[artemk]

There are a number of details to understand that explain the salary / equity.

The first thing is the range. More jr. candidates are on the lower end of both salary and equity. Yet relatively close to market rates. More sr. candidates are on the higher end of range and usually have to decide if they value equity or salary more, for the final compensation package.

The second thing is the type of start ups that offer this level of compensation: early stage / seed-funded. These are not Uber, AirBnb, Dropbox, Pinterest, etc. especially given that many companies that post on HN are graduates of YC, these guys have their first major investment to work with post-demo day. They aren't working with $25-50-100 million. They have $1-2 million to make the most out of. This limits the ability to pay market rate. Yet allows for engineers to be on the ground floor of a potentially a huge opportunity (or not).

Third thing is the equity...and a bit of a reality check. The founders came up with an idea, worked on it for quite a while, with $0 salary, applied to and got into YC, raised (in all absolutes) a large amount of money (you try getting someone to give you $1 million), gave up some of the equity for that funding, and you want what, 10%? 20%? What sounds fair? Unless you're the first engineer, with a background of leadership that will make you qualified to lead the growing team, 1% is extremely fair. If the company is truly successful, you're looking to make over $1 million. Even if you're underpaid by $50k, that's 20-years worth of difference, which you'll see in under 5 years. Of course there's no guarantee, but that's business.

The other question to ask is are you getting options or RSUs - huge difference.

And finally, the low salaries are typically brought up to market rate after series A (the first big round). This round is usually raised with 0-2 years of the seed round. So you take a risk of $50Kx2 and stand to make $50x20.

That doesn't sound that crazy.

[tomp]

> If the company is truly successful, you're looking to make over $1 million. Even if you're underpaid by $50k, that's 20-years worth of difference, which you'll see in under 5 years.

You can't evaluate the "equity" part of compensation like that. The chances of that happening are very low, and you're most likely to get diluted further. E.g. the chances of >$100M exit are 10% (which is a huge overestimate), it takes 5 years, and you get diluted 50% (so you end up with 0.5% of the company): you get $1M, which is $200K per year, with a probability of 10%, so the expected value is $20K. Sure, the exit might be an order (or two) of magnitude higher, but the chances of that happening drop even more rapidly.

Of course, you might be risk-loving, accept the equity not for the expected value, but for the variance, but then again, I don't think it's (usually) worth it.

[methodover]

If the engineer does an excellent job, proves his value to the company, etc., he should be able to push for more shares as the shares get diluted, right?

[artemk]

I agree that the risk is high and isn't for everyone.

[ef4]

It's not even a question of risk tolerance.

If you're willing to lose $100k, that's your risk tolerance. Some of the bets you can make with that $100k are much stupider than others, based on expected value. If you just want the thrill of high variance, buy lottery tickets.

To put it another way: VCs take risks too, but they spend all their professional efforts trying to figure out which risks are worth it. If you can get the same terms that they get, then you at least have some validation that the terms aren't deliberately screwing you. Forgone salary is just dollars, same as the money the VCs put in, and just as useful to the company. If you're going to forgo $250k in salary over five years, you should expect to end up with equity equivalent to somebody who put that in as cash over the same time period. If you end up with less equity, or less senior equity, you're probably getting screwed.

[aioprisan]

The risk is high for a very low return. A best case of $20k? That difference is very small for a very large risk, and the pay cut from an established company it obviously not worth it.

[tomp]

No, $20K is the expected value. Best case is $500K or $100K/year (for a $100M exit).

[sethammons]

It is not $50x20. It is $50 x 20 x percent-chance-of-amazing-exit. The 20 is a variable too. For the 20 multiplier, you are seeking the billion dollar valuation. This takes, usually, around 7 years and happens to the top 1% of start ups.

$50x2 compared to $50x20x0.01 is more realistic. An employee's chance at equity is offset by the opportunity to gain experience.

[artemk]

And definitely agree with experience and knowledge that benefits a career for the future.

[artemk]

I was approximating of course. Yet the $50x20 is a $100 million valuation, not $1 billion ($1 million is 1% of $100 million, not $1,000 million). This isn't that unheard of.

[gokhan]

RSU: http://www.investopedia.com/terms/r/restricted-stock-unit.as...