Comment by vinay_ys | Hacker News Reader

Comment by vinay_ys | Hacker News Reader

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If you are the second employee (first engineer) at a tech startup with a solo founder company, most likely you can get more than this. Nobody will give you more than what they have to unless you educate yourself and negotiate on your own behalf.

You are taking the same risks as the founder and you being there is directly helping the founder raise funds and hire other engineers. Don't under-value yourself.

Your previous total comp was base + public/liquid stocks. You should compute the growth in valuation of those liquid stocks (if it was similar to FAANG stocks, its growth would have been 50%+) plus the return on investment of your savings. Add that to your total comp.

For your startup comp to beat this total comp, given your 1% stocks, compute backwards the valuation your startup has to achieve. Does it look feasible or too crazy? How long will it take?

Do market research to understand how much revenue and profits a public company in similar sector does to achieve that valuation and how much capital investment and tech innovation is needed to get to that. Ask questions to your founder boss, meet their investors to understand their thinking.

Very important to consider what happens if you quit before it got there. If you have to pay to exercise options, or your options get bought back by the founder at a discounted valuation etc. (some startups have started doing "stock appreciation rights" which are somewhat unfair) understand those for what they really are and factor that into your calculation. Understand how cap tables, dilutions, liquidation etc works and factor the risks into your calculation.

Finally, remember that founders get fired/replaced; your direct boss is going to be someone else very shortly (especially if the company grows fast) etc. so don't go by verbal promises. If you are looking to make millions, invest time and energy to understand and negotiate your employment contracts properly.

In this particular scenario I'd be the second employee, not counting the two founders as employees.

I did similar math as you said and I didn't find the numbers fair. I figured how much would I be losing per year at the current valuation and my pay cut seemed more than what the investors got for the last round.

I wish there was more public information about startup salaries at various stages of employment, while the company is still a tiny company. Finding information about FANG salaries is so easy but startup salaries is tough.

Yeah, something to consider is that FAANG salaries are an outlier. There is a bimodal distribution in tech salaries. Outside of tier 1 unicorns, no one comes close to FAANG salary. So when evaluating your options, using FAANG salaries as a comparison might not be the most fair benchmark. For example if you work in biotech, even as a programmer, you are probably looking at a salary about half of what a FAANG will pay. This holds true for a lot of other industries.

In general, I agree though. Early employees should either be compensated better or given more equity. In many cases, they have a more direct influence on the product than the founders, because the founders are focused on fundraising, sales, and hiring. And they also can have an outsized impact on company culture. If it was up to me, the first few hires would be getting 2-5% depending on experience, and I would even consider giving them a title of co-founder.

But negotiations are based on BATNA, and most of the better engineers you actually want to hire can also get hired at FANG. So even if 'FANG is an outlier', it doesn't matter because they set the standard. You have to be willing to do things that FANG is not, like real remote, employees that cannot immigrate (ex: no degree in developing nation) or no leet coding.

> You are taking the same risks as the founder

Not even close.

You can quit and go get another job any second of any day with zero consequences.

You have zero financial responsibility or obligations to the investors.

You have zero responsibilities and obligations to clients/customers.

You have zero obligations to financial institutions (banks, loans).

You have zero or little reputation on the line in the industry being addressed. In fact, in most cases competitors will gladly hire you because you have valuable industry-specific experience and training.

I could go on. I see a bunch of comments on this thread painting founders as greedy bastards. All I can say is: I hope you can one day wear those shoes and actually understand reality.

That said, yes, there’s a startup culture that works people to death and often offers dubious outcomes. I really don’t like that at all. In technology some things are very hard. If you don’t work hard it is often impossible to achieve anything of note. I don’t have a problem with that. I am no stranger to 18 hour days, 7 days a week. I get it. A company can’t operate like that forever. If it does, there’s something wrong with it.

As a founder my standard mode of operation is simple: If I am awake, I am working. There’s no way I will demand or request such a thing from anyone else. I am the one whose all-in, not those who work for me.

NOTE: Don’t work for less than you are worth. Option are neat, they could be worth zero or a few million. More often than not they are worth zero. Get fair pay for your work. Assume options are worthless.

Founder has all the control - Employee has none. So employee takes more risk.

Founder has all the information. Employee wouldn't even know, if the stock was diluted twice. Or if the company is going to seize to exist next day. Employee is in the fog - so employee has more risk.

Employee risks with her reputation. A nut case founder can consider employee a traitor for leaving the company and give bad references to future employers.

Employee has responsibility and obligations as well.

Don't get me wrong. A cutting edge startup can be amazing. But it is a lot of risk for everyone involved.

How many employees would work for no salary but only equity? Disregard whether they have the material affordances to be able to do so.

Simply put, by necessity the founders have inherited more uncertainty with their life outcome than a salaried worker, regardless of the transience of the work agreement.

> Founder has all the control

It reminds me of a story. Back about thirty years ago I bought a used surface mount assembly line from this guy who dealt exclusively in used manufacturing equipment. He was much older than me, a father figure, if you will. He was interested in what I was doing in my little startup. We got into a conversation while we setup the assembly line. I talked to him about some of the challenges I was facing. At one point he stopped, thought about it for a while and told me: A business is like a living breathing beast that has a mind of its own. If you think you can train, mold it or control it, you are likely to be wrong. The business tells you what you are going to do every day. The business pushes and pulls you around. The best you can hope for it so generally guide the zig-zag path in the direction you want to go and hold on. It's like sailing in a storm. You are not in control of the sailboat, the ocean is.

Fonder is in control? Ha. Very funny.

> Employee has none. So employee takes more risk.

I am not sure how to say this. Here it goes again: The employee can pick up and go any microsecond of any day. At least in the US. Nobody can force anyone to work under any conditions. That's control. That is having 100% control.

> A nut case founder can consider employee a traitor for leaving the company and give bad references to future employers.

I don't know where you are from. In the US that would be one of the worst mistakes a founder, company, executive or manager could make. Depending on circumstances the resulting lawsuit could yield millions of dollars for the ex employee. Nobody does that (unless they are suicidal).

> Don’t work for less than you are worth.

The OP's question was about how to do that and my entire response was to that question.

> Assume options are worthless.

That's bad advise for senior engineers with relevant experience. No startup I know can afford to offer cash compensation that matches the cash+stock comp from previous employment. Startup stocks have value – you just have to get better at figuring out its risk adjusted value and consider it for that worth.

Without having done any accounting I'd be willing to bet that the vast majority of startup options end-up being worthless. This is a simple logical conclusion from the fact that most businesses fail. So, no, I disagree, don't work for less than you are worth and, yes, assume startup options are worthless.

What ends-up happening is that the sexy startup culture sucks in young people with little life experience who haven't seen enough to be skeptical enough about these things. And, yes, under that context, if things go wrong, the end result is that they feel used and abused. You never hear complaints from anyone who worked super hard at a successful startup that made it and the early employees did very well.

How much of this liability is mitigated through making a company rather than doing all of this in your own name?

Is your business set up such that you personally owe the investors when the business goes under? Or is the business liable?

It's about far more than that.

I had a pretty ugly business failure back in 2008. Every single one of my employees went off and got jobs. Some of them were snatched-up by competitors. One of them was my director of sales. When he came onboard he knew nothing about the business at all. Nothing about the technology. No contacts in the industry. I worked with him one-on-on and taught him everything, even how to sell the products. In fact, he didn't even have sales experience, in his prior job he was in marketing and I gave him a shot in sales. The value of that education cannot be understated. Of course competitors grabbed him as soon as they could. He went on to have a (and continues to have) a great career in that industry.

While my employees went off to grab new jobs pretty much without delay in income, I couldn't simply abandon ship. As this evolved I took out a second mortgage on my home and filled credit cards to keep everyone employed as long as possible. We had the potential for sales that would pull the company out of the dive the 2008 economic implosion caused. When those fell through I told everyone I had nothing left to give, go find a job.

Could I go find a job? No way. I was trapped by my own business until the bitter end. I had obligations. I couldn't just walk away. When millions of dollars are on the line, doing so is professional suicide.

So, no, not even close. People who think employees have the same risk as founders have no clue what they are talking about. As is always the case, most of these comments tend to come from people who watch from the outside and think they understand reality.

As my wife likes to say "No, your Google search isn't equivalent to my medical degree".

Or, as Mark Twain said: "A man holding a cat by the tail learns something he can learn in no other way".

If you haven't held the cat by the tail you have no idea.

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