[sharkweek]

I worked at three startups before taking the current break I'm on - one I left before my stock was worth anything (would have paid out a small amount in an acquisition), another, the stock is now worth zero, and the third has a shot at being worth about a year's salary if current late-stage valuation is to be representative of a potential buyout/IPO (I'd say odds are alright this will happen). While I try not to think about it, because honestly the experience was worth it, I would have made far more over the last eight years of my career staying put at BigCo.

With that being said...

All three times, despite considering myself a pretty rational person, I got this strange psychological delusion when joining the startup that it was going to somehow magically make me rich. I think it's probably the "honeymoon" stage of joining any company. Things are awesome! The culture is fast-paced, chaotic, and offers plenty of opportunity! This is a rocket ship! It kind of matches the "what if" feeling of buying a lotto ticket. It's impossible not to imagine what might happen.

I think if I jump back into startupville, my cynicism toward the "get-rich-fast with these private options" will outweigh the bright-eyed, bushy-tailed sensation of my 20s.

[dawhizkid]

IMO there's only two paths that really makes sense now when considering a private co. Either a) join super early (e.g. penny strike price) with a meaningful % of total company (at least 10 bps) OR b) join late stage growth co that offers RSUs over options (e.g. "Softbank" stage cos).

Joining a "middle" stage co where you are offered expensive options is the worst, since you've missed out on the early upside and you take on a ton of risk due to cost of exercising.

[icedchai]

I wouldn't consider 10 bps (0.1%) meaningful. Early stage is very, very risky.

[nostrademons]

Depends if it's pre- or post-product/market fit.

Joining a startup that's overwhelmed with demand for its product - particularly if you can see the usefulness of this product yourself - is usually a good move even at 0.1%. Joining a startup that's still iterating on the product (and maybe has a couple customers but just lost a big one and they have to work really hard to sign the next one) may be a bad move even at 10%, because there's a good chance that equity will be worthless.

The article doesn't really mention it, but a great question to ask any potential employer is "What are your biggest problems right now?" Scaling is a great problem to have, because it indicates lots of demand and has solutions that are relatively well-known in the industry. Customer service is a pretty good one - it shows that the company has customers who care enough to want service, and if the CEO is willing to admit this is a problem it'll probably get fixed. Hiring, code quality, internationalization, testing, service outages, brain-dead tech stack, anything that's specific to the problem domain itself - these are also pretty decent problems to have as long as the CEO is attentive to them. Unhappy customers or staff turnover is a caution - you should dig into this further to see why they're leaving, and if it looks like the problem is solvable. Same with financing - many hot companies run low on cash at various points, and you only need to make sure the company isn't going to die, but if the company loses more money than it makes on each transaction that's a huge red flag. The biggest problems (particularly for an engineer) are anything to do with sales, marketing, partnerships, or "growing the business", because the root cause of this is often that customers don't really want what you're making, and nothing short of a major pivot fixes that.

As a side bonus, asking this question is often a big positive signal for the hiring manager, because it shows you're serious about solving problems rather than just collecting a paycheck.

[icedchai]

Yes, I agree. I was assuming "pre-market fit" "few or no customers." In this case, 0.1% is hardly worth the risk.

[medius]

Yes. I generally like to make a reverse calculation when evaluating such offers. To get $1 million out of this risk, the company has to exit for $1 billion if I have 0.1% stake. How likely is it? And that's before considering dilution, preference stocks, option exercise problems, etc.

Joining a BigCo can give $1 million (above startup salary) in 5 years with a very high probability.

[GoatOfAplomb]

And AFTER considering all those other factors, you may need to see a $10B exit to get your $1M.

[deanmoriarty]

Ditto! I have been at a startup that was pretty successful and generated a payout for me of about $1M post taxes.

The original grant plus all the refreshers would have originally amounted to ~$8M (I was within the first 3 employees), but joining early means that at each and every single round you'll be massively diluted (20%+, and there are many of those from a seed round up to a series D/E), and this is without counting the liquidation preference (which in my case was a good 1X non-participating) and other stuff (e.g. emitting new shares for the newly hired fancy CEO that will help us sell the company, refreshers will have a higher cost basis, ...).

If you join early, expect your relative slice of the pie to shrink by roughly an order of magnitude. In the best case.

[sulam]

Agreed. 10bps is considered low for me to get for as an advisor (I've been told that directly). The "founding engineering team" (ie, up to 8 people) is getting more than that.

[dawhizkid]

unless you are a founding engineer, that is not out of the norm even for the earliest employees (unfortunately)

nothing is "very very risky" unless you are taking your entire salary in equity. if you are making a competitive base I think you'll survive any misstep choosing the wrong early stage co in the long run.

[icedchai]

I was employee #5 at a startup and I got 0.5%.

Another startup offered me 0.1% and a mediocre salary. I had to put the phone on mute while I laughed.

[dawhizkid]

I wouldn't pick an early stage co to join just based on the % of the company they offered. 0.5% in something worthless is still 0.

[icedchai]

I wouldn't either... The team was good and the product was technically interesting.

(The startup that offered me the 0.1% didn't have either of these qualities.)

[ryandrake]

And really, only a) offers a meaningful shot at “getting rich”. A late stage growth company is not going to 100X its equity value in 5 years. No rank and file employees are getting f-you money there.

If there’s one thing I’ve learned after two decades in the industry it’s if you care about earning good money, you can either 1) gamble on the 0.01% chance that you picked the right startup or 2) get on to the Senior Executive track as early as possible. Then it doesn’t matter what company you join because they all pay their executives f-you money.

[dawhizkid]

Even with (a) it's tough. If you're employee 1-13 you're getting maybe 10-20bps. At a unicorn valuation that is $1-$2m before you take into account dilution, liquidation preferences, taxes, etc etc etc.

[Epenthesis]

Only a single data point, but I was #13 at a (now) unicorn and was offered 45 bps for a new grad role. This was 7 years ago, though, so maybe the market's changed.

(I, in my infinite wisdom, traded it down to 25 bps for 15 k$/yr more in salary. Whoops)

[sulam]

If you're employee 1, you should be getting 1% or north of that. If you're employee 13 you're probably getting 25-50 bps if you negotiate.

[dawhizkid]

Outside of a very senior employee #1, I think the point is that even achieving a unicorn valuation does not guarantee extremely early employees much wealth, at least more than you'd get going down a more traditional big co path.

[sulam]

If you are picking lottery tickets I would agree with you. What I think the point of the article is, is that investors aren’t picking lottery tickets and neither should you. Given 1000 startups to choose from, your EV is negative as compared to working for BigCo. You can’t work for 1000 startups, though, and investors don’t invest in every startup asking for money either. They’re selective and expect that this process will result in positive returns over simply putting the cash in public tech stocks.

Can you narrow 1000 companies down to 20 that have a better than average chance of success? Sure you can! And you should, and you shouldn’t treat the options as worthless.

[ryandrake]

I totally agree, which is why I have not worked for a startup or small business for close to a decade. And I’m by nature a gambler! It’s just they in the current climate the %unicorn x %share x valuation expected value calculation is not favorable to employees. Even for employee 1-10.

All it would take i think is for companies to start offering larger stakes to employees, with the other two factors remaining the same, and the math might make it worthwhile. But they won’t do it.

[joshe]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

[techslave]

Either your explanation is unclear, or you do not understand RSUs.

> RSUs [...] evaporate if you leave or are fired from the company. You can not purchase them like stock options.

RSUs do not evaporate. Vested RSUs are yours outright. You cannot purchase them because they are already "purchased".

> So you have to stick around until the company becomes public.

In both cases, the RSU or the stock underlying an option, it is equally worthless until there is a liquidity event.

> Oh they also expire in five years

Companies don't even offer RSUs until they are close to being public. Once you reach a certain threshold of stockholders, you have to report financials. Since this is typically undesirable for private companies, they don't want to jump the gun on issuing RSUs instead of options. If the 5 years does pass without IPO, companies re-issue new grants. (Please: name one company that has actually expired RSUs and what happened)

OTOH most stock option grants expire in 90 days upon termination. This is a real expiry, and actual money out of your pocket (and tax liability) to exercies them, and usually a difficult decision. There are some places doing 10-year expiry but those are still the exception.

> The odds of stock options working out is low, but for RSU's they are much, much lower.

It's the opposite. For a private company, RSUs are much much closer to money in the bank than are options.

[joshe]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

[dawhizkid]

That is not true. You keep whatever you vest (i.e. typically stay at a company at least 1 year). That is the same for stock options.

Typically companies that offer RSUs have achieved scale (your Ubers and Stripes of the world), so yes the upside is lower, but the "pros" are that it's more obvious to you what the value of the grants are and you don't have any cost to exercise them like with options. These companies know that because they are less liquid vs public cos that candidates are right to discount them, which is why they usually offer more than what you'd otherwise receive from a Google or FB.

[joshe]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

[dragonwriter]

> Nope, the "stock units" that you "vest" will expire after a few years.

When they vest, you either get (1) actual shares, (2) the cash equivalent (I think that option may only be available for publicly traded stock), or (3) at your option, retain the RSU for conversion at a later date.

Unconverted deferred vested RSUs might expire (and vested stock options definitely expire), but—unlike options—there’s almost never a reason not to convert an RSU (deferring for later conversion may make sense, but it's essentially always better to convert before expiration.)

[joshe]

Sorry have to delete these, not comfortable with these comments sitting on the internet forever.

[ryandrake]

But public company RSUs are as good as cash because you usually can sell them the day they vest. Rule of thumb I think is to favor options from private companies and RSUs from public companies.

[sulam]

There _is_ a "neither fish nor fowl" moment where private companies start giving out RSUs. It has to do with the overall value of the company and the size of the offer package, and rules around how much you can vest in ISOs in a given calendar year. It also has to do with the exposure to employees (and ex-employees) as shareholders pushing you above the cap that requires you to report as a public company.

At any rate, it is fairly common to get RSUs in a late-stage private company. Uber was giving out RSUs 4 years ago, I believe, and has reportedly filed for a confidential IPO as of last month.

[docker_up]

This sounds like someone who hasn't actually worked at a startup that made it or has a lot of experience with the issues involved.