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> Fuck being an employee for a startup so they can bleed you dry.

Could not agree more, and this is my stance which I will happily share with anyone who cares to listen. I was first employee (and only engineer) at a startup which dangled 'equity' in front of me but didn't deliver. Contract was so full of gotchas that the path to me seeing some sort of actual payoff was astronomically unlikely.

90 day exercise windows upon leaving or even getting sick and being forced to leave. Liquiditation preferences for VC shareholdings. No way to sell your options on a secondary market. Permission of the board required to actually exercise them. Half a dozen clauses that allowed the board to revoke your options at any point in time. Basically, they want you to give your fucking life to them for 5-10 years with only a contract not worth the paper it's written on as an incentive.

Between the shitty equity terms and the fact I was building a damn tech company to make someone other than myself rich, I told them to go fuck themselves and took a job at Google for over 3x times the pay. I have no regrets. Being an early employee at a startup is a complete waste of time and I still beat myself up for being so naive. Sharing this so other people don't make the same mistake.

Liquidation preferences for investors putting actual cash into a business exist for a reason. Suppose I have a company idea, maybe an early prototype and manage to raise $2MM at $10MM post-money valuation. The investors have a 20% stake for their investment.

If I decide the next day, “Nah, it’s not going to work; let’s close the company and distribute the assets to the shareholders,” it would be manifestly unfair for the 80% shareholders to take $1.6MM of the $2MM in the bank and give the VCs back the $400K that represents their 20% stake in the bank account.

Liquidation preferences ensure that the first $2MM that comes out goes to them.

Imagine you have an engineer who could be working at BigTechCo; she works at your company a year, and then that raise you specify happens. Engineer continues to work there for three more years. Company amounts to little, acquired for $2MM, engineer gets nothing.

Of course, everyone is disappointed. But it's still unfair for that engineer who gave up half a million dollars or more to work at the startup to get nothing. You might say that the engineer should be aware that they agreed to a way of structuring equity that means it's likely they'll get screwed. Fair enough! But all of this discussion is meant to make readers aware that, yes, the industry standard practice is to screw over the people who have the most skin in the game.

Why is it unfair? The engineer was part of a team that collectively destroyed economic value. What is the fair portion of bonus on top of salary that they should be rewarded with for that performance?

By all means understand it; I’ll never argue against that, but I find liquidation preferences quite reasonable.

The VCs are also part of the team that collectively destroyed economic value. They can't simultaneously claim credit for every success and disavow every failure.

This is a fair point and I’d never looked at it that way before. Thanks!

https://en.wikipedia.org/wiki/Lemon_socialism

We have a lemon socialism banking system. Obama made certain that 100% of bankers wiped out in 2007 paid NO PRICE for their recklessness; he prosecuted NO ONE.

It's not a reward. The engineer's work is a commodity they are selling to the company. Partly for wages and partly in exchange for equity. That is a real investment they are losing just like the VC's if things go bust.

Really that sums up the american dream, completely. Get rich by screwing the people whose hard labor built your enterprise, often based on "borrowed" software (Example: Microsoft 'borrowed' a source listing of a basic interpreter written at DEC.) It happens every day in the USA, and it's why conservatives love it so much.

> Suppose I have a company idea, maybe an early prototype and manage to raise $2MM at $10MM post-money valuation. The investors have a 20% stake for their investment.

The rich technically have less personal risk -- that's because, well, they're rich. GP arguably took more personal risk, took less pay, and created the machinery that made the company profitable.

If you want to say that the original $2M is paid out before anyone else is, that's fine, especially in a sinking ship.

If you mean to say that on a %1000 increase of company valuation, GP should not get his share because, well, he didn't fund $2M dollars -- that's _utter_ bullshit. And arguing that VC's should get preferential treatment so they can directly screw over the people who directly provided the growth is the stupidest argument I've heard for this clause.

Do you read any of the latter in my argument above as to why liquidation preferences exist?

It seems to me that you built and eviscerated a strawman right in front of us.

Did you see where I said, "If you mean to say..." You could just have said, "No. I agree with you on that point."

I think the point the OP is trying to make is that the structure that you described, while great in protecting investors, seems pretty unfair when the startups do succeed. So while recouping the intitial investment preferentially sounds great, it shouldn’t be extended as far as giving the 20% investors the lions share of a successful exit before the people that actually built value.

The liquidity preferences could certainly be structured in a fairer fashion. Just because it’s currently structured this way doesn’t mean that it needs to be always or that it’s a great model ( it’s not unless you’re a VC, which is basically the point).

Imagine if you had a very deal-term savvy crew of engineer hires. They then proceed claim that "the compensation cut we have taken by working here directly offsets cash you would otherwise have to spend/raise. This should count as a capital investment and should therefore entitle us to 1x preference just like for the other investors have."

Would you think this is a legitimate claim?

> The rich technically have less personal risk

It's silly to automatically assume that "investor" or "capitalist" is someone rich. Chances are, the VC get their money from banks and pension funds who, in the end, invest money of people who earn much less than an average startup employee.

The point is that they’re (or at least should be) diversifying their investments, in contrast to most employees, who only have a single job.

How often does something like this happen?

I don't have statistics, but I believe the more common scenario is that the company gets acquired, and the return on investment is not the 10x or 1000x or 1000000x the VCs hoped for, so they recoup their original investment. Leaving the engineers with options worth nothing.

I view liquidation preferences as VCs offloading risk to employees because they can.

IMO, it doesn’t happen in part because the liquidation preferences are present. If they weren’t there, a great many startup founders would find their highest expected value play to be to close up, distribute the funds, and go back to working for someone else. Maybe not the day after funding, but 3, 6, or 18 months in. “This isn’t working out, but I can cash out from the cash left in the bank.”

Just like the “declare strategic bankruptcy a few months before graduation” doesn’t happen much because student loans aren’t discharged in bankruptcy.

Both moves would “break the game” in a very similar way and so are blocked.

You have a point. However, it would be very easy to distinguish between this scenario, and a sale of the company. VCs don't make this distinction. They could.

> a great many startup founders would find their highest expected value play to be to close up, distribute the funds, and go back to working for someone else

This is absolutely correct and it SPEAKS VOLUMES about the reality of the startup world, even apart from this discussion on liquidation preferences. I'd recommend anyone looking at working for a startup to consider the above and then consider the fact that as an employee they'd be in an even worse position than those founders before turning down that far more lucrative offer from BigTechCo.

My talent, time and energy is as good as your cash.

You don't have to screw the engineers to safeguard your investment from fraud.

Come up with a different mechanism if you ever want anyone competent to work at your startup.

None of this logic applies to equity granted to employees, which are already subject to vesting. The argument you're making is actually for founder vesting, which is a separate issue.

No, it is not manifest. Investors should ideally not invest in companies that are not "Going Concerns"[1][2]. If the company fails, all investors (including employees who invest with their time and energy) should bear the losses. The increased risk is what usually justifies the outsized returns.

[1] https://en.wikipedia.org/wiki/Going_concern

[2] https://ssfllp.com/going-concern-rules-company/

As an employee (who’s also investing actual money, i.e. the higher salary I’m not making elsewhere, as well as labour & time) I also want “liquidation preferences” - 500k per year of working, vested monthly, senior to investor’s preferences - and it’s only fair, as I’m both investing and risking much more!

Well, if the only thing you care about is compensation and work/life balance then of course, you should never work at a startup. There can be benefits though, arguably better personal development, a broader view of the entire tech stack, and potentially more personal satisfaction.

Of course, if the difference is 2.5x then it's a no brainer.. I wouldn't take more than a 20-30% cut to work at a startup.

One thing I absolutely agree with you on is the option exercise window. I think it's pretty common in the startup world, but I can't really understand WHY. I mean your options at a startup are already worth less than stocks at a public company, and they still do this shit ? With all the extra risk you'd imagine they'd have to get rid of the liquidity window just so they can compete a bit better with the big guys.

> There can be benefits though, arguably better personal development, a broader view of the entire tech stack, and potentially more personal satisfaction.

There's also:

1. Shitty bosses (this and the following can be found in any kind of company)

2. Being promised one thing and then being screwed over later. How many companies have screwed over their employees of stock options or those holding existing stock?

3. Terrible tech stack / less personal satisfaction -- especially if the startup hires lousy people and value code production over smarts.

4. Management defined engineering -- when managers make important technical decisions instead of engineers. ("We've signed up for service X, please integrate with them regardless of your thoughts on the matter").

The total liquid compensation difference can be huge, when factoring in all the public equity and big company benefits... Imo we’re not talking 20/30% here, but multiples...

From your post, it sounds like you value:

1) Safety and predictability in compensation

2) Ownership over your company’s strategy (e.g. mobile) only if you’re paid highly for doing it (not a bad thing, but many other people exist who would willingly take a pay cut for the ability to have an actual impact on company strategy)

3) A highly organized and logical hiring process and qualification evaluation

4) Custom negotiated options contract outside of industry norms OR BigCo stock that has value today

5) 5 weeks of paid vacation

It definitely sounds like you made the correct decision by choosing BigCo over startup.

> Custom negotiated options contract outside of industry norms

I think you mean the GP wants options within industry norms, which are outside of a failing startup's shoestring budget. On a separate note, what are your thoughts on the glassdoor ratings of Localize?

https://www.glassdoor.com/Reviews/Localize-Reviews-E1427641....

> 4) Custom negotiated options contract outside of industry norms OR BigCo stock that has value today

The norm is changing. Good startups today generally offer 5-10y exercise windows. [1] This is something Triplebyte started, and they have a guide for how to implement it. [2]

[1] https://github.com/holman/extended-exercise-windows

[2] https://triplebyte.com/blog/extending-stock-option-exercise-...

I think the point is more that startups are really overestimating what they're offering, or hoping their employees are too stupid to realize the disparity. So far as I can tell the only thing most startups offer anymore is ownership, lack of large company culture/bureaucracy, and more opportunities to switch roles.

Equity is basically always monopoly, you generally can't even evaluate its value because no one will show you the cap table. Highly profitable startups still regularly manage to deliver a pittance to early employees on exit. Even if the exit does deliver oftentimes the yearly compensations disparity is so large that if they'd just stayed at BigCo and invested the bulk of their earnings they would have earned as much or more. This is all while working significantly more hours per year.

The list of upsides is really small relative to the risk. If startups want talent the industry norms are going to have to change.

I've always thought that the shitty startup practices when it comes to equity is due to insufficient competition for talent. Looks like this is about to change, since startups now obviously struggle to get the best people.

Not showing the relevant details of the cap table is ridiculous, companies that do this are banking on a pool of candidates that are either morons or don't care what they're paid.

Imagine the following situation: You're in a foreign market, and a vendor tries to sell you a fancy-looking machine. You know he's legally bound not to lie, so you ask what the machine is worth. He says "it's worth 2 billion Magic Moneys!!" but refuses to give you any information that would help you suss out whether that's 20 cents or 20 million dollars.

From your comment, it sounds like maybe you're one of the founders I was talking about.

1) Fair compensation, yes.

2) It's unfair to ask someone to have the responsibility for the success of a huge part of your business without making sure they have significant upside if they succeed.

3) Yes, I want a logical hiring process. The horror.

4) Fair. Not "custom negotiated", just fair. The fact that the industry norm is to fuck over your employees should fill you with shame, not be an excuse you hide behind to do the same thing.

5) I doubt I'll take that much, but I like that the company understands that they'll get the best work from employees who are taking care of themselves and their families.

If you're representative of a typical NYC founder, then yes, I'm glad I didn't join a startup.

So your startup's hiring pool is people who hate safety, vacation, favorable contract terms, and logical processes, but love taking on extra responsibility for no pay? Seems like a small pool, and explains why hiring is so hard these days.

Sorry that was your experience. Just so everyone else reading this does not get the wrong idea, not all startups are like this. Many are, many are not. 10-year exercise windows are becoming more common. Flexible remote work is also more common (in fact, startup I'm at now as co-founder, we let people work from wherever the hell they want... while my friends at large tech co's have to work out of an office, even if they are allowed to WFH like once or twice a week). And we work hard but let people take as much time off as they need, whether that's vacation or just a day or half day here or there to deal with some family thing.

If you're reading this, please know that not all startups will "bleed you dry". And on the other hand, many big tech co's will!

I hope these trends continue, but it’s not what I observed over the last couple months.

To be fair, I was specifically not interested in a remote job. Would rather work in an office.

The startups should have a higher bar for hiring. A bad senior hire is much harder for a startup to absorb.

Then they should compensate commensurate. As it is, I suspect that many are a market for lemons. Primarily the "seniors" who would take these jobs are the ones that can't get hired at 2x - 3x the comp, or (I suspect much more commonly) think they can't. I'm going to do my part to try and make sure more engineers know that they have options beyond working for shitty startups that dangle worthless equity in front of them.

This. You can be average or mediocre at a big company as there are lots of places to hide. There is nowhere to hide at a startup, in addition, a single hire can make or break a startup. More then anything a startup is just a collection of talent. Unlike a big company which might have physical assets, IP and other valuables. A startup is really just a pool of talent. So if there isn't any, well it wasn't going to work.

Number #4 is the law. However it is possible to convert an ISO to a NSO which doesn't have the 90-day restriction but has different tax implications. Some companies have started doing this, but I don't know how common it is.

Is there any way I can contact you? My email is in my profile.

I'm working on something to make the interview process and the offer piece a lot more transparent. I've been part of terrible interview/offer loops too, and the problem aggravates me to no end.

I'd love to speak with you.

You review seems pretty accurate. Very rarely there is some lucrative incentive to join as an employee.

There are definitely startups that offer better equity terms - the last one I was at offered ten years to exercise after leaving. I hope the trend continues.

Pinterest started that around 2014 if memory serves and it became quite popular for startups to follow suit but recently less so and I’ve even seen some roll-backs; ultimately many startup employees don’t understand equity and don’t optimize for it.

Lyft also gave 7 years equity exercise terms starting around 2013, and it was part of the reason for having the IPO when it did, was because some of the early equity holders were getting near to seeing their shares expire.

>watching them get squeezed by big tech companies offering sky high comp fills me with glee.

Enjoy your new life as a corporate drone!

Note to the salty drones in the comments below: I started a business that was passively profitable for years and now pretty much just work on what interests me

“They said from their desk at 8pm at night, while the drone had already gotten home, had dinner with their family, and was putting their kids to bed.”

Comp and work/life balance smoothes over a lot of negatives inherent in corporate life.

But it's not your whole life because we're living longer and it's enough money to retire earlier. Suck up the drone life, retire early and spend 50 years with no boss, no customers, just tooling away on whatever you please.

I find big companies to be incredibly frustrating. It is so hard to get anything done. As a result I have gravitated towards startups. I know I have made less money but I love the daily feeling of having an impact.

I think startups are great for junior employees because you learn so much so quickly. Eventually if you want to be successful in startups you need to start your own startup. The payout on 25% ownership at $10M or $20M is not bad and lots more companies can buy that sized company than a billion dollar one.

I'm hopeful that there's a middle ground. The company I chose is on the smaller side (think Dropbox, Snap, Twitter, etc) but still public. My team is even smaller, I'll be one of a handful of iOS devs on the product I work on. But we'll see, it might suck!

>I'm hopeful that there's a middle ground.

There absolutely is. I'm not sure why so many here seem to think that the only options are: BA startup, FAANG, Fortune 500 megacorp.

Enjoy having 90 days to exercise your worthless stock options!

I was self-employed for more than a decade and I made $300k - 400k for years. I'm not at all worried about the corporate life. If I don't like it, I'll go do my own thing again, no problem. What I won't do is work for a third of the income and convince myself that I'm one of the cool kids because there's a ping-pong table in my office and my "CEO" made some 30 under 30 list.