At the end of the day, when your company gets sold, and your founder worked on the company for 1-2 years before you did, but they walk away with millions and you walk away with the equivalent of a Camry - I question whether equity is not the solution.
In terms of market rate salary, the startup will never match FAANG. Seriously. I'm talking about Sign-on bonus, annual bonus, re-ups, benefits (like a heart-transplant $100k operation for your kids), gym membership, rent subsidies, etc...
So it has to be equity since that's all the startup can offer. It's income inequality 101, what we're living in.
Anyways, at some point, I'm complaining, because the system is the way it is and we have to live with reality. And I understand that if founders didn't make it out big enough, they wouldn't start one in the first place. But I have a feeling that if enough people were educated on how much a bad deal being an early employee was, we could tip the scale a bit.
> "In terms of market rate salary, the startup will never match FAANG."
> "if enough people were educated on how much a bad deal being an early employee was, we could tip the scale a bit."
Yes. The reason why startup compensation is much lower are because of perception (people aren't rational) and only a shift in perception will shift the balance.
The reason why equity is not the solution is that the default outcome is not the Camry, it's giving up some multiple of your salary in exchange for nothing. People overvalue lottery tickets. We're not rational.
If a funded company (series A, say) is offering you equity as a large part of comp, you have to ask yourself why the VCs don't buy back that equity for the cost of paying market rates for talent. If it makes sense for you, it should make even more sense for them. Unless you think you have a higher appetite for risk than early-stage investors, something doesn't add up.
> If a funded company (series A, say) is offering you equity as a large part of comp, you have to ask yourself why the VCs don't buy back that equity for the cost of paying market rates for talent.
Because the company wants to align your incentives with its own success, of course. That's the original reason why equity was offered to employees in SV, back in the good old chip-making days.
According to your argument, equity never made sense as a compensation factor. Obviously that's not the case, it has been an important factor in the past, and if enough people wisen up, will probably be so again in the future.
Look, either startups sell equity and pay developers market rate, or they give them more equity to compensate for under-market pay. Otherwise, these startups are underpaying developers, plain and simple, and these developers will prefer to work in companies that compensate them fairly, which this thread's commentary suggests is already happening.
Incidentally, I agree that paying market rate in cash isn't the solution, because startups need harder, more dedicated workers than the average company in the market.
That's exactly why equity is crucial.
Tellingly, startup founders agree when they pitch their startup as "definitely a unicorn, stick around and your options will be worth millions of dollars" to every single candidate. It's just that the equity factor is now only empty promises, because even early employees only get tiny amounts of bottom-preference options.
It makes 0 economic sense for developers the alignment thing is marketing BS. Go to the best VC in the field and offer him/her to bet all of the funds money on a single deal see how hard he/she laughs at you. If you exclude top 5 VC firms the whole VC field is net losers and that people who's full time job is to pick winners
> startups need harder, more dedicated workers than the average company in the market.
I agree. So hire harder and more dedicated people. This is not impossible.
The idea that people will work harder for equity than they would for EV-equivalent cash is where we disagree.
If you have 5% of the company, and your direct contribution makes 5% of the difference in whether the company meets its objectives, setting aside whatever external market factors that are totally beyond your control--how motivating is this really? How motivating would it be to a more economically rational actor? Maybe this is the real reason why startup employees tend to skew younger...
Thanks for the interesting discussion. The only reason why I'm still advocating more equity for early employees is because founders get so much of it. So if an exit were to happen, which could make the founders very rich, the early employee gets nothing. In your case of the default outcome, both get nothing, and that is OK. But if something were to happen, the early employee still gets nothing.
> if an exit were to happen, which could make the founders very rich, the early employee gets nothing
Depends what you mean by "early". The first engineers should be getting 1% or a bit more and getting diluted along the way. This can still be $400k-1M for 4 years of work with a base that is more than enough to "pay the bills".
You're assuming that VCs can evaluate the prospects of a company better than potential employees. The reverse is often true, especially for startups where the main risks are technical.
I disagree- I’m really good. They just have a very large hammer they swing. Anybody can get good results with the resources they bring to bear. Getting good results with jack shit takes talent, haha.
The answer is not and will never be writing bigger checks with money you don’t have. It’s getting real up close and personal with your team and figuring out a way for everybody to win. If folks want to ride my ride, that’s super, but most cats don’t really have a taste for my risk and work profile. Where I excel is professional development and lifestyle. I can move the needle for people there.
True, but you don't have anything a big company doesn't have, or can't have. Therefore, to differentiate yourself from your talent going to FAANG, you need to provide more equity to early employees than what is the status quo. They joined your startup for risk, and your rewards need to match up with that risk. A large company has professional development, a great lifestyle, and mentorship. What they don't have is huge upside if there is a huge exit, and the early employee at a startup needs to capture that.
People think they want the equity but they absolutely do not. They may want something for nothing, certainly plenty of folks are interested in that, but you don’t really understand the devils bargain until you’ve made it.
I know what I’m doing. Been at it for years. It works for everybody. There are so many people who deserve a shot but will never get one, if you’re willing to dig and develop there is no shortage.
In terms of market rate salary, the startup will never match FAANG. Seriously. I'm talking about Sign-on bonus, annual bonus, re-ups, benefits (like a heart-transplant $100k operation for your kids), gym membership, rent subsidies, etc...
So it has to be equity since that's all the startup can offer. It's income inequality 101, what we're living in.
Anyways, at some point, I'm complaining, because the system is the way it is and we have to live with reality. And I understand that if founders didn't make it out big enough, they wouldn't start one in the first place. But I have a feeling that if enough people were educated on how much a bad deal being an early employee was, we could tip the scale a bit.