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Comment by sama | Hacker News Reader

It's a personal choice for workers. If you're an engineer and you want a guaranteed $250k per year, go work for a financial firm. Nothing wrong with that decision. Everyone gets to make his or her own.

Engineers at startups make $100k+, sometimes much more. I don't think people are being asked to subject themselves to unreasonable financial strain.

It is indeed "maybe-someday" competition. When you work at a startup, you're acting like an investor but investing your time instead of your money. If you choose well, the upside can be pretty crazy.

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> When you work at a startup, you're acting like an investor but investing your time instead of your money.

True, except: (a) An employee can probably only work for one startup at a time, and begins vesting after a year. That's like asking an investor to bet on at most 1 company per year. (b) Employers tend to give substantially less detailed information about their business, financials, etc to prospective employees than they give to investors. We have to make our choice very carefully, but we often have to make it with less information. (c) And after we've chosen, and vested, we do also have to invest money to exercise. If after that point things go downhill, we're out on money, but also years of our careers.

Diversification only lowers risk. The expected value doesn't change.

Sir/Madam, that is incorrect. Diversification can easily lower expected value, or raise it. It should maximize your signal to noise ratio, if properly done.

You're using a different definition than the one I learned in school. The purpose of diversification, as opposed to simply picking the best asset, is to decrease variance.

Given a choice between two assets, or portfolios, one first maximizes expected value. Between two portfolios of equal expected value, you pick lower variance. That's the rational thing to do if you are managing a fund. The whole risk ratio thing arises only because so many investors are trying to build a well-diversified portfolio and bid up or down the price of assets accordingly. Price in turn affects expected return -- the expected value of the asset.

My point is simply that diversification results in a different expected return of the final portfolio. Before diversifying your expected return was R1 and after it will be R2 where R1 != R2. So, for choosing startup vs big co, or one startup vs another, this is relevant as well.

I believe the definition they are using is something like: given a random process X for your percent return, if you invest in n nths of your money into iid copies of X, you will get the same expectation, but with smaller variance compared to putting it all into one copy of X. That's diversification.

Which matters a lot if you only have one or two shots.

Everyone has a personal tolerance for risk. If you are diversified, then you decrease the risks that you are exposed to - possibly below your personal risk tolerance. That allows you to use leverage to increase your risk back up to your tolerance, which also increased your expected return.

So yes, diversification (plus leverage) absolutely increases expected value, if you hold risk a constant.

Given diminishing marginal utility of wealth, diversification increases expected utility, even if not expected wealth.

Would you rather have a 1% chance at a billion dollars or a guaranteed million? The former has a 10x higher expected value but I think most people would choose the latter.

I love examples like this. My interpretation of this generally depends on an idea of "Expected Impact", where ex. the difference between $10^6 and $10^9 in terms of lifestyle impact can be smaller than the difference between $10^3 and $10^6. You could assume a logarithmic value function, for example, but each person might have a different function depending on what you would do with the money.

Not that people actually think that way, but you can construct a model where the guaranteed million is the rational choice.

What your talking about is commonly referred to in economics as diminishing marginal returns. The first $1000 is much more useful than the second. Also, your interpretation of "expected impact" is what we call economic utility, which is commonly put in a cobbs douglas utility function (utility = (some_number > 1)^(1 > some_number > 0).

If after that point things go downhill, we're out on money, but also years of our careers.

Maybe if you're thinking about a career in terms of building seniority over a long period of time at a single company. Working at a startup usually involves a good bit of responsibility and a diverse set of technologies compared to working at a larger company. It seems to me that's going to look good to most prospective employers.

I forgot (d) "Real" investors in the same startups are often getting preferred shares while we get common shares.

But the employee has one massive advantage to the investor: the actual ability to influence the success of the company.

You don't think giving a company money influences their success?

Not beyond the cash.

Investors have a lot more control over the board than a average employee will.

Startup boards have very little to do with the company's success. Key employees have much more impact.

Employees have more do with success. But if a big investor goes, we want this. Your probably going to do that.

Regarding (b): I think an employee working day to day gets a much better picture than investors. It requires time on the job, but my point is that it's not as one-sided as you make seem.

>Engineers at startups make $100k+, sometimes much more. I don't think people are being asked to subject themselves to unreasonable financial strain.

Is $100k enough for a person to live without roommates within 20-30 minutes commute from said startup? Eat healthy food? Pay student loans? Have health insurance and build savings?

I'm not from the Bay Area- this is a serious question.

You probably won't be able to afford living without roommates. But the rest, is certainly feasible on a 100k+ salary.

Yes, though not if you live the lifestyle many engineers at startups choose to :)

Please don't side track this thread with salary discussion in bay area. There are plenty of HN threads where this has been talked extensively.

Hey, "AMA" does mean "Ask Me Anything"

Everything except the student loans, yes. If you have student loans you'd need to get a roommate (or two).

Source: I live in the Bay area, and got a job at bigco but a salary similar to 100k. Almost no education loans (under 5k), but about 40k of loans for parents back home. I paid it back in a year and a little bit more.

I was making $100k and was able to find a small apartment in SF AND save about $2k a month (granted, I've finished paying my student loans). Not needing a car, and the ability to walk / scooter / public transport everywhere for relatively cheap, is a huge money saver! My half of the rent each month, as of today in SF, is $1300 ($2600 for the whole apartment in SoMa), but you need to take into account the money I'm not spending maintaining a car (which can be costly in the city, especially w/ parking).

As for health insurance, you'll more than likely find a job that offers that. I had great health insurance, the company had some neat perks like a gym membership, free lunch and dinner at the offices, and permission to work from home pretty frequently.

I think if you are anticipating $100k a year in SF, you'll do fine!

So you get a small, shared apartment, dinners at work, no car, and $2k/month left to save. Honestly, that's not bad, but I'm guessing you're young.

Consider you're slightly older and thinking of starting a family. Will your income cover: extra food and clothing for a child? day care or maternity leave? saving for college? saving for retirement? a larger apartment for your growing family? a down payment on a house or car? car payments or a mortgage? investment income? Is your company paying for your dinner because they expect you to work at night?

$100k in SF is a reasonable amount of money. But as your expenses begin to grow, you may wonder when your earnings will grow in proportion. Unfortunately, while many industries value their workers more as they grow in experience, the SV software industry has taken a unique stance that experience is actually a liability. Perhaps because the SV software industry runs on the notion of maybe-someday compensation, which is a palatable proposition mainly to the young and naïve.

At that point you'll have dual income so even easier.

Great points. And for the record, I guess I'm young. I'm single with no dependents. :P

> the SV software industry has taken a unique stance that experience is actually a liability

I see this viewpoint often, but it always seems to be from people who either haven't used their time wisely or otherwise don't want to change their role. There's a bizarre belief that they should be paid more for the same type/amount of work. Apart from a few situations, the marginal value of very good code over simply adequate code is very small...it's not enough to justify the marginal salary of a very senior coder over a junior coder. And yet people believe that since they've got 20+ years of experience, they should be paid significantly more than someone with 2+ years.

Meanwhile, those that have used their time wisely and moved from engineer into architects or other leadership positions are both older and very well compensated. We realize that we can guide a team of junior engineers to produce something that's good enough to meet the needs of the business. It's not as good as it would be if I wrote every line of code myself or with a team of engineers with 20+ years experience each, but I know that none of it is a disaster and it was written for a fraction of the cost. My salary/comp has more than kept pace with my expenses as they've grown, but only because my contribution to the organization has grown similarly. I could have never grown that contribution if I'd stayed in a role where I was primarily responsible for writing code.

You're correct that the marginal value of great code vs. good code is...marginal, MOST of the time. But I think the 1% cases are where the big (200k+) comp packages are for ICs. Stuff like perf optimizations at big scale, 1% adwords CTR improvements, optimizing JS runtimes, etc.

I agree that for most organizations management is the highest-leverage (ergo, highest-paid) path.

A better way to frame the problem is to think about the organization's economics and how your contribution fits into it. Figure out the 2-3 key metrics for success at the org and figure out whether you can move those, and if so, how. And realize that in a lot of job roles, you won't move the key metrics, and won't be paid as such.

It'd be cutting it close...but if you have no other debts I don't see why not. I suspect the biggest thing holding people back is that they have student loans and/or are not being offered $100k.

You can get a decent studio in the bay area for $2500 or so. If you don't have pets and you bike/pt everywhere then $100k is plenty.

I have lived very comfortably in Oakland for the last year on a ~100K salary. 30 min commute door to door, eat out a lot, travel, etc. With a quite nice 1bed apartment with a view.

You can't do all these without roommates in San francisco (unless you have rent control pre 2011 or so) or Silicon Valley without roommates, but with roommates its manageable to a degree. Keep in mind "start up" can mean pretty radically different sizes with pretty radical mixes of base salary vs equity, later stage, bigger start ups (maybe more aptly, post product market fit, fast growing, privately held technology companies) can pay experienced engineers closer to $150k+ a year which even in an expensive area is a good amount of money. Even pretty small start ups tend to offer decent health care these days.

Apartments in SF now are $1800 / studio - $2200 / 1br. so...

  $100k:
  - $30k taxes
  - $24k rent
  - $12k food and misc
  -------------
  $34k

$34k is about what you have to play with for investing, transportation, entertainment, fitness, saving, student loans, other debt

Anyone working at a startup should be maxing out their retirement plan contributions: $18,000 for a 401k, $5,500 for an IRA.

They are a hedge against startup failure.

Thought process on this? If a person needs to dip into their retirement plan because a start up fails then they would be penalized, if that's the situation it's better to just keep it in cash.

The contributions to a Roth IRA (but not the investment returns) can be withdrawn with no tax penalty, so there isn't much reason not to max it out if possible.

Employees should always contribute to a their 401k at least up to the company match, as it is essentially free money.

If you're getting paid at SV salary levels, it's entirely possible you're making too much to be allowed to contribute to a Roth IRA.

Some IRA companies will let you do put it into a traditional IRA then do a Roth conversion, but then again some will make you mail them a notarized form every time you want to do that.

1br is around $3,000 now: https://www.rentjungle.com/average-rent-in-san-francisco-ren...

100k = 25% marginal tax rate for Fed, but effective rate of 17.3% + 6.8% State tax rate = 24.13% = $24130 (assuming you are single)

  $100k:
  - $24.1k taxes
  - $36k rent
  - $12k food and misc
  -------------
  $27.9k

So you basically have $2,325 left over after expenses each month to play with.

Make sure to account for medicare and social security. That's an additional $10K-$15K in "expenses".

Good point, thanks!

I'm a Stanford graduate student. I earn about $30k per year, or $2,500 per month. Rent is about $1,000 per month. Food is about $200 per month. Taxes are about $300 month. So my three primary costs are $1,500 per month, leaving $1,000 per month in savings and discretionary spending. I'm flabbergasted that people think $100k is not enough money to live. It's way, way above the median wage here.

I interviewed for a company once that had different kinds of offers, ranging from low-salary/high-equity, to high-salary/low-equity. I thought that was an interesting idea :D They had 5 options total, and the middle option wasn't awful. I'd like to see more of this in the valley.

Any specifics on the amount of equity offered? That's an interesting concept.

I don't remember specific numbers (this was over a year ago) but I imagine it would change depending on the startup. I remember thinking the offers were fair.

I always used to make offers like this--I think it's a good way to do it.

We do this, but use a sliding scale. The middle of the scale is what's locally considered to be a fair salary and fair equity compensation for whatever role we're hiring for. The equity / salary offered at each end of the scale tends to fluctuate depending on the impact of the role.

So far it's worked out well. I think potential hires like the flexibility because it lets them optimize for larger short term gain (a higher salary) or a potentially larger long term gain (more equity if the company sells, IPOs, etc.)

Anecdotally it tends to make negotiations easier for us. We basically end up presenting the entire solution space we're willing to offer for the ''what's my salary and equity'' problem. With the extents known, negotiations tend to settle around some point within that solution space. Your mileage, of course, may vary, though.

I wonder with these arrangements, is there any pressure or implied pressure on people to accept a larger equity amount? Similar to the issue with unlimited vacation time.

The one time I got that kind of offer, I got a lot of pressure from the hiring manager to take the most equity possible. They basically insinuated that doing otherwise was disloyal -- although, they cloaked the message in a super-positive tone, saying something like, "we are always really stoked when new hires choose the most equity possible because they believe in the mission". I know those words might sound squishy but trust me, there was no ambiguity about what they meant.

In retrospect I wish I had taken the higher salary.

I've heard of saying: "Valuing options at $x/share, we'll give you $y divided however you want between equity and salary."

Couldn't it be more accurate to position this as follows?

"At a funded startup, a VC is investing money expecting a 30+% annual return. One condition of your employment is to invest along side of them via less cash compensation. If you can't take the risk, or don't believe in the upside, other places are better."

How senior is this guy who makes 100K? Is that out of college or 5/10 years? How tough is the competition?

I appreciate YMMV, but I'm asking on behalf of my brother, who is graduating Columbia CS soon. We've got family in the SF area, so it might be a good choice for him to head over that way.

If he's a good interviewee, did summer internships, and got decent grades, he should be able to land something in that range. There's some competition, but for the reasons I stated ($100K goes a long way almost everywhere except SF, due to the very high cost of living), SF companies covet recent CS grads who work very hard and don't have many expenses (kids, car, house, etc.). It would probably be great experience and exposure for him though, and worth it while he's young.

Great. I'll make him post next time there's a hiring thread.

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