Comment by Aurornis | Hacker News Reader

Comment by Aurornis | Hacker News Reader

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> But getting "founding engineer" level equity on the order of 0.5% (before dilution!) seems to basically be a scam, where you're working 2x the amount for lower salaries than the market,

0.5% at an early stage with below market compensation, no refreshers with future rounds, negligible comp increase with future rounds, and below-market salary is indeed a scam. A lot of startups are happy to operate this way.

On the other hand, getting 0.5% equity in addition to market rate salary (or adjusted to market rate as soon as funding comes in) with refreshers on each raise to offset dilution and reasonable work life balance can be a very good deal.

I’ve worked for both types of startups. The first type quickly loses their best talent as they figure out they’re getting the short end of the stick. The second type can build a happy founding engineering team that grows with the company and wants to stay for the long term.

Fortunately, the internet has made it harder for companies to get away with the bad deal, below market rate, terrible WLB arrangement that was so common at startups a decade ago. Some people still get trapped by bad deals. Usually when you look at those companies giving bad deals it’s a small group of older founders managing a group of early 20s college grads who don’t yet know better.

Serious question: if you're truly being paid a market-rate salary -- e.g. roughly as much as you could make at any other VC-funded enterprise, any FAANG company, etc, not the same $110k/yr you'd make at a bank or consulting firm -- why would you get any equity? The whole point of equity is that you have skin in the game and "work harder" (whatever that means) to make the company a success. At least in the early days part of that was accepting lower cash compensation in exchange for a piece of the upside. Why, if you're going to treat a founding or near-founding position as a 9-5, 40-hour week, clock-in-clock-out type of position, would you get a piece of the upside compared to just working at a bank or consulting firm?

Equity is skin in the game. Why are you implying that a well paid engineer, in both salary and equity, would be treating their start-up role as a 9-5 bank job? At the very least a startup is not as safe a bet as a stable job at a big company like that. With equity they're going to want to work hard to increase the upside of their contributions.

> Why, if you're going to treat a founding or near-founding position as a 9-5, 40-hour week, clock-in-clock-out type of position, would you get a piece of the upside compared to just working at a bank or consulting firm?

One can be very dedicated on a 9-to-5 schedule. Just because you value WLB doesn't mean you are in a 'clock-in-clock-out' mentality. People have lives outside of work, may be even hobbies. The idea that a startup owns your life needs to die, stat. That is an extremely toxic line of thinking.

The point is also to keep people around. Software engineers are notoriously feeble, as they get offers extremely regularly.

Do you mean “fickle” rather than “feeble”?

Made me chuckle, thanks!

Statistically it's probably both :)

Because FAANG pays equity too.

Google will pay a senior engineer 200k base and 250k in liquid stock a year for 450k TC. That stock is also incredibly low risk.

If a startup paying market means 450k cash, absolutely there’s no need for equity. But if it means matching the 200k base then obviously you’re screwed with no equity. And I’m theory it should be a lot of equity given the much higher risk premium.

According to levels.FYI, Google average for senior engineer is closer to 360k. But your point still stands.

You are getting equity either way, both are likely to appreciate, but one is likely to be more liquid. So you're trading liquidity for a higher return.

> both are likely to appreciate

More than half of all startups fail within the first 10 years. They’re not just less liquid, they never experience a liquidity event at all. That equity is effectively $0.

The odds of any given big company going bust are dramatically lower than that. Their equity might depreciate but it’ll at least be worth something.

Oh I was more thinking late stage companies, but you are correct.

But you're getting 0.5-2% of Google. That's why startup equity is a lottery ticket, and why it comes with a comparable decrease in cash comp.

I'm thinking, so they don't quit on a whim.

You'd get equity because you have the market power to demand it. Same way bankers can demand high bonuses etc. Everything else is negotiating tactics but at the end of the day - folks get equity because they can demand it and won't take the role without it, and the companies aren't willing/able to eliminate those roles.

Another reason could be career progression. A startup is generally "up or out" growth, right? A mid or mega corp has some opportunities for advancement (especially for juniors). In practice juniors get better gains from job-hopping but some play it safe and want to build 401k or get into management. Something that a startup doesn't offer if they run out of money.

> market-rate salary -- e.g. roughly as much as you could make at any other VC-funded enterprise, any FAANG company

From my experience, the group of people seeking FAANG jobs or prestigious roles at big companies doesn’t have all that much overlap with the group of people who like to build early stage startups.

Some people really liking going into a huge machine of a company, doing a lot of meetings and planning documents and consensus-building, playing the office politics game, and working with huge teams where everyone gets a narrowly defined slice of responsibility that they’ll be evaluated on 12 months from now in their performance review. These people usually struggle at startups and leave anyway.

Other people can’t stand anything resembling big company operations and won’t be working for FAANG or Series D behemoths for very long even if they’re making $400K or more.

This is why you’ll see companies like Oxide Semiconductor pay $200K, accept only the best candidates, and still have people lining up to apply.

If the only thing that matters to someone is cash, moving to a Tier 1 city and joining FAANG to play the game is just what you do. Just don’t be surprised when you find yourself surrounded by other people who care primarily about playing the game to maximize their comp, because they’re doing the same thing.

Yeah that's wild. I was a founding engineer once, and got 15% via a sweat equity agreement. No way I'd be considered a co-founder for under 1%.

I believe the parent comment is using founding engineer to mean early employee (not necessarily first, and differentiated from "founder"). 15% is certainly "founder" levels of equity, but it's all arbitrary.

Founding engineer usually implies that you’re getting paid because the company has raised funds or has significant income.

Getting 15% is only really possible as a cofounder or if you’re joining as the only engineer before they have money to pay anyone. I assume that’s why you said “sweat equity agreement”.

There can only be 100% total, so giving everyone from cofounders and the engineering team 15% would max out at 6 parties total, assuming no investors and the remainder goes to a pittance of an option pool for new hires. Unless you never plan to grow the company the math just doesn’t work.

If you joined pre-money and took pure equity as compensation while building the company from scratch then you’re more traditionally called a co-founder.

Generally, startups don't pay market rate, it seems. I've seen offers for $125k - $175k as the base, while bigger tech companies will pay a total compensation of double or even triple that, so the 0.5% needs to make up for that difference. I don't see any startups paying at that "market rate" of big tech, as I've generally seen. Yes, I am focusing on big tech specifically but those that work at startups should be good enough to get into a big tech company anyway.

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