[ditonal]

You’re obviously overstating the FAANG SWE lifestyle.

But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.

The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.

As an aside, when people think SWEs don’t need unions/ professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.

[jakjak123]

This 100%. Really the only reason to work at a startup as an engineer is if you really want to, because everyone pays low and the tiny bit of equity is essentially worthless in 99% of cases, which gives it a very low value.

[nirvdrum]

And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options. If you've gotten laid off, eating into your savings while searching for a job is a pretty risky proposition. If you have an appreciable amount of equity, that bill can be rather high. Then there's AMT. Many end up letting the options expire. So, taking that pay cut for equity really didn't work out -- you had less money to exercise the options and because you couldn't, the option portion of your compensation was effectively clawed back.

I very much appreciate the startups pushing to extend the exercise window out to 5 - 10 years, but that's far from the norm. I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable, but that's certainly not the case when folks are laid off. And we commonly discuss people thriving in one particular phase of a company. If you're not in that phase, it's no good for either the company or the employee to continue the relationship just to defer having to exercise options.

[Finbarr]

The 90 day exercise window is the most obviously broken thing about startup equity in my opinion. We changed this to 5 years at Shogun.

[kelnos]

> I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable

I don't think that's debatable at all; I think it's bullshit. Once your options vest, they are yours. They are compensation for the work you have already done, not the work you will do in the future.

Once/if your company switches to RSU grants from option grants, then at vest day your stock is yours, and can't be taken away when you leave the company (well, I imagine they could write up a contract that says that, but that would be quite non-standard, and I would never work for a company that did something like that). The vested RSUs are, again, compensation for the work you have already done, not the work you will do in the future. I don't see why options and RSUs should be considered differently here.

(I might even stretch that into the idea that it's bullshit that startup options expire at all, even if you stay with the company forever, but I do think that's debatable.)

[jefecoon]

100%

If equity is going to be a material component of compensation, then the argument "you're not committed enough, you deserve nothing if you leave..." is utter nonsense.

Imho, many/most of these draconian equity / option terms are nothing more than attempts at 'golden handcuffs' to make it more challenging for employees to leave these startups.

Sadly, they work: I know many who couldn't leave roles til they'd saved up for years, or could finally ink second mortgage on their home, etc in order to purchase all their equity in their 90 day post-exit windows....

[jjav]

> And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options.

This is why I advise everyone that you must early exercise (exercise your option as soon as you start with the company) if you're going to join a startup.

Some startups don't let you early excercise. Run far, far away. Find a different startup. Never join a startup that does not let you early exercise.

[kelnos]

> This is why I advise everyone that you must early exercise (exercise your option as soon as you start with the company) if you're going to join a startup.

That's terrible advice, if you present it in an absolutist, blanket way like that. I do wish I early-exercised at my last startup, since I had a nasty AMT bill when I finally did exercise, and I could have had better tax treatment under the small business qualified stock rules when I finally sold. But: a) early exercising my initial grants would have cost me $40k, which would have eaten into my savings to a degree I wasn't comfortable with at the time, and b) I early exercised at two previous startups, which failed, and that ended up being money flushed down the drain to the tune of around $9k.

Sometimes people want to wait a bit to get a better idea of the company's prospects before investing their own money into it. Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric. Sure, if you're a super early employee and have 5-cent options, maybe you'll feel comfortable gambling that money away (but maybe you won't be!). Yes, there will likely be a tax penalty for waiting, but that can be a reasonable and sound financial decision.

I was (fortunately) a few years too young to get mired in the original '00s dot-com bust, but I know several people who were encouraged/pressured to take out loans in order to (early) exercise their startup stock options, and ended up with worthless or underwater stock, but still had to repay those loans. It would have to be a pretty exceptional situation for me to recommend anyone take that route.

(I do agree that a startup not allowing you to early exercise is a red flag, though.)

[jjav]

> Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric.

It is far too late then.

One of the many benefits of doing early exercise is that you exercise the option when the grant price is the same as the current valuation so there is zero profit (and you file an 83(b)).

If you wait too long, your grant might've been at $0.01 but now the valuation is $5.00 (making up numbers but both of these are in the ballpark of my past startup experiences). It is way too late to exercise those options, you'll be paying tax on $4.99 of profit on a stock that you can't sell and might go down! If you waited that long, now you need to keep waiting until there is liquidity so you can do a same day sale.

> take out loans

That would be a terrible idea. Like I said in parallel comments, if the price is too high for your comfort level, don't join that startup.

[earnesti]

> high risks high upside but really its extreme risk and almost no upside

Extreme risk? Some startups pay fair salaries.

I don't think startups are that risky (unless you start putting money into them, that is a suckers deal). Or if you work for free, what you naturally should not do. Not everyone can get a FAANG job so it is not very clear alternative.

If you get paid a slightly below market rate and get some worthless equity, what's the big deal? You can always quit any time and change to a corporate career. It is not an end of the world.

[jjav]

> If you get paid a slightly below market rate and get some worthless equity, what's the big deal?

If you really do, agree that it's ok and a fun ride.

But where are you going to find a startup that pays market rate? Never seen one.

Base salary can be very close! But at an established company you are also making money on RSUs, often more than your salary. And usually have a bonus, which can be quite significant.

So your base salary might be 250K in an established company and 200K at the startup. Not a huge difference. But total comp at the established company is more like 500K-600K vs. at the startup just 200K. Huge difference.

[kelnos]

> But where are you going to find a startup that pays market rate? Never seen one.

I guess you're looking in the wrong places. Over the past 13 years, I've worked for five startups (both full-time and contract) that paid market rate (two paid a fair bit above, even). In my professional and social circles, this has been pretty common. Certainly some have worked below market rate for some companies, but that seems to be the exception, not the rule.

> But at an established company you are also making money on RSUs, often more than your salary

That's definitely not been my experience. At established companies, the RSUs are usually a nice quarterly bonus, in the wide range of 10-50% of base (annualized). Certainly there are some where the RSUs can end up being several multiples of base (I've worked at one like that, though my equity comp level was not common, and was mainly a consequence of my long tenure there from when they were small), but I don't think it's that common. A lot of people seem to assert that you can easily get that at a FAANG, but that doesn't seem to be true. Some people can, but not the median employee.

Also consider that a lot of the stories of high equity comp come from people talking about the FAANGs. Those companies were founded 20-25+ years ago, and matured into established companies 10-15+ years ago; the "rules" have changed quite a bit since then.

[jjav]

> I guess you're looking in the wrong places.

It's possible! I live in the silicon valley bubble.

I've worked for 5 startups (and had offers from about ~5 more to know what they would've paid). None have been close to total comp at a public company.

All of them have been very competitive (or even higher!) on base salary.

But there's no recurring RSUs in a startup (since there is no stock to trade), and rarely bonuses. So total comp is about 30-40% of my total comp when working at public companies.

[rsanek]

that's the thing though. you're not getting paid "slightly below market," you're taking a ~50% paycut to work at a startup vs FAANG

[dfadsadsf]

Extreme risk is driving truck in Iraq or smuggling drugs to Singapore. Working in air conditioned office for double median US salary is not extreme risk by any means.

With that I agree with you that upside is often lower than people expect.

[kelnos]

I think we're talking about the risk level when compared to various ways to work at a tech company, not risk level when compared against all possible occupations.

[Finbarr]

Let's not forget that FAANG companies were all startups at one point. Early employees at those companies experienced significant upside. Startups can be very high risk, and in rare cases, extreme upside.

[ditonal]

This is the “startup myth” that lets the scam perpetuate.

The world has changed. Google IPOed just a few years after it founded. Now Stripe, objectively one of the most successful startups ever, still hasn’t IPOed after 15 years.

Liquidity preference Dilution

Even the F in FAANG had a major movie made about early employees getting shafted by dilution!

FAANG is 5 companies founded a long time ago. Since then VCs have completely rewritten the rules of the game. But they’ll still point to extreme outliers in the old rules. The fairy tale of the Google masseuse has probably cost tens of thousands of engineers millions in compensation.

You need to get things in writing and do the math and startups make it as difficult as possible to do that and then the math never adds up. So they resort to fairy tales.

[Finbarr]

Many huge private companies, like Stripe, have found ways to provide liquidity to their employees without going public, e.g., through tender offers. Some more recent examples of companies where early employees did very well would be AirBnB, Coinbase and DoorDash.

[ditonal]

Early executives at those companies did very well. Early employees did well, but risk-adjusted , not really. I know people who were fairly early at those companies and they own nice SFH in the Bay Area but they're still working as Directors or whatever.

Consider that if you could make 400k (including liquid stock) in compensation at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company. Except unlike any other company you bet 220k on, you won't get a board seat, you won't get access to key metrics, your influence will be dominated by "real" investor's influence.

If your NW is less than 10M, which presumably it is, anyone who's heard even heard of the words "Kelly Criterion" would tell you your nuts for betting 220k a year on one startup. And yet, you get treated like "an employee" and not like "an investor" for taking that insane risk.

So YC has invested in 5000 companies, and you can name 3 that had top-notch outcomes, thats 0.06% success - and you had to work like a dog to realize it! And that money was locked up. Those same early employees could have taken that $220k/ year, put it on Bitcoin or Apple stock, and retired off that. And Bitcoin and Apple were much easier "picks" than an given startup.

The math simply does not add up and the whole system runs off mystique and naivety. And I've worked at startups that gave me a hard time about asking about outstanding shares, about asking about the cap table, about asking about liquidation preference. This is _critical_ information before you invest a significant portion of your life and net worth on a company and that they're guarded about and it should raise the ultimate alarm bells that they don't fall over themselves to explain every part of it.

There's a bunch of propaganda out there "Explaining ISOs, written by a16z" that's a smoke screen of the truth. The math does not add up.

The dream startup employee is really really good at Transformer architectures and really really bad at personal finance. Fortunately for startups, a shocking amount of these people exist. But it doesn't change that if sharp financiers looked at employee equity packages at startups objectively, every single one would agree it's a scam deal.

[Finbarr]

First of all, we're on the same page about the risk profile of working for larger companies being better for employees. But the reality is there aren't enough of those jobs for every single startup employee out there to get one. Some people also like the startup environment - move fast and break things, etc.

Your denominator (5000) is _all_ investments that YC has made. You need to look at investments of a certain vintage, e.g., 10 years or more. You also need to include all the other companies of that vintage where employees did well (way more companies in that cohort have sold or gone public). The result is 0.06% is a gross understimation of the success rate (where success is defined as successful enough for early employees to make a lot of money).

[robocat]

> if you could make 400k at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company.

Even worse, your bet is on common shares. Far better to work at FAANG and Angel invest so you get preferential shares.

The biggest scam of VC is that the dollar value of your time is hugely undervalued compared to a $ from VC that gets preferential shares.

[earnesti]

If you can get that 400k FAANG job, take it, for ducks sake. Not everyone can, and for some of them the startup deal can be quite OK.

People who can get 400k job at FAANG should be smart enough to avoid shitty startups. Looks like they aren't, based on these comments.

[wbl]

Ex ante it's hard to tell what's shitty and what isn't. Remember some VCs also got fooled by it!

[kelnos]

> Consider that if you could make 400k (including liquid stock) in compensation at FAANG

I'm very skeptical of the idea that this is common for new hires at FAANGs today. Certainly some people can command that level of comp, but I find it hard to believe the median employee can.

[heleninboodler]

The median employee also isn't the guy who's going to make a killing by being an instrumental early employee at startup. It's apples and oranges. I'd argue that the person who is versatile and productive enough to help build a startup from zero is also in the upper tier of those FAANG employees, and commanding 400k+ per year isn't out of reach.

I personally have taken both paths, and made what I considered a ridiculous amount of money at a startup (after I'd been gone for a while, having bought my stock). When I got my cash out, I didn't quit my not-technically-FAANG-but-pretty-close job and that comp continues to grow. I never expected this, but my comp has grown to the point where the cumulative amount I've made here has actually surpassed the startup money. 7 years at each place, and the steady paycheck eventually outpaced the big windfall. The difference is I can keep the steady paycheck indefinitely, so it's definitely the win if I stick it out. Of course, now I'm itching to do a startup again. :)

[JakeTheAndroid]

I don't agree it's a myth. Is it an extreme risk? Yes, of course. Do people view the risks to be way too low? Yes. But I worked at Cloudflare pre-IPO, got shares at 1.73, and at one point CF was at 200 a share. That was more or less what I was "promised" from the equity.

Stripe is one example of a successful startup not going public, but there are tons of startups that are going public. And there are many startups that wish they could go public, but they simply don't have the finances or business to do so.

I don't think VCs changed much from when Google went public until COVID. We were seeing massive overvaluations of tech companies for years. Once through 2020, VCs got scared and now the landscape is a bit different. But the AI craze has started to get VCs back out of their shells taking bets on risky projects.

So, yeah, idk what I agree with this assessment. At least it's not been my experience in tech over the last 8+ years.

[kelnos]

> I don't think VCs changed much from when Google went public until COVID.

VCs changed a ton over that time. In 2004 VCs were still smarting from the dot-com bust. And VCs were hardly spewing cash during and in the aftermath of the GFC of 2007/08. The days of easy VC money were mainly in the early-mid to late '10s.

And as you point out with your end date of COVID, VCs have now backed off again, as they did around 2000 and 2008 during those bust/bear cycles. I would credit interest rate increases with the current backoff, though, not COVID. During early COVID, funding was still fairly well available, assuming your business wasn't something that required in-person contact; even better if your business facilitated home-office work.

> At least it's not been my experience in tech over the last 8+ years.

That's only ~4 years pre-COVID; either seems like too short a horizon to make this sort of assessment. (Source: been in tech for 20-odd years.)

[whiplash451]

Can you please explain in what way VCs have completely rewritten the rules? Asking genuinely.

[chinchilla2020]

The expected value of startup equity is far, far, far below a casino. The ON bet at a craps table is 50% odds. Less than 1% of startups survive.

You might as well go to the casino. You will save years of sweat, heartache, and stress-induced mental decline.

Instead at a casino you get to blow your money quickly, enjoy fun, free drinks, and still have the upside potential to become super rich if you are in the 0.000001 luck percentile.

[kelnos]

I think a better analogy would be a poker room than a craps table. You don't get to influence the outcome at a craps table, but your performance at a startup will influence its probability of success. Also your choice of which craps table to play at doesn't change your odds, but you can certainly change your odds of success at a startup by choosing which one to join. Obviously there are no sure things, but after a while you can at least weed out most of the dumb startup ideas and/or the incompetent founders.

[Finbarr]

At an early startup, your execution has a meaningful impact on the outcome. This isn’t true for craps. It may be for poker, though.

[gopher2000]

The argument that a startup could be the next FAANG is anchored in lottery-like odds.