How I negotiated my startup compensation (with numbers)
blog.keen.io
blog.keen.io
Because the tech industry is so heterosexual male-dominated, when I read that the author was engaged to the CEO, I first assumed I had misunderstood, then I thought the author was a gay man. Only upon reading further did I find that the author was a woman.
That confusion could've been cleared up in the first paragraph in which Michelle writes, "I’ve picked up quite a bit just by being around our CEO, Kyle, for the past few years." Why not tell us here why she's "been around" Kyle for so long? Further confusing the point, she mentions later that she's "friends with all of the founders." And engaged to the CEO might've been a helpful addition.
This kind of information completely changes the context of the advice – negotiating with a stranger is a completely different dynamic than negotiating with someone you (I assume) share a bed with.
However, I feel no need to mention my gender or sexuality when introducing myself. If I didn't have a clearly female name, should I have said "Hi, I'm Pat, and I'm a female in the tech industry"?
I didn't mean (though it certainly sounded that way) that it's necessary for the reader to know your gender. Looking back, in fact, I realize that I weakened my position by even mentioning it (especially in the vague, imprecise way that I did).
I brought up gender because it was confusing (and I, along with other readers here, felt misled) when you – very casually, I might add – mentioned you were engaged to the CEO, up until which point I'd been under the false impression that you were a man.
So, to answer your question: no, you wouldn't have needed to inform the reader of your gender if you had an ambiguous name because what's really important here is not that you're a woman but that you're engaged to the CEO. Whether you're a man or a woman is irrelevant: all that is relevant is that you have a close personal history with the guy you're negotiating with, a fact which, again, completely skews the context of the article.
"Hi, I’m Michelle. I recently left my job as a technical consulting manager and joined my best friends and my fiancé, Kyle, at Keen.io (I wrote about that here <link>). This is the story of how I negotiated my compensation."
While I can see hedging your bets by having your spouse work a normal job (and possibly get you on their health insurance), if a failed startup is going to doom your marriage, your marriage is already doomed.
Finally (and most importantly): Did she run the numbers about what that 1.25% might realistically be worth? She compared the offer to her current position and (without the equity) there's a ~$55,000 difference. That's a shit-ton! How much of an exit would Keen.io have to have in order for that to pay off if she's on a reduced income for, say, four years? She'd have to get a couple hundred grand off of that exit. Will her share of equity get her that?
Anyway. This isn't a negotiation. And she didn't fully run the numbers.
[Edit]
I also wrote up my experience negotiating with a start-up [http://auscillate.com/post/238]. I'm pretty naive about this stuff, but at least I attempted to answer some of the issues of the value of equity.
Do you disagree with the methodology? How? Let's talk about that, and not what you think about the blog author's personal life.
She doesn't appear to consider any of this. At least, I don't see any numbers that take this stuff into account.
Those are all good questions to ask. Some of them are questions she considers, some of them aren't.
Ultimately, though, the question of how you --- a prospective employee --- value equity is orthogonal to the question this post engages with, which is "how do I take the valuation for my role that I arrive at and effectively communicate it to the prospective employer so as to improve my initial offer". And, in that regard, I think this is a very good and useful post.
The negotiation was awkward, but I'm personally convinced that we're a stronger team because of our close personal bonds. It's not for everybody or every team, of course, but I believe it works for us.
If she's not reporting to the CEO, how does her new manager feel about having a team member who's his bosses' fiancee? Would he be comfortable firing her if she fails to perform?
I know this seems hypothetical, but I think anyone who's been around startup has seen some variant of this play out multiple times. It's bad enough when it's friends; it's even more treacherous when it's a fiancee/wife.
It would be different if we were inserting Michelle into some rigid organization structure, especially if she was reporting to somebody other than our CEO. We don't have that kind of structure, though, and even if we did, we would never tell a frontline manager to hire somebody based on nepotism. That's a sure-fire way to kill a company in my book.
Even if she's reporting directly to the CEO now, that raises its own questions, in particular for other employees. If I'm at her same level, do I feel like I'm going to get a fair shake if she and I are gunning for the same promotion? Down the road, as the organization grows, is she forever tied to reporting to the CEO? How do you ensure there's never a quid pro quo exchange that opens you to a lawsuit?
It's those kinds of questions that scare most organizations away from having direct reports romantically involved. It's especially fraught in a relatively unstructured organization like a startup where things like promotions and org changes can be fairly sudden and subjective.
Even if the reality is that there's no favoritism, it opens you up to lawsuits both from the people who are involved, and from their coworkers. If they break up, and then he demotes her or lets her go, lawsuit city.
I've seen this firsthand at a major venture startup (but wasn't involved in it myself) - a fiancee/employee decides to leave an officer for one of the other officers of the company. Disastrous for the company.
Anyway, it's their company, and I respect that they can do whatever they want - I only raised this issue because it happens fairly often in the startup world that a very tiny company wants to hire someone in a relationship with an existing employee, and there's a lot of issues you bring on board when you do that.
Yes. Strictly speaking, if you get into business with your significant other, you are increasing the cardinality of the set of things that can go wrong with your team. For people that think like us, maybe that's where you stop thinking, and if so, fine. But the set we're talking about is very large, and I also know high school statistics, and so can observe that the relationship stuff is unlikely to be the event that blows up your team.
Believe in working with your spouse (or close friends, or whatever) or not. Either way: it has nothing to do with negotiating for a job, and it's a little creepy to bring it up here.
I personally worked with a married couple as founders, and would never do this again (a lot had to do with them in specific, but the general failure mode of any relationship problems spilling over into business, on top of them always ganging up on others, seems general). I'd probably work at a company with siblings as founders, and maybe at a company where a couple were in different roles (founder + employee).
I mean, would you take advice about how to move up in a company the same from the son of the founder?
I thought the analysis was generally quite good though and she seems to be quite intelligent. Please don't take my critique to mean that I thought the point she was making was incorrect.
I finally realized that, no, in fact they are engaged to each other, but that was after she'd started referring to herself in the third person:
Michelle: “What should I do? ..."
The founders also set expectations that we'd adjust salaries to market value in the event of a Series A, though that isn't something I relied on as a part of my decision.
The offer side of this post makes my head hurt though.
70k with .5% equity or
60k with 1% equity or
50k with 1.5% equity or
40k with 2% equity
Later:
Inputs:
- Employee’s market salary
(I used my current salary, plus bonuses)
- Salary offered by the startup
(I used my offer, plus benefits like rent subsidy)
- Company’s valuation
(I used $5M, the cap for Keen’s seed note)
Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.
Also:
Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.
What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.
Thanks!
In this case, though, I think the way to win the negotiation is to walk. A competent engineer is more like $150-200k total comp in the bay area, and doing that as $100k + 100k of equity/yr in a real company is pretty plausible.
A more plausible story is offering $50-100k and then equity levels which ramp up rapidly as you go down to $50k. Someone taking $50k vs. $60k should get more than $10k x 4 of extra equity. Maybe something like 100/0.10 90/0.15 80/0.25 70/0.40 60/0.6 50/1. Then, if you need to prioritize candidates, absent other factors, the 50/1 people have a plus mark.
There have to be better ways to account for sub-market salary than a salary/equity scale multiple percentage points long. Ick.
I've heard Palantir does three offers, and taking the top cash one is a bad signal.
Also, I think employees undervalue equity, and there's a weird signaling/etc. effect where shitty companies give out equity freely, good companies don't. Cash is cash, though.
Obviously offering tptacek 5% in a company isn't bad, but offering an office admin 5% is.
I agree that offering an office manager 5% is silly and offering a founder-level person 5% could make sense. I guess I was more curious to see what you think the right ranges are.
(So, e.g., a $10mm cap note company which has raised $2mm would treat each 1% of employee equity as $50-$75k. So giving up $25k in cash salary should get you, as a 4 year grant, 2% to 1.3% equity. That is in line with the 0.5-1% for a seed stage 5-7y experience strong individual contributor equity, which is a slightly low amount; generally I've seen 0.1-0.25% for 3-5y experience Series A hires, on say a $20-30mm valuation, which also is in line with this.)
The annoying thing is a company wants to discount equity to employees at 0.5-0.75x. Engineers often discount it to 0.1, especially people who have been burned in the past (90% of people in the first bubble, ex-Zynga people, etc. If you're negotiating with someone who irrationally discounts equity, just pay him more cash and pocket the difference).
A Google SSE or Staff Eng is about $200-225k on the market (total comp), a 3-5 year guy is more like 125-150k, and a very junior person is 75-100k. You can allocate that among perks, equity, bonus, %, and base in various ways.
There is basically no way to use just above-market salary to hire good people, but lack of market salary can get people to rule you out. I've worked at companies where ~everyone got $150k cash + strong equity (0.25-1%), and it ended up just being mercenary people who worked there and remained, due to other defects in corporate culture. (I've also worked in a 200-500k cash-comp-only environment, and the quality of people was inferior to any startup I've ever seen.)
You can probably get people to sacrifice 0-25% of total comp (and maybe up to 50% for short periods of time, like 3-6mo until financing). They are only willing to do that if they think it is "fair", which means they have good odds of doing well on the deal, and others in the company, particularly founders, make similar sacrifices. If a founder is paying himself $150k/yr, and is trying to negotiate a $225k Staff Engineer hire to take $50k cash + $50k equity, you'll probably only get the most self-sacrificing and useless person to join. If a founder is paying himself $30k and is trying to get a $225k SE to take $70k/yr until Series A (6mo), then $120k, plus $50k of equity, and some other perks ("not being at Google of 2012" seems like a serious perk for a lot of the people I've talked to), you'd have a shot.
The best way to allocate equity that I've seen was the 'allocate by cohort' strategy (I forget who proposed this...maybe hn user joshu? or suster or feld or someone). Basically all of your hires at seed stage get x%. All of your hires from Series A to Series B get x% also. But your first pool is split across 5 people, and your second pool is split across 25 people. It is way easier for me to understand the relative importance of the 5 people hired during seed stage vs. figuring out their time/risk weighted importance in a company all the way to IPO.
Btw my return across all angel investments starting as convertible notes is rougghly .9x. Whether I am any good at allocating funds long term remains to be seen.
For my own startup, we allocate equity per a model we built based on historical allocations. And then we beat it by a fair bit.
If, as a founder, you give up so much equity that your option pool is totally depleted at the next funding round, then 10-20% will need to go to an option pool top-of -- and there's that much less equity to sell to the new investors, meaning less cash can flow into the coffers. Spending equity costs the company cash.
Meanwhile, if you spend double the cash of another startup in the same stage, your runway depletes doubly fast, and you need to raise sooner. Spending cash costs the company equity.
I agree with tptacek; 100/0.1 and 50/1 suit very different persons, the company should decide which type it's going after and limit that range.
From what I've seen of YC W12 and S12 companies, there are >10 where I would have done $50-70k + 1% to work there for 2-4y, back when I was 25, and absolutely after leaving school.
Because this early employee 1% is a) going to get diluted; b) it is over 4 years; c) most likely will result in $0 - $5000 cash-wise. And 50k (without benefits I assume) is.. well nothing.
Also, I'd love to take $50k/yr + 1% equity in an already successful startup. Say, Facebook.
It is never reasonable to trade your skills at substantially below-market compensation - regardless of if you can afford to do so. I have a lot of savings, but that doesn't make it reasonable for me to start lighting cigars with $20 bills.
Equity is a form of compensation, in this case dchichkov worked it out to be a expected value of $5K (or thereabouts) - how does one justify taking a haircut substantially more than this? (in this case, the haircut is on the order of $50-100K depending on the person).
Taking a significant paycut can be worth it if the options offered proportionately compensated the salary disparity IF the startup exits AND at a number that you estimate it could potentially hit.
If one isn't willing to take that risk then they should opt for less equity/no equity but a fairer market value.
I tried to take the approach you recommended and arrive at some numbers completely independent of the offer. I don't think I made that clear in the post, though.
Calculating the company's worth based on the offer is a cool idea, wish I would have thought of it at the time.
A big Series A is important because we discussed adjusting salaries to market value in the event of a Series A.
I went from an established company that offered an awesome family PPO plan ($0 monthly premiums, 95/5 coverage, $750 family deductible, paid vision/dental) to a startup that offers a way worse one: ($780 monthly premiums, 90/10 coverage, $3000 family deductible, no vision/dental).
You can list "Health care! Woo!" on both sides of that offer, but I bet it's way more detailed than that or completely missed in the equation altogether. My personal difference in line items is over $14,000 annually.
At my company we have what I call dental "insurance". As in, it covers about 0-10% of any given procedure.
This changes dramatically if the individual has children, chronic illnesses, or other persistent conditions that will require regular use of the medical system.
And also, ouch, $780 monthly premiums - is the company any of your premiums?!
Which brings me back to your first point. Yes, the healthcare aspect (especially in the US) is contextual. Which means startups can favor younger/inexperienced/childless early employees over older experienced/family people.
And remember, anyone's situation can change on a dime. Doesn't matter where or when you work.
You can get the rates down by opting for an HSA-qualified HDHP plan (the deductibles for those plans in IL are in the range of $5k/$10k-family). I'm not sure how much lower the rate is, but normal-deductible insurance is not a good deal for most people.
If his founders met at a cancer remission support group --- or, for that matter, the support group for any of a list of hundreds of self-evidently nonfatal medical conditions, most of them affecting women --- he would not be able to get insurance at any price. At any price. He would not get "dicked over with worse rates"; he simply would be unable to set up small-group health insurance for that group at all, under any circumstances, unless he excluded members of his group (or fired them). People with those conditions, which (it should not surprise you) are very common, and which very rarely implicate expensive treatment demands down the road†, can obtain insurance only by accepting jobs at companies with large group health plans.
It is sad for me to have to call this comment out for being naive, because is naive in the face of a terrible injustice that also happens to be a thorn in the corneas of many startup founders, but it's naive.
I know several very smart startup founders that have families who are opposed to guaranteed-issue health insurance, but I cannot personally for the life of me fathom how they arrived at that opinion, having myself had to go through the shitshow that is securing family health insurance coverage on the private market.
† But actuarially incur high costs enough to fuck over multiple percentage point-sized swaths of the whole US population
Every time I encounter a conversation about healthcare in the US, all I do now is ask if the other party has ever tried to purchase private coverage for their family on the open market. You have no standing to discuss the true situation in this country until you have.
I did it 7 years ago and it was hell. Absolute hell. I can only imagine it's gotten worse since then.
To add a data point, I dug out the medical rate information from my offer package three years ago. The Family PPO premium was $17,000 annually, of which I paid $9600. The Family PPO with $5K HSA was $12,500 to my employer, $5000 of which I would have had to pay. At the time I was easily consuming $5K+ of services for my children, and I had awful experiences with a previous HSA, so the normal PPO was my choice. The rates have jumped 30% since then, and my employer has absorbed most of the jump.
Thank you for bringing it up here, it could be a significant differentiator for some folks.
1) Supposing they low-balled you, and you found out. Awkward..
2) Presumably at some stage, your finances will be joint, or at least interlinked. Does that not mean it is in your fiance's best interest to make sure you get as much as possible? Is that not a conflict with what's best for the company?
//edit// Not being mean, btw, I hope they do really well and make millions. It just seems a bit.. strange.
I think in the end being friends made the negotiation much easier. I am confident we all wanted what was fair for the business and each individual, and were able to talk at length about that until everyone felt comfortable.
1) You are intertwining your MARRIAGE with work. Rule #1 is don't shit where you eat.
2) You make matters worse because your husband is your boss. This will screw up the relationship dynamic, and that's not necessarily a guess, Im 99% certain it will be hard to separate, especially with longer start-up hours. Good luck, you'll need it.
3) You are putting all of your eggs in one basket. Sure its convienent, but if the start up fails, you are BOTH out of work.
4) Putting all of this on the company blog, with screenshots of e-mail correspondence and even prices is very strange, and either you don't know what you're compromising by doing this or it is a veiled attempt at advertising compensation packages on HN.
Generally, I don't think you or your husband's strategy will play well for either one of you in the long run. Others have said your finances will be joint, so why does it even matter what you get?
Seriously, this is really weird. I'm sure you're confident it will work, but I know first hand that mixing friendship (and in your case MARRIAGE, jesus) with work is dangerous and rarely ends well.
Good luck. My opinion is you both have made a very big mistake.
If shit is a good metaphor for either the marriage or the job, then something was very badly wrong from well before this story began.
[don't shit where you eat] If things start to get uncomfortable, for whatever reason, I can get another job. I'm smart enough not to be 100% confident things will work perfectly. However, I have lived with Kyle and the other founders for 8 years. We have a long and stable history.
[your husband is your boss] Kyle is a leader, but he's not my boss. We are a six person company and no one here has a boss. We treat each other as peers. So far it is working great. If we need to establish a hierarchy at some point, I trust we are capable of architecting it wisely. We are kind of obsessed with the organizational design of the company.
[two eggs, one basket] I'm not too worried about either of us being able to find a job. We have valuable skill sets which are in high demand. Plus, I have savings from my previous job.
[why did you blog this??] I put this on the blog because I thought it would be helpful to other people. It has received overwhelming appreciation.
Keen allowed it on the blog because we support a culture of transparency and because we think maintaining a blog that is useful to the tech community is helpful for our business. So far, it has worked very well.
[your finances will be joint, so why does it even matter what you get?] I'm offended by this question. I have always been the high earner in this relationship, and I still am. My salary matters a lot to me. The only way your question makes sense to me is if you think Kyle is rich (he's not), if you think he makes all the salary decisions in the company (he doesn't), or if you are speaking in the context of antiquated gender roles.
[you're weird] Thank you.
For clarification I never called you weird, ad hominem isn't really my thing.
And there is of course room for me to be completely wrong. I'm sure you're educated enough to avoid the most common pit-falls. It is simply my preference that given the opportunity, I wouldn't have made the same decisions.
Given the statistical risk of problems arising from this configuration, I can't imagine what the payoff would be that would justify the exposure.
Given that, it seems like the most straight-forward way this "rent subsidy" is working is that Keen is paying for the house where they live/work out of company money, and that's probably where the different category comes from, at least conceptually. (apologies for assuming if that's not correct)
With respect to the housing subsidy, you've got part of it right. We do work out of a big house that some of us live in. But the rent subsidy was put in place for one main reason: one of the main drivers of employee happiness is commute time. They're inversely related, and the rent subsidy is our way of incentivizing employees to live close to the office.
What if I think I'll be happier living closer to friends or family and that happens to be far from your office? All of a sudden you're going to pay me less? Since when are you a better judge of what will make me happy than I am? Since when is that even your job?
Facebook did the $500/mo rent subsidy in downtown PA thing for a while (2008?), but this just had the effect of raising all rents in downtown SF (within a 1 mile radius) $500. Which I hated, since I didn't work for FB.
I think it's reasonable to encourage people to have a short commute. It helps the company -- people are more likely to put in longer hours, or irregular hours, if they don't have an hour long commute through traffic to look forward to every time (my current commute takes between 40 minutes and 2h, depending on exactly when I leave. A 0900 VC meeting on sand hill basically means I need to wake up at 0500, whereas an 1100 meeting means I could theoretically sleep until 0930.)
The difference was FB was paying market+ salary, so the housing subsidy was an extra perk. In the case of offering $70k salary + $12k, I'd really just do $82k; $70k is enough below market that you don't get considered by some people.
For really early stage companies, I do like the rent house and live/work there, for 6mo. That's one of the things I regret about current startup, not doing that. (we actually live in oakland, sf, and south san jose, with an office in mountain view; it means driving 40k miles/yr each, which is stupid.)
We still might rent a house as an office eventually, and cofounder T is moving to LAH, and I'm moving to Menlo Park, later this year. But at that point I'd rather get a light industrial building ($1-1.50/ft2) in Mountain View or Menlo or EPA or similar, build it out to spec, and use that as the office. A wall, roller gate, parking, onsite generator(s), RF tower, etc. would be awesome, along with 3-phase power, and being a bit more legitimate than using a house, long-term.
We had some confusion about SF vs. Peninsula for startups, but the "the lower on the stack you are, the closer to San Jose you should be" seems true, even in 2012 -- all the great people we've talked to are in PA or more south (all the way to Cupertino).
I see it as similar to the way FullContact is trying out a program to encourage its employees to take real vacation time - paid, paid vacation. They believe (and we do too, actually), that people SHOULD take time off work to go cool places. But they often don't. But if you give them money to do it, maybe they will.
Of course, you don't have to agree. And maybe it means we wouldn't be a good culture fit for you. Sounds like you're okay with that?
* http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese... http://www.fullcontact.com/2012/07/10/paid-paid-vacation/
Interesting, I read somewhere that Google pays taxes on their free food. How do they argue the free food is for their convenience when their employees can just go out and purchase food and eat at their desk? Especially non-essential foods like snacks, smoothies, etc? Either way, I still think people overvalue free food.
>Similarly, I'd value a 30" monitor at about $1k/yr salary.
Why? Buy a 30 inch monitor for 1200 dollars with your own money, write it off on your taxes, and you've spent less than 1000 dollars of income on a one-time payment. And now you own a 30 inch monitor!
Our reasoning:
All else being equal, people often choose a longer daily commute, usually to save money. But, as research* has shown time and time again, once basic needs are met by compensation, the factor which correlates most strongly and consistently with unhappiness is commute time.
What we're attempting to do with the proximate living bonus, then, is to incentivize happiness: We're intentionally designing our bonus structure to incentivize the better decision, which employees might otherwise neglect for a number of (irrational) reasons.
*Here's a good intro into the research on this topic: http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese...
> Another thing that made this situation complicated was that Kyle and I are recently engaged.
So, your fiance is Kyle, who is the guy you're doing negotiations with for her salary?
The methodology is extremely useful, but I feel like that makes this story extremely specific. Like you said,
> I told him that, if I got this offer from any other company, he’d be the first person I would ask for help.
Even better idea: Do the same but invest it into your own company. Keep 99% and convince someone else to take 1% + pocket change to work for you for a few years.
have made at least $200,000 each year for the last two years (or $300,000 together with his or her spouse if married) and have the expectation to make the same amount this year."[1] This rule came into effect in 1933 by way of the Securities Act of 1933.[citation needed]
You wouldn't for my "even better" option.
Even if she got double (or even four times) the equity, does nobody else think this is a disaster waiting to happen?
I don't want to underestimate their competence, or prospects of their startup success, but this is not how negotiating in the real world works. Next time someone apply for a startup, you can't expect that your roommates are there, that startup is located next to your kitchen, and that your fianacee will negotiate about salary with you.
Another thing that made this situation complicated was
that Kyle and I are recently engaged.
Michelle is an enterprise software consultant with an engineering background.
If she thinks that she's increasing the odds of a successful exit, then below market compensation could be financially worthwhile for that reason alone.
http://www.wallstreetoasis.com/forums/nyc-cost-of-living-is-...
With that in mind, it's not hard to find a shared apartment for less than $2000 in SF/Oakland/Peninsula. Now if she wants her own 2BR or 1BR, sure she'll have to shell out more.
There is no way that San Francisco has higher rent than Manhattan: http://www.huffingtonpost.com/2012/06/08/rent-manhattan-may-... Those numbers blow away San Francisco.
Hopefully they don't have a lot of overhead beyond eating.
$70K gross income. Lets say you put $2K into an IRA (no 401k) so $68K after that. Estimated federal tax is $10,592 [1], Another 6.2% goes to Social security so $4,340 [2], estimated state income tax (CA) is about $3,922 so rolling that up, $68K - $18,854 in taxes thats not quite $50K left over ($49,146) so that is about $4095 a month.
So if you're living on $4095 a month you're looking at spending $2K on a studio apartment [4] minus the rental subsidy of $1k making it $1k on the Apartment. Call it $500/month on food, $250 / month on subscription services (cable / phone / internet) and maybe $75 /month on rental insurance so maybe half your monthly on recurring costs. Leaving you $2K/month for dynamic costs. If you don't own a car (and I wouldn't recommend it) then you're basically able to move what is left around for things like the occasional furniture or clothing purchase. Going out to eat occasionally and saving for a rainy day. It should be possible to put away $500/month of that into savings on typical month.
The bottom line is I don't see $70K/month as 'pretty tough' :-) but I can certainly see it not giving you a luxurious lifestyle.
[1] http://www.calcxml.com/calculators/federal-income-tax-estima...
[2] https://www.socialsecurity.gov/OACT/COLA/cbb.html#Series
[3] https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_E...
[4] http://www.mynewplace.com/city/san-francisco-apartments-for-...
Frictionless spending is your enemy. Oh that is a great book, click click click, $10 just whooshed out of your wallet into your kindle. There are so many good movies out this summer, blam blam blam another $50 - $60 GONE. Oh god I can't start my day without some caffiene pick up a vente latte half and half for me would you? Another $6 gone. It goes on and on. And it adds up.
I started using mint.com to track my spending and the main issue in SF is rent. Followed closely by food costs. I was living in the mid-west briefly, earning only a few $K less than here yet saved so much more money and never had to worry about the minor spending adding up.
At 3 meals a day, that's $5 a meal.
No easy feat unless you go for processed, preserved and packaged, which is hardly a good way to live and eat.
I spend around $200/mo on food, $250 tops, in Manhattan. Mostly yummy healthy stuff from Trader Joe's.
Or did you mean $500/mo for two people?
Today, for example, I carried what seemed like an uncomfortably heavy set of bags, yet it only came out to about $30, and will probably last me the rest of the week: 2 lbs pork tenderloin (2x $5), 5 lbs potatoes ($3), 2 lbs tomatoes ($4), 1 lb lentils ($3), 2 lbs onions ($2), 1 head broccoli ($1), 12x eggs ($3), 2 lbs nectarines ($3).
I think I more often run into the problem of buying way more than I can carry/eat, and it still doesn't cost much. I mean, I like nectarines, but 2 pounds of nectarines is a lot to finish before they get overripe, so some of that might get wasted. But since they cost me damn near nothing, that's alright.
Cook them! Throw them in a pot with some brown sugar and spices. Or throw it in a crockpot/baking dish with {1/2 c. butter, 3/4 c. flour, 3/4 c. (brown) sugar} sprinkled on top, bake, and shazzam! Cobbler!
While the way we eat is certainly an outlier (and I know it), I'm equally as sure that you are too.
Honestly, I think going with what old people ate while you were a kid will be easier on the pocketbook and the health.
You can see that for breakfast I'm eating either cereal, eggs, or maybe pancakes, for lunch its generally sandwiches with soup and a salad, and for dinners its a meat (chicken or beef) a vegetable, and a starch (either rice or potatoes). I didn't go 'all organic' or anything which could raise your prices. I also included a half gallon of ben & jerry's ice cream, tea as the 'non water' beverage, and Oreos (my all time favorite cookie). All totaled its $443. Under my $500 budget.
[1] http://www.safeway.com/IFL/Grocery/Home
[2] https://docs.google.com/spreadsheet/ccc?key=0Atwe7dq6iPQHdDU...
But the spirit of my comment comes from this:
After years of trying, I finally learned how to budget when I was about 25. One of the most important lessons I learned then is that budgets are often a time when people imagine the life they want and try to prescribe it to themselves instead of taking an honest look at the reality of their behavior.
While you included steak and chicken, you didn't include any higher-end proteins (including good steak), nor any luxury items at all really. Nor, of course, any dining. And while it's possible that a person can live to your budget quite happily, it is, I think, more likely that the budget as-is wouldn't be followed. That developer, whose friends easily make in the $120-150k range in SF, are going to want to go to dinner with them. To meet them for lunch. To have a dinner party.
Sure, there are exceptions. But I'm interested in the mean. What do you think?
Excellent. There are two parts to budgeting, you mention the first one which is understanding where your money is going, the second part is prioritizing where your money should be going. Part of the latter is understanding what is (and what is not) withing your means.
So if you are making $70K and you're hanging out socially with people making twice that, you are going to be at a disadvantage in 'expensive' activities. Someone with $100K in income which is taking home over $1K/month more than you after taxes, might decide they are going to spend $500 a month on track time at the local race track (driving fast is very fun of course) that is way too expensive for someone who is only making $70K. As a person budgeting you always ask "Is this valuable, or is it expensive?" [1] understanding the difference can really help clarify what you want to spend money on.
But lets think about the social aspects for a minute. Young people especially (although it is present across age groups) have a tendency to 'brag' either subtly or not so subtly using money. Called 'conspicuous consumption' back in the day, you can recognize these people right away, they always have the latest tech gadget, or a car that is less than 2 yrs old, or this seasons fashion accessories, etc. Why they are like that varies but how it affects you the $70K earner, and more importantly your budget, is key. You have to resist giving into that way of validating yourself and your friendships and instead actively pursue other paths. So if you're budget is being warped by those kinds of influences you might seek out ways to avoid them. It is tough since nobody likes to say "I can't afford to do that stuff that you are doing every day" even when its the truth. However good friends will figure it out and adapt.
Under no circumstances pretend you are something you aren't, I knew a guy in the dot com days who was pretending to be a lot more well off than he was in order to 'hang out' with some actually wealthy people. He got the bar tab once at one of their events, it was a bit over $12,000. He had to call AmEx to get them to approve it. I personally would not think the access was worth that sort of shock to the budget but recognize different people value different things way more differently than I.
[1] One of the engineers here at the office who has a background in economics introduced me to that phrase and it really captures the essence of budget prioritization.
On the bright side, $2,000 is really high for housing (want to easily cut $800+ off that? get some roommates), so the conclusion that living off 70k shouldn't be so bad (or even $60k!) stands.
Back when I was poor I could eat pretty healthy for about $150/month.
I believe there's an implicit "keep up with the Jones" factor here. Surely there are plenty of non-programmers living with less than $70k in San Francisco.
In Japanese companies, you need to get to senior level (implying at least team lead but more likely project manager) to earn $70k a year. And it's not like Tokyo is a cheap place to live. I told a Japanese coworker that in the US new grads get U$70k right out of the school and he thought that was crazy.
Are you kidding? Man, I must be living in the wrong town. In Florida, the fact that we offer medical insurance and matching 401k sets us apart from most business here.
Though we do have a few other perks.. you cell service is covered by the company. Also everyone gets an ipad (it's yours once you past 6 months). But really though, these "perks" help us (the company) more.
But this just proves, bubbles exist.
No, it just proves that the market for tech talent is stronger in the Bay Area than it is for Florida.
Pool of available jobs is smaller, so the competition is fiercer, so the mediocre talent takes itself out of the game and all your are left with are the stars who don't want to move. I know lots of engineers in N. Carolina around the Research Triangle Park area who are way more talented than some folks in the Bay Area but they don't abide the culture that is Silicon Valley and so they don't move here.
The problem we have, is it's a small community. Poaching is out of the question. Cause word does get around. So we interview hoping we nail someone good before someone else does.
But being South Florida no one considers us tech heavy. Even though we are a "banking" & medical center and wealth is everywhere.
I was complaining about this to some state senator a while back. There was talk about creating a tech area in Miami/Fort Lauderdale (they talk about it every year). He told me, "You take care of your yacht here; your computers in New York".
And that sums up Florida's tech problem.
http://options-vs-salary.com
For example - let's play with the offer given in the article: 1.25% + $85k salary (I'm including all extras in both salaries). Given that the author made ~$142k before, the tool says that if she expects a valuation of $100M on cash out with a 1% stake (after dilution), she should have been offered $117k. That's simply not money you'll get at a 5 person startup under any circumstance, even given the very generous valuation estimate for a startup with $800k funding.
Alternately, if you join as employee #15 or so, you're probably getting closer to .1% of the company, and the calculator says that you should take a $3k deduction off market rates on a $100MM expected valuation. That's also not even close to what really happens.
The problem lies in the comparison to a VC investment. Because for a job seeker, the real comparison is "take a job with standard salary". Your calculator claims that if you could make $600k over four years at a "normal" job and $400k over four years at a startup, you would be upset at a $1MM stock payout because it wasn't 10x the $200k "investment". That is just totally asinine.
In reality, a rational decision would take any salary/equity combo that has an expected value (in the statistical sense) of $1 more than the market rate. There is no multiplier.
I know a few people that cashed out at successful but sanely-priced acquisitions (nowhere near silicon valley levels), and those vested options are never more than low-to-mid 5-figures. In other words, 4-5 years worth of bonuses at a consulting firm or agency.
The reality of a profitable acquisition is slim. You're better off getting paid market rate and treating the options for what they are: just a really good perk.
Learning about salary/equity disparity can be very demoralizing, spreading bad team chemistry like a virus. This is especially true in cases where people who happen to be good negotiators earned more money than the workhorses who provided some of the biggest benefits to the company.
I don't know I would take a 50K reduction in salary as well additional benefits to go to a startup.
Some things to consider: 1. Consulting work is still there if I need to return to a higher salary. 2. My salary in the startup will be adjusted if the startup does well. 70k will not work out long term in SF, but it's ok for a year or so.
Couldn't you technically do that same consulting work at your old job, specifically after work or on the weekends?
I agree with your second point though.
One of the best questions to ask is "What percentage of the total outstanding shares does this represent?" Since 16,000 shares could be out of 100K, 1M, etc.
I actually had this issue bite me in the ass at my first startup, where I was offered a flat # of shares.
I was pretty much fresh out of college, but for the record, I did realize it was important to find out what percentage I was actually getting. When I asked what the total # of shares outstanding was, the company snaked its way out of answering the question directly. The job had a lot of perks (a big title, very respectable pay, work-from-home, greenfield development), so I took the offer rather than press the issue.
Eight months later, we were acquired. I was the only engineer. You could say I was a bit peeved to learn how little of the company I really owned.
a) Going through these types of negotiations with your loved ones (not just close friends) and trying not to water it down - or give favors. There are many people, that I imagine, might want to get an extra few pts of equity just because you both are going to be married soon. So Kudos on keeping it professional.
b) Making this entire transaction as transparent as you did. I am shocked at all the details you guys laid out.
The only thing I would have loved to know is what Michelle was being hired to do.
Is she a developer, business development, graphics person, what?
The discussion around hedging the risk and cash returns between the fiancées was a good start. I would suggest that the idea of a contract (a series of emails at least) between the 2 would be good to agree and record expectations.
Good fortune
If you're curious about Michelle's reasoning, check out one of her other posts, "Why I Left Consulting and Joined a Startup": http://blog.keen.io/post/26096112831/why-i-left-consulting-a...
I'm pretty sure consulting work will still be there if the startup doesn't work out. I have SAP and Salesforce.com experience; both are widely implemented across the US.
Everybody will discuss about the author and the CEO being engaged and nobody will remember the startup's name.
A lot of people merely clicked the "up" arrow and refrained from comment, and so far about 3000 of the post's readers have clicked through to our main site ;)
If I had $1 for every time I heard that about a startup, I'd actually have a lot of real money instead of the worthless monopoly "money" a company offers you as equity. At least you didn't get common stock so it could be diluted to nothing later when the VCs and angels come in and eat up the company.
Then again, if you're sleeping with the CEO, you actually get that option. You also get the option to create a place full of nepotism that's doomed to fail. Just my experience.
It doesn't seem fair to insinuate that the author's offer was a result of her sleeping with the CEO, or that their relationship will doom the company. What are you basing that on? Honestly it sounds like sour grapes from some experience you've had.