1% Equity for Founding Engineers Is BS
fetchfox.ai
fetchfox.ai
Found the catch.
Funny enough, that "sister article" appears to be a private google docs link... I was curious how this would even work.
At time of this comment, [0] https://docs.google.com/document/u/0/d/1VvxEQBRexuFJT5qCr9MC...
For good reason. Also, their 'sister article' about the details of the token are a private google doc. Quite promising.
- 23% of candidates tell us outright that they don't want us to match them with crypto (see chart here: https://bsky.app/profile/otherbranch.bsky.social/post/3l4wod... )
- About 36% of candidates who didn't, that we end up reaching out to about a crypto role, decline it explicitly because it's crypto.
So: 23%, plus 36% of the remaining 77%, equals just north of 50%. Add in a few who don't turn it down outright but who end up withdrawing later, and you get a bit north of half.
EDIT: I reread the original comment. It technically makes sense, but still I think answers a different question than the one posed about the compensation model.
How would this hold up in court? Let's say things go south and the founders drop everything and take what funds there are with them. Can I go to court and say "Hey, I have a crypto token for...". Before I even finish the sentence, I'd get laughed out of the room.
There's more ways it can go wrong than it can go right, and that's saying something when it comes to startups to begin with.
Either its a fixed percentage, on paper, with clear, legally defined terms, or it's effectively worthless.
Draft doc with comments enabled: https://docs.google.com/document/d/1VvxEQBRexuFJT5qCr9MCeZRV...
1. What happens if an employee loses access to the wallet their company-ownership-tokens are on? Is it just a matter of re-emitting new tokens and distributing it to them? How are the old tokens handled (e.g. if the wallet is found at a later point in time)?
2. Could you ELI5 how you correlate the company value with token value?
3. Presumably, if everything works out, this allows your team (as well as anyone else) to sell their ownership tokens at any point, but also buy others' tokens that are available on the market as well right? I can see a few issues with this including insider dealing (some people having earlier access to great/awful news before others and making token transactions based on that).
I think it's an interesting idea but I think there are a lot more details that I'd like to see ironed out based on the little that's in the doc (that also has public-write access on it for some reason)
I understand the distrust for blockchain but there is also ideology in blockchain world that has not yet occurred in the greater world, that funding is broken and new alternatives are needed. Has somebody figured a perfect one - no. Is experimentation good? Yes.
This isn’t experimentation, it’s re-running a scam. Experimentation means trying something new.
Good article on some of the less simple incentives of VC: https://pivotal.substack.com/p/making-markets-in-time -- however forewarning that the compelling parts are mixed in with a lot of waffle.
Personally all levels of VC seem like a grift to me.
Here's what I did that they didn't:
- worked 24/7 (ok, 12/6) for the first 4 years including 1 where I was paid $0. He was more like 10/5 and came 1 year in. Still an absolute beast but we'd often talk about how I had to work "founders hours" and him employee hours.
- took 1/2 his salary when we hired him after raising our seed
- immediately had to push way out of my comfort zone in terms of responsibilities (investor stuff, copywriting, support, hiring, managing, partnerships, running ads)
At a base level, we're just kind of different people. He had hobbies outside of our company and I was a locked-in computer monk.
The other bit is that he was not like a highly paid Facebook engineer. He had gone back to the midwest after school and we were able to 2x his salary and move him to SF. Founders hiring the first employees need to really scour their network for diamonds that big tech might miss, because it's pretty well accepted that your odds of getting rich are much higher in big tech than startups.
If you know you're turning off smart candidates with crypto shenanigans it's a good sign that this is not a mature or pragmatic team.
These crypto tokens aren't even guaranteed to be issued to a wallet you control.
I have a few pragmatic reasons why I want to use a crypto token, instead of traditional instruments.
The first one is liquidity timing. With a crypto token, you can have 24/7 trading and liquidity from basically day 1. There is no need for second markets with high fees and complicated process. Just a 10 second Uniswap contract.
Second, you don't need to "manage a cap table". The token trades and moves freely on the blockchain, permissionlessly for anyone who wants to use it.
I have a long article at https://ortutay.substack.com/p/the-computer-science-case-for... about why I think crypto rails are fundamentally better than the current banking system, from a computer science perspective.
The best example is how money transfers work in the current banking system. A money transfer is the canonical example of why you need transactions in a database: you want to deduct money from person A only of you successfuly transfer money to person B. But guess what: this is never executed as an actual atomic transaction, because A and B are usually at separate banks, in separate DB's.
Compare this to the blockchain: every single transfer is an atomic, universally auditable transaction. If you ignore all the noise and scams in crypto, this just makes 10x more sense to me as an engineer.
FetchFox as a company has two goals:
(1) Make the best possible AI scraper (2) Prove that crypto tokens are viable and better alternative to traditional company structures
It's lame that so much crypto stuff is caught up in scams that obscure the underlying value.
I challenge anyone to find better founding engineer compensation. Comparisons from YC: https://www.workatastartup.com/jobs/l/software-engineer
It also depends a lot on the person, I have a pretty high bar for "exceptional": https://steve-yegge.blogspot.com/2008/06/done-and-gets-thing...
To be fair, this is true of any equity model, which is precisely why most engineers (at least in our data set) place very little weight on equity.
(1) Make the best possible AI scraper (2) Prove that crypto tokens are viable and better alternative to traditional company structures"
For everyone watching this is the opposite of pragmatism. This is idealism. Your company will succeed or fail based on your ability to execute on your primary mission. Here it should be (1). If you're labouring under a (2) then you have an idealistic company, which is fine, but don't pretend that (1) is your primary mission.
In effect, I'd be "investing" $180k/yr and putting in crazy hours for a 1% equity that gets diluted to nearly nothing in a few funding rounds. How does that make sense?
You can only invest your time and salary cut into a single company, while angel and VC investor can invest their time and money into many companies. They only need 1 of those investments to skyrocket. You need 100% of your investments (size 1) to skyrocket for it to make sense.
Sure, if you hit the jackpot and join Facebook, then you're set for life. But that's an extreme outlier, otherwise I wouldn't be using it as an example.
Maybe not many people making $220 take these offers?
There has to be a fair number of start ups that really don't "need" a $220k engineer if their business is "uber...but for cleaning your windows".
It would be interesting to see the breakdown of who does take these roles.
Granted "founding engineer" implys a lot so I'm not disagreeing with the premise or article, but sometimes on HN the idea that an engineer costs $200k+ is just assumed where often I think that isn't the case.
I have taken a role like this before, but when I did so, I was making a lateral move from a compensation standpoint. This is without factoring in any expected value of equity (because there was none).
I'm willing to also bet that most people do not do a lot of opportunity costs math.
But as your example points out, like mine, maybe this whole idea of top paid engineers not getting paid, or even taking those jobs isn't a thing as much as we might imagine.
"Uber ... but for walking your cat" might offer far less than 220k, but they also don't need that guy might be offering more lateral move type people / money.
I get that the typical $220k dev probably has a different mindset than the one you'd look to when building a new company. That said, I've focused most of my career on being the 2-5th employee and helping guide startups to viability. I've been able to do that while still pulling in reasonable $$ and hours to make my lifestyle work.
Maybe this alternate model is gone now with the credit crunch, but it does seem like we're missing out on a workable yet oddly unpopular approach here.
When I joined, I was shocked how high the turnover was. And not anecdotally! there were stats you could slice and dice every which way, and...it was shocking.
How!? This was paradise.
After clearing enough years, and getting enough advice from people at 50+ who stayed at BigCo, once you got a pile o' money, it looks more like:
$170K/yr + $30K bonus + $100K/yr RSUs at Google - $150K/yr existential dread.
vs. startup:
$150K/yr + $15K bonus + $2.5K/yr (1% chance of $250K/year)
Increasing the money pile becomes not worth it once you've stacked Google RSUs, and the choking existential dread of what goes on inside BigCo is worth the pay difference.
I know that sounds nuts. Hell, when I was doing my big "Where do I go now that I've sold my startup?" interview rounds, I also interviewed for positions with a couple ex-Googlers who told me it'd be awful to join there.
I thought a lot about it and decided they were wrong, they didn't understand how little savings I had.
And they were wrong: it was totally worth building the money pile so I could move on like they did, to more productive areas where there's room to grow.
aside: I'm not sure anyone would get $220K/year base then only get $100K/year base. I usually see roughly the same base, frankly, its usually a bit higher than Google's.
another aside: stereotypes are stereotypes, from what you characterize startups vs. BigCo as, I think you'd be very surprised how many Googlers feel about workload
First thing I should say is none of what I'm going to say matters if you are the world's most well-adjusted person. i.e. you have 0 inherent desire to do anything other than A) get a paycheck B) do what boss says.
The ex-Googlers I interviewed with put is as "you can't get anything done", which I took as a challenge. And succeeded. Then failed. But not because that's not what leadership wanted, it was the opposite, they had been asking for years: because I was low enough on the totem pole, and in engineering, in a way people could screw around and have 0 consequences.
Hyperbole: every single job I've worked at was better managed than what Google had become at the end, including food service ones. There's a professionalism-as-don't-speak-up authoritarianism in play.
Another handwave I've used to describe it is "humans are humans, everywhere.",
This was the first time I was with a group of really, really smart people. Ivy Leaguers, etc. I dropped out from the #116 ranked university.
I expected that meant the level of shitty behavior would be lower, but, it was higher. Much higher. There's much more training data accumulated in smart people. Making it easier to construct internal narratives for why somethings a bad idea, but, this was usually lazy and slotting into some stereotype. One lesson I learned quickly is there's a parable for every possible decision.
Another problem was you had a ton of people who were just Ivy Leaguers who said "ehhh I guess finance is more evil?", ended up in tech, and really could not fundamentally understand at all why you'd do anything, or talk about anything, or think about anything, other than what someone in authority explicitly said to do and documented and had 0 ambiguity at all. This actually played well with the authoritarianism I mentioned, despite "thriving in ambiguity" being a catchphrase used in perf a lot.
Last thing I'll mention: there were two major decision points that ended up causes an exponential increase in issues:
#1 in...2018?...moving promotion review into the local team, instead of a panel of reviewers from throughout Google. Won't belabor the point too much, TL;DR: that's an excellent way to enable authoritarianism and adjacent issues, because no one can be good enough to just do an end-around.
#2 in late 2022, moving performance reviews from a variety of feedback from collaborators to your manager and whoever your manager bothered picking.
Anyone, if you've made it this far and are very curious, feel free to reach out to jp0hhhh@gmail for deeper conversation (replace the 0 with an o). I'm offering just to pay it forward, i.e. give what I didn't have before Google, someone with a direct sense of tradeoffs.
At the startup, there's not even the $150k to subtract out.
I'll try to reply with more specifics to the sibling
It's a different dread working for a startup, but really believing that you're helping its mission to save the world, or at least, not making it worse is it's own form of payment.
Some people work at a Fang only do after convincing themselves that to do so would be wrong, but the pay is just so good, and so they hate themselves for working there. They haven't drunk the Kool aid and have bought into a narrative that the company they're working for is eeeeevil. Other people just buy that BMW and provide a better life for their kids than they had, and the thought doesn't even register.
basically when I’m on the market at all the smaller companies move faster so I just take them
older mid size companies are the ones that compromise on base salary and take too long
I just don’t and won’t do the studying adequate for FAANG
There's nothing inherently wrong or illogical about making less than the maximum amount of money you can make.
I'll happily take substantially lower salaries for publicly funded healthcare and undergrad education.
This doesn’t even factor in general higher tax brackets abroad
The premiums don't cover everything and if you (heaven forbid) get a curable form of cancer you're gonna be paying quite a bit out of pocket past the quoted $43k, and it's not just about the money, but dealing with the whole system as well. Getting claims denied and having to contest it, having a mystery bill hanging over your head. If you break an ankle, it might just be less hassle to buy the things you need off Amazon than deal with insurance.
Meanwhile you can complain about eg long wait times in, say, Sweden, but the total deductible per year there is approximately $100 and then you don't pay more than that. Getting a curable cancer just doesn't have the same implication there.
There's also other intangibles. Things like time off, infrastructure, social safety net, dating pool, culture, human rights, cost of living. inequality (good or bad). What's it worth in dollars to you for your daughter to be able to afford to buy a house someday when it also turns out she wants to be a painter when she grows up?
I'm not making any argument for or against a particular county. What I'm saying is, live where you want to live. Money isn't everything so make sure to read past the numbers on a spreadsheet.
So I've thought about saving up enough to comfortably retire, and then going to work in a more risky company for the chance to get a life changing amount of equity (something more than single digit millions). I don't know that I will though, because the odds are seriously bad.
Also you are very likely to be laid off or pushed out before you get to the goals you think are so obvious.
Can you elaborate more on this? What would be a more optimal approach?
When you set your goals as a single young techie you are in for a surprise when real life hits
You have to ask yourself this- how much is enough, and how hard are you willing to work/risk for it? On the low end, how much is the minimum, and what pros would make that acceptable, quality of life, risk, anxiety levels, etc.
Your way forward will be much clearer when you know what your parameters are, even though life may happen between now and the end date of your plans.
On the flip side, it's funny to think about what life would look like if I spent all my disposable income, but it's not really an experiment I want to run haha.
I think the most likely scenario is that I take some time off and decide to continue working similarly to now, but I think it'll be nice to have some confidence that I can have more freedom to choose what I want to do if I show myself that I could afford to retire. I largely like my job. I wish there was less stress and external pressure, but it seems difficult to keep the parts of my job that I like without those.
My risk is even higher than yours, coz at 1%, I'll have no say in anything important. And I'm breaking even only once we reach 10M valuation.
The problem is that there's no easy way to cash out with just a valuation and you need the $100k now to pay for whatever, not when the board says there can be a liquidity event (which may never even happen).
Not really. They don't want you to give up anything or some do and you can just say no. The reality is that people want to find other people who want to work in startups to be their engineers. You really can't get top performance out of a guy who hates doing some work by paying him. You'd much rather get the guy who loves doing some work and pay him enough that he feels appreciated. Mercenary hires are useful in prop trading firms, but anywhere else the mercenary is better contracted than hired.
Besides, startup salaries are not $100k/year and you can get 2% as a founding engineer.
Taking more money to do a job you hate is a recipe for burnout.
My main point is if you think you might want to be a "founding engineer", just be a founder instead. As a good example, consider Nathan Blecharczyk, one of the 3 cofounders of AirBnB, and was its original CTO and coded its first website. He's now worth about $10 billion and according to Wikipedia is the 203rd richest person on the planet. If he instead took a job as "founding engineer" at AirBnB, and let Brian Chesky and Joe Gebbia instead take on the sole founder titles, he'd be worth orders of magnitude less (granted an order of magnitude less than $10 billion is still hundreds of million, but point being there is no reason he should be compensated less than his other cofounders).
I knew someone who was the lone engineer at a start up who got a call from the founders, all on the golf course who wanted to talk about a new feature. At first he thought it was a joke because it seemed absurd, no they were serious. He quit the next day. He figured they were non serious founders. Company just rand itself out of money not too long after.
Having a tech career at all is an incredible luxury compared to pretty much any other way of making a living. It is easy to have a comfortable life without bothering to chase the high end of the market. One cannot ignore compensation, but neither need it be the focus of one's career decisions.
What is a "replacement level college-educated career"? That's not a phrase I have heard before.
Back in 2008 when Yahoo was laying off people, joining Facebook was something people did out of desperation.
That was an 85k/year job with an expectation of "all work, no life".
It was not seen as a good option, but most of the time the only place that was hiring during the Great Recession.
A decade later, it was a completely different thing. Yahoo was dead, Google+ (Orkut) had failed & FB had Instagram & Whatsapp.
I took up an offer to work for 1/10th of my previous salary and half the working hours. Life is not all about money.
I’m guessing that no investor will back a company that they can’t sell for Y times the investment.
EDIT:
Thank you for the thoughtful replies everyone. I totally spaced the idea that I was asking this question on HN, a VC owned forum. I am glad that it was not interpreted as flame war baiting.
Even a self funded company has a different problem, the person/people who started it did a lot of the heavy lifting and took on massive risk, they want to be compensated for that risk, and are loath to share it all with others but in some sense, many self funded startups are 100% employee owned… just by a small subset of the employees.
Practically speaking, this does not work in most businesses.
But maybe you have an idea that I haven’t seen.
What would some numbers look like for a company and what would the buy in be for a new employee?
Where do these shares come from? Do you dilute the pool? Will people who are no longer part of the company (but are still partial owners) want their ownership pool diluted? If so, how fast can you grow before they start saying no?
> The investment portion would be separate from the base package as part of adding the investor-employee to the company.
Where does that money come from? Employee stock ownership plans where money is taken from their salary?
How much has to be invested before they feel like owners?
And again, where do these shares come from? Is there a market? Is the share pool diluted? If dilution occurs, what’s the mechanism for this?
This is obviously decided by the employees. One option is that the company reserves a pool of shares for hiring, another is to dilute. Again voted and agreed on by the people that work there.
> The investment portion… > Where does that money come from?
“The investment portion” is the portion of the package you’re giving your investor in exchange for the money being invested. That part of the package could include: more shares, a later lump sum payment, etc.
I imagine the share dilution or split or whatever would be tied the continued success of the business, requiring everyone to understand how adding a person would financially change their risk/ownership pool.
The reality that I’ve seen is that it rarely works out like you are suggesting.
Real examples that I’ve seen twice in detail is that senior management (and later retired management) ends up with a lot of shares. Upper management prefers disbursements/dividends, while lower-paid folks prefer pay increases. Sometimes neither of these are optimal — better to re-invest.
The senior management and retirees do everything that they can to minimize share dilution, and they are very aware of where their share of voting shares stands versus the labor shares, and the management is much more savvy about this knowledge and process.
Bitterness on both sides ensues, and the company turns to shit via in-fighting.
As for getting new folks to invest their own money into shares, there has to be a very clear path for ROI for these folks, as often there is no dynamic market for shares.
Other examples I’ve heard stories about (but haven’t seen numbers) have similar tensions.
Maybe I’m biased, because I mostly hear about failed employee buyouts. That said, the number of success stories I’ve heard of are few — bobs red mill (still newish) and Publix… I’m sure there are a few more.
When creating an employee owned company these are great things to consider when drafting the agreement but I didn’t read anything from your anecdotes that suggests it wouldn’t be a successful model.
My comment was never about the employee base package requiring investment from the hired employee. I was commenting on offering the base and an additional package for bringing on an investor employee.
* You can only "invest" in one company at a time this way, so the risk profile is much worse for you than for a VC with a lot of different portfolio companies.
* It's rare for a 100-person company to be valuable enough that a 1% equity stake is competitive with the levels.fyi payscale.
VCs target 10X (1000%) exit because the average startup is a loss at 5% return on interest.
Imagine funding 10 companies, 9 bankrupt, and the remaining one only pays back 5% more than you loaned it.
Look at the numbers. We're talking about going from 1000+% to 5%.
Additionally, I don't think the government could manage an investment fund without complete corruption. Would you trust the president or Congress to invest your money?
VCs make money when they invest their money in winners. Politicians make money when they invest your money in their own pocket.
I do not trust the democratic electoral process to keep politicians honest and effective. The idea seems almost laughable, all I have to do is look out my window or read a headline to disprove the idea.
Similarly I don't trust the electorate. I think they aren't much better than the politicians. I think it has no problem destroying lives and robbing a minority blind if a majority thinks it can get away with it.
The only thing keeping it in check is slowly eroding limitations on government power.
It isn't that I trust private investment more than the government, but at least I can say no to one and not the other.
What do you think would stop politicians from giving all the loans to their friends for fake companies, and just taxing everyone else more to make up for it? It would just be PPP loans, but permanent.
I always find it a little stupid when people claim the government is too powerful. The governments of most countries are massively beholden to business interests. It is to the degree that people cannot separate the ideas of government and corruption. "The democratic electoral process" is not a real thing. Every country that claims to be democratic has a different way of going about this, with differing results. The system in America is one where politics is driven by whoever has the most money. If you gave government the power to subjugate private wealth, you might have an actual democracy.
You seem to treat corruption as a fact of life, but it clearly isn't. You can make laws banning it.
I don't understand how you can make those statements about corporate capture of politics in parallel with advocating for a politically appointed body to hand out free government money. Why do you have no trust in the politicians, but do trust their agents?
You seem to agree it is corrupt, but think giving more power to the corrupt will fix it. Do we need a dictator to drain the swamp?
This gets to the point that you are describing a hypothetical. If thing A were true, then this would be possible.
If we all had identical values, perfect information, and unlimited time to review it, then yes many things would be possible.
I don't think it is possible for the electorate to provide any more than the most superficial oversight and direction in the US Federal governmental system. It is far too big, and far too distant. And that's even if people agreed on what they wanted. 99% of people are ignorant of 99% of the activities of their elected representatives. My state has more than 5,000 bills proposed per year. Even the full time representatives don't read most of them.
You say it is as simple as voting for the corruption to stop, as if that is even possible. Collective action problems are hard, as information problems. You can't just hand wave them away.
There are niche examples of 'bootstrapped' companies that are employee/founder owned...
In my experience, equity alone can become more of a distraction than a motivator. It sometimes encourages people to mark time rather than consistently push the envelope. I’m wondering if a profit-sharing model, possibly combined with some consulting-group best practices, might be more effective at sustaining high performance over the long haul.
If you know of a proven employee-owned approach that doesn’t dilute accountability—and actually ensures teams stay fully engaged—I’d love to explore it. My goal is to bring in the best talent, focus everyone on building the best product, and reward them in a way that keeps us all hungry for continued success.
But https://www.nceo.org/research/employee-ownership-100
There's a lot. I didn't know brookshires was a cooperative
It's REI, and it's actually a consumer co-op owned by its members, not employee-owned.
Fairly often you see service-focused small companies (i.e. agencies) being run as coops, e.g. my friend's NZ .NET shop http://iontech.nz/
So unless you have 5-10 employees willing to work for free until profitability PLUS paying infrastructure costs in the meantime, you are constrained to activities that can be profitable from day one.
This is why you can see employee owned consulting and services companies but not major development projects.
Yeah, if a company is profitable from day one, there is no reason to take investors money. However that happens rarely. And while some people are happy to work without salary in the beginning if they get equity, for others with different risk preferences or life situation it is a big no-go, therefore also different shares of equity and different compensation...
Your insinuation is that a startup that can barely support 1 employee would need 10 employees day 1 instead of growing as it goes. VC money isn’t the only way to expand your business. If you’re not racing to market then there’s really no need to be successful 10+ employee company on day 1.
I think this might be selection bias or something along those lines. There are probably more companies than you'd expect that are techy bootstrapped companies, but they don't make the news because they don't have the funding round type of announcements. These companies also tend to do something not centered around AI or socials, so again, they fly below radar. I've worked at more than one
The value of an employee owned business is that you can vote the CEO out if they’re not working in the best interests.
I’ve watched a company in deep debt spiral out of control because the CEO didn’t understand the business and let bottom up management be how the company runs. The board that also didn’t understand the business just let 3 rounds of layoffs occur before forcing the CEO out. When layoffs come, if it is going to be the employees who pay the price, they should have a mechanism to push the pilot out of the seat before it costs them.
It is very tough to pull off an employee-owned company over the long term.
1. How do you handle it when someone leaves? How do you handle a new employee when they come in? There are many ways to do it, but I don’t think I’ve seen an implementable way that keeps incentives aligned.
2. What happens when the company is extremely successful? In many examples I have seen, the employee-owners give themselves substantial raises and/or distributions, become way better off than they ever expected, then they aren’t really motivated to do the hard things that make a business work over the long run.
Source: A friend of the family who buys up employee-owned SMBs, gets them back on track, and then sells them.
Note that often times the “employee buyout” is a founder/owner who can’t sell at a price that they like, so they basically sell it to less sophisticated buyers (their employees).
I worked for a company like that. It was a start-up size company that was in business for 20 years or so. It stayed small and had not external VC breathing on their neck and such.
So it does exist and it has it benefits and downside. For one, just because it's employee owned doesn't mean that the few founding employees won't screw anyone over and it does't mean everyone gets an equal amount of shares. Initial founders may still keep 99% of the shares, and maybe dole out a crumb here, and a bit there.
I thought about setting up Fetchfox this way, and in some ways we are an employee run company. Everyone including me gets the same crypto token as our stake in the company's success. I get a higher stake as the founder/ceo, but some offers give the employee 0.5 for every 1 of my allocations, which I think is pretty fair.
Long term, it would be nice if I had <50% stake in the project, and it self-managed somehow, similar to crypto projects like Ethereum.
That said, the phrase "employee owned" has some bad connotations. It has an implication that you are not trying very hard to grow, or that you are somehow less committed to company, or that you are some sort of co-op. For these reasons I don't like use that phrase.
1) It's not a security, so it's not a share of the company. In order to be compliant with US law, we can only offer a utlity token 2) Crypto is a 10x better underlying data structure and architecture for the financial system: https://ortutay.substack.com/p/the-computer-science-case-for...
I’m not sure avoiding specific phrases because the general populace has stigmas is helpful however. I don’t view employee-owned or coops in those ways at all. For example, your growth rate should be attributed to the quality of the product. The product quality should be attributed to people’s interest in their work. Good compensation/benefits such as ownership should be the incentive of a quality product.
There is also a major issue with realizing equity because employees generally don't buy in or sell out when they leave. This means that equity is essentially locked away from the employees.
The model works well for stable businesses with regular profit that can be split up, and not so well for growth companies. Employee labor investment in capital growth never gets paid out because there is no exit.
A business with a chance of success in the 90s might be able to get a bank loan. As an early stage tech company, the capital available to you is venture capital.
But yeah that was a situation of a privately held company opting to make that transition, I'm not sure they had any investors to complicate things. And they're definitely an outlier.
The simple answer is that I am not savvy enough with financial instruments to be confident that I can structure something that can't be preyed upon if it's successful. I know I care about making sure my employees are well-treated - you shouldn't believe me when I say that, but I believe me, and that means that in terms of my own ethics there's not much reason not to maintain control and depend on my own judgment. If I want to divide 70% of the profits up among my employees, nothing is going to stop me from doing that, so why not keep my options open?
(1) 10 years in, your founding engineers won't have had much more impact than number 4, or 5, or 10. I think you'll have a real problem on your hands when two peers have 100x different equity stake and their tenures are just 1 year apart.
(2) In fact, your founding engineers probably won't be your best or highest impact folks. I much prefer the approach where you give very generous re-ups to your high performers.
(3) Founders and founding engineers are not the same.
(3a) Founding engineers eventually will require market compensation. Founders will not.
(3b) Founding engineers can leave at any time without inflecting the direction of the company. In fact they leave all the time: I've never seen a company where all the founding engs are around 10 years in.
(3c) Founding engineers do not have the investor, customer, and executive relationships that the founders have. An I'm sorry to tell you that those are much more important than engineering prowess.
FWIW, I like Sam Altman's recommendation of 10% for the first 10 employees (https://blog.samaltman.com/employee-equity). It's more than most companies do today...
Trusting a potentially insane one-man shop of the founder is way different than trusting a group of 5-10 people who pay rent at the end of the month as proof that the concept might work.
Investors have even less to go on: the founder might be an outright crook and run off to the Bahamas.
(B) I keep hearing people talk about "risk". Is this "risk" in the room with you right now? The reality is that founding engineers at many startups get competitive salary, get to work on incredible problems, and can leave after a few years having vested a bunch of equity and added a solid entry to their resume.
(C) Yes, if you're currently an L6 eng at Google you'd get a pay cut working at a startup. This isn't risk, it's opportunity cost. And guess what: those people very rarely join early stage startups. Those that do negotiate hard and get bigger equity packages. Most early stage startup employees are earlier in their careers / haven't hit the Google jackpot yet.
(I'll set aside the fact that many people leave big tech and join startups for non-financial reasons. Harder to draw generalization about those because the motifivations are so personal, but I know many.)
Yep.
> Using a crypto token gives our employees a very important, 10x improvement over traditional stock grants. A crypto token enables continuous, 24/7 liquidity within the first months of the startup's life.
That's not altogether bad (I have always lost with traditional ISOs), but what kinds of coworkers are those kinds of crypto token grants going to attract, and where's the sufficiently long alignment for the coworkers who got skittish early?
I've seen this also, and I think its lame.
This is why at Fetchfox I explicitly use the phrase "crypto token" in the article and in all offers offers to prospective hires. It's a crypto token, so we call it that.
There are a lot of negative associations with the term, but using euphemisms just confuses people and makes it seem like you're afraid or that you're trying to trick them. I say, call a spade a spade, and call Voldemort "Voldemort".
Becoming a founding engineer is a wealth-building, passion-for-your-work risk, not a pure salary optimization decision. HN never seems to understand this. If you’re optimizing for stable salary, go for the FAANG position. You’ll be comfortable, but you’ll most likely never be able to fly private, and you’ll have to be OK existing as a cog in a massive machine. Plenty of people are ok with this. These people should not be founding engineers.
I would categorize it more as an extremely high-risk gamble. Actually your odds would be better taking your $3M in FAANG compensation over the same time period and making a 20:1 bet with a 2% chance of winning in Vegas. Probably double your chances of being able to fly private.
You can work for just equity if you prefer, that's usually what the founders do for the first few months to a year, before there is enough money to pay a salary at all.
(author/fetchfox ceo)
I usually make a few different offers that have cash / token allocation tradeoffs. Higher token = lower cash, and lower cash makes you more like a founder.
Just to give a concrete example, for a recent very good candidate, the offer on the high token side was ~20% of the expect total allocation and 150k cash. There is also a higher cash option with lower token allocation.
For less exceptional candidates, the offers are a lower token allocation the equivalent cash.
How many "25%" stakes _do_ you have....?
While I don't like VC math and we (I'm CEO and co-founder) at Aryn AI give more than 1% for founding engineers, numbers like 5% to 25% are really a reflection of the risk and not the work. Prior to an equity round, you can give that away and you're treating the founding engineers like minor founders. Post an equity round, there isn't enough left to give everyone that and still build a decent team.
After an equity round with decent funding for 2-3 years, the co-founders have convinced someone to part with lots of money with no guarantee of an exit. There are innumerable YC startups and well-known VC-backed companies that have been sold for parts. After an equity round, you are joining a startup with some runway that you would not have gotten on your own, and hopefully, working on an opportunity that is outsized. Otherwise, you shouldn't take it.
Outsized means that even if the founders are gazillionaires, you may be 1/20 of a gazillionaire, which is still a gazillionaire. Otherwise, it would have been better for everyone to have worked for some big tech firm anyways. It really is a zero to one game, and you don't get to do it often. So do it if its compelling and fun and the outsized reward is and has always been a lottery ticket.
I think the experience and exposure to new tech, new people and the professional growth is what makes it worthwhile for more junior folks.
I agree that for the top engineers that doesn't make any sense.
sometimes "founding" contributors join long after founding. sometimes they join during funding.
Neither case justifies a number either. Think founding team secures $3M based on something, wants to bring in engineers. Founder(s) worked for 1 year researching on their own dime.
Then it's also about who bears the load. Founders typically bear the load, if other members do that, they should be cofounders.
Otherwise, it's more or less pareto / power law with a risk adjustment.
If the typical founding engineer equity was 5%, that would equate to $250k/yr which would mean most startups would have greater total comp than Google.
The math is simple:
As a founding engineer, I do almost the same amount of work as the founder (e.g. 90%), and get only 5% or less of the reward.
If the founder is the main source of capital, I can understand. But if all the founder does is build the product and raise money, how different is (s)he from you?
If you believe you're doing 90% the work of a founder and getting paid 5%, then you should be an actual founder and get paid 20x as much as you be as a founding engineer
Of course, the odds are not static and some people genuinely do have a better RAROC by being a founder but most people overestimate their founder abilities vs the odds and feel like they're not fairly compensated at 1%, which is fine, most people shouldn't be founding engineers either.
But there's a reason it's equilibrated around the 1% mark because early equity compensation is about risk, not effort.
In other words, we need more startup engineers and less google engineers.
How do I know they will be worth anything when the company exits? I probably won't get a contract with the company that tells me exactly how I'll be paid in cash if the company is acquired. Instead, I will get a token that will be bought back by the company at a price set by the company at a time set by the company.
Another similar issue I see is dilution: How do I make sure the company doesn't just issue a billion new tokens so that my tokens are diluted to nothing? How does the token price change when new real shares of the company are issued (presumably investors want to get real shares instead of tokens)?
They won’t be worth anything. Equity isn’t perfect, but it offers at least the bare minimum of legal protections. Any crypto token will just be ignored by the acquirer (or any present or future company leadership) and you’ll have no legal standing.
If you have engineering skills that are not easily found, then you can ask for more. If the founders don't give it to you, then they might not be able to build their idea.
If the product do not require niche or sophisticated engineering, then the founder will just move on to the hordes of candidates that can do the job.
I don't think "fairness" can be intrinsic (nor objective) in a market-driven economy. It's always going to be a push-pull, negotiation, calculating business. And you disenfranchise yourself out of this economy if you don't have the stomach for it.
Frankly, one of the satisfying things about a free market is that we don't have to rationalize these numbers at all. If the numbers are wrong, the market will select for better theories.
It's the same thing with crypto bros not wanting to miss the next Bitcoin.
Not only is 1% substantially less than the 33% the last founder got, those shares aren't equal. Voting power, clawbacks, dilution, acceleration on change of control and so on.
Thje most likely outcome is that equity is worth nothing. The next most likely outcome is an acquihire. Participating and liquidity preferences may mean your 1% stake is actually worth $0. Maybe the buyer offers you a new equity package but how is that different from just getting hired directly? Meanwhile, the founders often get huge bonuses (which are really a way of paying the equity holders less) with generous new equity packages (even with earn outs).
If you're good enough to be hired as a founding engineer, you're good enough to be a founder or simply to work in big tech or fintech for $500k-$1M+ a year in total comp with next to no risk. And that total comp beats the expected value of your employee startup equity value by a mile.
This is why sweat-equity deals are a huge red-flag for terrible arrangements. Mostly these schemes target fresh grads, and the credulous. =3
If you are not making a salary / a well below market rate salary (50k for an engineer), you are a co-founder, not a co-founding engineer.
Lol, alright.
Either the crypto is not actual equity and is worth nothing. If it’s tight to actual equity, this is an ICO and is now illegal in the US apart if you basically IPO.
Hire yourself an engineer,
Feed him pizza, buy him beer,
Give him just a fraction of a fraction of the pie.
Let's face it folks, the party was doomed to only last a short while before the managerial class took over.
Also, founders may get some liquidity at funding rounds, but I don't think founding engineers typically get to benefit from these.
If things go south, no court is going to take some crypto stake in a newly minted coin seriously.
Either you have shares in the company or you don't, maybe they aren't voting shares, but at least they are real from a legal standpoint.
A crypto currency that was made up by the company is way too much of a legal gray area to consider.
Do accredited investor regulations not apply to this market? Is the crypto token a registered security since it apparently represents stock in a company?
I’m turned off because it sounds like the company wants to play fast and loose with money in a way that is more than just “move fast and break things”.
I think its usually more accurate to state that the company retains some N% of equity, while the founders are granted some further amount M% where M<N. Every company is different, but at least in VC backed companies, you're going to keep dry powder on the cap table to hire employees and prepare for future capital raises. Though, for a very early liquidation event, things are different. The far more common estimate of M that I've seen at liquidation, after enough time and capital injections to get to a $10M+ sale, is like 10-15%. Its pretty rare to see a founder exit at $10M+ valuation with 45%+ of the company still under their control (but, it does happen, for sure).
My biased take is that founding engineers uniquely make ultra-high leverage technical decisions that have the power to save or cost the company millions of dollars, not just in cloud costs but much more importantly in engineer salaries and lost revenue due to an inability to deliver on product priorities. There is no other "founding" role beside the founders themselves which can claim this. Oftentimes, if you come to the "right" side of one of these high-leverage technical decisions a year later, its too late, and the cost-benefit of implementation might fall in disfavor of the expected return.
So, yeah: I am definitely in favor of the idea that 2% is the bare minimum a founding engineer should accept, and something more like 5% is far more fair. I've joined startups as Engineer #6 before, and received something like 0.4%; to suggest that a founding engineer should get as low as 1% is an insult to the positive leverage they can assert on the organization at that stage.
... I empathize, but it's a voluntary market, so clearly people think it is worthwhile.
The article misses a few details that explain some of the difference. Founders have a lot of responsibility beyond engineering. E.g. they need to raise funds, hire, and go through 20 years of stress in 12 months to make sure the business gets off the ground. They often do not take a salary to make it work out, etc.
A common ratio is ~10% first 10 employees, 10% next 100, 10% next 1000. If the investors take ~30%, and 30% is going to employee equity, then that leaves (with some wiggle room) 30% for founders. It is entirely fair to say that the first 10 engineers take on a huge risk, and deserve more than 1%, but you very quickly run out of company to hand out. For a good founder, it is not worth the loss of family time, stress, and opportunity cost to exit with ~5% equity.
I think a lot of people don't know how it works in theory, and don't know how it tends to work in practice.
Sometimes people are also given misleading verbal pitches on the value of the options.
[1]: https://techcrunch.com/2011/06/26/skypes-worthless-employee-... tldr: They just cancelled the employee options, and the founders and investors kept all the money.
It's like captaining a ship and not being willing to repair the ship. Good luck on your own I guess.
It's different when they already have a product and are looking to expand. That's closer to hiring a sailor to manage the sails. But when you're hiring a ship builder expect a ship builders wage.
Also, don't hire a college kid to build your MVP. That's a big enough red flag right there.
That seems like a pretty big generalization. I can think of several going concerns where a college kid might have not only written the MVP, but actually what they have in prod. There are tech plays out there where the tech part is embarrassingly easy, the tricky bit is the politics of getting the contract(s).
Example: signing up certain populations for government benefits. Sometimes there's a nice cut to be made and it doesn't take much more than a couple of online forms. The hard part is recognizing the opportunity then getting the deal inked, not the implementation.
But in general, if you're buying the cheapest labor you can find, you're going to get an inferior product.
That said to play the devils advocate, the founding engineer can always leave the company when he wants while the founder is generally expected to sink or swim with the company. If the founding engineer could sign a contract that forced him to work for the 4 year time period, if he refused to work, he would get arrested etc then I suspect his compensation would be much higher. But of course such contracts are illegal
I think it's an interesting option, at least
Post Series C startup equity is almost universally more liquid than a shitcoin.
I stopped reading after this paragraph. Why to take advice from articles that is presenting delusional scenario about the returns? $100k after tax is good enough for Model 3.