’s all people want.
Both from a moral and legal perspective.
But screwing over your cofounder and COO—your partner who’s been on the frontlines with you effectively running the company for eight years—that’s incredibly scummy. That’s a real psychopath move. How can someone be so greedy?
Are you identifying only as a co-founder, and you don't think that startup employees deserve to also benefit from success, such as they would by having equity in the company?
I think the idea -- of startup success being all about the founders, and employees are just commodities -- is not unusual, but I don't understand why.
Don't startups hire developers, for example, who have key insights, make technical decisions, and often put in above&beyond effort -- which has substantial effect on the startup's success?
Whenever I've complained about a company being unethical or user-unfriendly, a friend of mine who lives in the US and knows more about this stuff always points out that because of pressure from investors, companies are often forced into such practices, and theorises that any company that takes outside investment in exchange for equity is always going to end up this way.
Public companies are generally more prone to this issue, as all the ethics become abstract to shareholders. They are not involved in the dirty work.
A lot of times, companies do the right thing not because of morality, but because doing the wrong thing has a risk (from a PR disaster to a regulatory issue).
If the culture of the company is willing, the whole concept of morality is reduced to a risk/benefit formula. And they start to learn how to reduce risk, and it's a downhill from there.
I think we've all seen that at this point in time public outcry and PR disasters matter very little in the larger scope of things for such companies (Equifax, Google, Facebook, et al.)
No company is forced into doing anything unethical. What it boils down to is group think. A group of deciders convinces themselves little by little that their current behavior is OK; mostly because of money. And so little by little they slip into the doing unethical behaviors.
I'm reminded of Steve Blank's article Startup Stock Options – Why A Good Deal Has Gone Bad
https://steveblank.com/2019/04/10/startup-stock-options-why-...
Discussion of said same:
For me, Toptal has been a good safety net, not necessarily where I go first to find new work. And the vetting process adds some credibility to my name.
I'm confused, I thought Toptal workers were remote. Why would your location factor into the rate a client is willing to pay?
FWIW I charged even less than that as a remote contractor and it goes really, really far in countries like Vietnam or Thailand.
As far as I was concerned, Toptal wanted contractors who'd bill like the were competing with E-lancers for business, while Toptal was marketing them as "top talent. "You get what you pay for," and while you (for example) might be an exception, "top talent" isn't going to charge bargain-bin prices for their labor.
Purchasing power differences in the world are insane: $65/h in Vietnam can represent a much more luxurious life than $200/h in San Francisco.
In fact, the global top 1% starts at US$35k/year!
At $65/h ($130k/year) you'd be able to buy a home outright in about a year, send your kids to snooty private schools, hire a maid and a private driver, etc. in a large part of the world.
It's like $130k/year, I don't think you can even find an average engineer at this price
The risk to a founder is having the debt called and not being able to pay it back and/or having the valuation of the company not where you'd predicted - depending on the terms a founder could actually lose their company in this case. NAL.
Really it just seems _too bad_ for the employees and cofounder that feel like they're getting screwed. It isn't like "get it in writing" is a new concept though. I'd guess they either drank the Koolaid early on or they had a gut feeling they were getting screwed for years before this all came out. Either way, a shitty place to be in but not new or uncommon with cut-throat founder/investor types.
They should go found companies themselves! Get a big ol' piece of the pie!
He minces no words and comes off quite aggressively. Very much a "my way or the highway" tone to that page.
They seem sort of like StackOverflow or Basecamp from a bootstrap perspective, without the warm fuzzy feeling you get from interacting with either of those companies.
Though, I doubt it's a business that will "scale to tens of thousands of employees around the world". That seems like a reach.
The presentation is shite. Just have an autoresponder.
It reeks of Netflix' culture deck.
So having never seen it spoken of poorly, I am interested in your perspective.
The netflix culture deck isn't a bad ideal, not at all. It may not suit some, but that's ok. I think it has some real problems but I won't go into that here. Anyway, let's not let perfect get in the way of good. If it were the reality, it would be better than the way most companies operate, by a long shot.
But just like with Valve, the theory is different than the practice.
So just as we (HN) hate the person with the fancy car, fancy watch, designer clothes, who are "obviously" just doing this to signal virtue, I loathe the type of org that engineers by blog and cultures by pushy slide deck. It's fine to desire that culture (even if it's impossible), but you look like a buffoon by insisting on being so pushy about it. And that's what Toptal is doing.
I am not a netflix employee, but I know a few former and one current employee.
The founders had the same exact idea, founders own 100%, employees own nothing, and they wanted to tell everyone how awesome they were because of it. Key difference was that apparently our city's chamber of commerce that had a lot of skin in the game trying to brand themselves and did some PR work for the founders before they ran their mouth on how wonderful their company was. The message was, after a few edits:
You were going to be paid well but we will never put you into the golden handcuffs our friends on the coast love. (Google "We don't coast" for context)
He sounds like an asshole but really being able to work for a privately owned fast growing company without shitty options being paid well is pretty great in the tech world.
But not as great as working for a privately owned fast growing company with good options and being paid well, no?
(And if not options, strictly speaking, how about profit sharing?)
Source: I run a bootstrapped software development company and everyone has profit sharing.
I would say no. Since the employees are one of the keys to the success of the company, why should they not share in the additional profits above and beyond what is planned for the year?
>Companies tend to give out stock as part of a package in lieu of all cash.
Some do. In my experience, it's been about 50/50. Startups obviously tend to lean more toward equity and lower cash, while larger companies pay well and ofter options or RSUs.
I pay market and do profit sharing.
>If you have all you want in cold hard cash, what’s the problem?
I'm not quite sure how to respond to this. If you make a good salary, would you turn down even more money?
That's a pretty peculiar viewpoint. If you went to a restaurant, ordered and paid for a burger, received your order with a bite taken out of it, and the cook said "Well, I worked really hard to make the hamburger that you ordered and it turned out extra well. That means I deserve a bite." when you complained, would you find that reasonable?
(It's not even entirely hypothetical: https://www.npr.org/2019/07/30/746600105/1-in-4-food-deliver... )
So the simple question is, if an employee does not own any part of the company, are they entitled to a share of the extra profits?
If the employees want to be entitled to a share of the extra profits then one obvious solution is that they need to become shareholders. Normally a share of owner’s equity is given in exchange for money. Instead of buying those shares with money, that’s what startup employees are doing when they take a lower cash pay in exchange for shares in a company that is unable to pay them full price.
I see your argument, but we’re describing a situation where a full-priced if not handsomely paid employee takes zero risk with a steady “what they want in cold hard cash” salary and then when the company does extra well they are entitled to a share of the upside.
I can recognize that giving employees a share of profits may very well be what businesses need to do in 2019 to recruit and retain the best talent. But their salary is what was agreed upon for the work to be done. So let’s call it for what it is — it’s something nice to do. It may even be a talent-recruiting and talent-retention tool that gives your business a competitive edge. But it’s not a financial obligation.
https://www.omahachamber.org/wedontcoast/why/
A lot of defensive answers to obvious questions. The slogan may be completely positive in its inception, but I'd wager it's catching on for deeply negative sentiments.
Similar to Midwestern right-wingers referring to people from California as "Foreigners".
and for the coastal record, "cost of living" means nothing to me when federal thresholds like achieving accredited investor status don't factor that in at all. I'll figure out how to stash away enough dollars getting paid a lot of dollars in a high cost of living area.
Hey, I see your Cost Of Living jab and raise you $500/mo rent on 6 figures. I bet your farmers markets don't even have free corn. Checkmate, athiests.
I was mainly trying to predict and counteract a cost of living rebuttal.
I need to make $200,000+ per year for 2+ years, OR have $1 million in assets not including my house, just to be able to attempt joining the capital class in a private equity homerun. Otherwise I'm stuck with shitty common stock options (except where you live), public markets and bitcoin. Cost of living reduction means nothing to this reality. Only coastal companies are going to pay coastal employees this much without hemming and hawing and making you jump through a bunch of hoops to prove you are so exceptional.
Places aren't going to prevent the brain drain from anyone that understands that. All they do is get selective evolution of people who are stuck due to chronic problem (financial, health, likely both over time) of their own or their loved ones.
> $500/mo rent on 6 figures
thats pretty good, I try not to think about it
I've seen other companies who have clearly wasted a bunch of time with investors before and have to be super clear about their situation to prevent more wasted time, e.g.: http://buildinglink.com/marketing/public/investors
I'd say any of the bootstrapped software companies hold those philosophies (they don't need the investment, so they can set the terms).
There have been talks of an IPO or acquisition for years, and hopefully, it happens, but they feel a bit like a carrot on a stick; the revenue goal for going IPO is always increasing.
If that's the way he treats folks who are supposed to be on the same side, I'd hate to see how he treats his enemies.
Plus, this seems to apply to all employees. Not even the co-founder had shares— this guy seems to be alone at the top.
You just have to file the appropriate articles of incorporation, continue paying your taxes, and make sure that company business is done in the company name out of the company bank accounts while personal business is done in your name out of your personal bank account.
All you have to do is follow the rules and your corp is valid.
[unfortunately can't read the whole article behind the paywall]
I suspect the VC team would say "well played that man".
They may say "well played" in so many words, in public. Privately? They may be marshaling their bottomless war chest to unmake you.
And I can't see why his existing investors wouldn't be interested - although they would perhaps take more care with the terms.
His ethics don't seem to be weird, compared against stories about some other founders.
I can't see why you make predictions about how he should act or how VCs would act (what's your expertise?)
This behavior seems absolutely anathema to their stated ideals.
Edit: sorry, I pasted in the wrong link so it didn't work right away. It should work now, meaning everyone who clicks on the title above should get to read the article.
>What does "hard-paywalled" mean?
Paywall that can't be bypassed (eg. private browsing or social media referral)
I think I swapped in the wrong link—sorry. Should be fixed now.
Why are we glorifying giving a fraction of a fraction of a percent to employees who are going to be further diluted or totally zeroed out in any exit?
Why are we treating equity in other people’s hands as validation?
Offering convertible debt that converts into services or something else is a way of financing.
You don't need to aspire for a bunch of crunchbase entries.
There was a time when I thought different like “oh thats not a real seed round if the investors didnt do a share investment, or thats not a real series A” but now I know differently and primarily take a dim view on preferred shares, liquidity preferences and expensive capital - when acting as a founder or employee. Many ideas are more profitable exits for founders if there were no liquidity preferences.
Is there evidence that Toptal offered similar salaries? I wouldn't at all be surprised if they were closer to the $150k range, which is not competitive.
I get the feeling most of their customers justify it as a business expense vs a personal one. All of the quotes in their subscription signup flow are from well known founders or execs that subscribe (unclear if they get it for free for the endorsement).