> I recently told the CEO of a recruiting agency about this compensation model. She told me that if you even mention crypto, more than half your engineering candidates will immediately say “no” to your company.
For good reason. Also, their 'sister article' about the details of the token are a private google doc. Quite promising.
- About 36% of candidates who didn't, that we end up reaching out to about a crypto role, decline it explicitly because it's crypto.
So: 23%, plus 36% of the remaining 77%, equals just north of 50%. Add in a few who don't turn it down outright but who end up withdrawing later, and you get a bit north of half.
I've been invited to be a founding engineer a few times now, and crypto backed things are an instant no.
How would this hold up in court? Let's say things go south and the founders drop everything and take what funds there are with them. Can I go to court and say "Hey, I have a crypto token for...". Before I even finish the sentence, I'd get laughed out of the room.
There's more ways it can go wrong than it can go right, and that's saying something when it comes to startups to begin with.
Either its a fixed percentage, on paper, with clear, legally defined terms, or it's effectively worthless.
The rates are believable, but this seems somewhat different from what the thread is about - compensation in tokens rather than equity. I suspect many an engineer who's OK with crypto work in general will balk at this arrangement.
EDIT: I reread the original comment. It technically makes sense, but still I think answers a different question than the one posed about the compensation model.
> This is a utility token that will be deployed under the ERC-20 standard, and live on the Ethereum blockchain. It will be set up so that if the product does well, the price of the token goes up, and if the product does badly, the price of the token goes down. You can read more about the details of the token in a sister article. [0]
Funny enough, that "sister article" appears to be a private google docs link... I was curious how this would even work.
Plenty wrong with tokens but I would remember that VC funding also comes with a lot of drawbacks and, in my opinion, is what is holding technical progress back. I am in a startup and VCs are preventing us from focusing on longer term goals like interoperable protocols. The VC game is simple - fund a "disrupting" company aka an extractive monopoly and cash out. In that light, even though we took VC funding some sort of cautious yet fair token raise would have made sense, it'd allow us to work out the product without compromising on longer term goals.
I understand the distrust for blockchain but there is also ideology in blockchain world that has not yet occurred in the greater world, that funding is broken and new alternatives are needed. Has somebody figured a perfect one - no. Is experimentation good? Yes.
A token is just a token, who uses it how and why is not intrinsic in the token itself. Stocks and bonds have been tokenized, why are those not scam? There are lots of tokens representing different things, economic models and with very different histories following their creation.
Ah that's very easy question. Stocks and bonds have very heavy legal framework you can lean on in many situations. It doesn't mean you can't lose - stock investors lose they money all the time - but at least some scenarios are covered. With token nothing is covered, it's basically a naked bet on issuers and their ability to deliver. I don't say never bet - adults can decide for themselves - but if you bet, do it with open eyes.
Hey guys, CEO of FetchFox here. Happy to answer any questions about the crypto token. I'm also making the draft doc public, please be aware the details are still being worked out, but we will publish the full plans on our site within weeks.
1. What happens if an employee loses access to the wallet their company-ownership-tokens are on? Is it just a matter of re-emitting new tokens and distributing it to them? How are the old tokens handled (e.g. if the wallet is found at a later point in time)?
2. Could you ELI5 how you correlate the company value with token value?
3. Presumably, if everything works out, this allows your team (as well as anyone else) to sell their ownership tokens at any point, but also buy others' tokens that are available on the market as well right? I can see a few issues with this including insider dealing (some people having earlier access to great/awful news before others and making token transactions based on that).
I think it's an interesting idea but I think there are a lot more details that I'd like to see ironed out based on the little that's in the doc (that also has public-write access on it for some reason)
I like this discussion! I'm interested in more equitable and humane company structures and looking for better ways to collaborate. In my day (2014 lol), Founding Engineer was not a common role, it was called "Engineer #1". When we exited, I think I (one of 3 co-founders) netted about 10x my awesome first engineer. He's one of my best friends and the diff seems kind of fair to both of us.
Here's what I did that they didn't:
- worked 24/7 (ok, 12/6) for the first 4 years including 1 where I was paid $0. He was more like 10/5 and came 1 year in. Still an absolute beast but we'd often talk about how I had to work "founders hours" and him employee hours.
- took 1/2 his salary when we hired him after raising our seed
- immediately had to push way out of my comfort zone in terms of responsibilities (investor stuff, copywriting, support, hiring, managing, partnerships, running ads)
At a base level, we're just kind of different people. He had hobbies outside of our company and I was a locked-in computer monk.
The other bit is that he was not like a highly paid Facebook engineer. He had gone back to the midwest after school and we were able to 2x his salary and move him to SF. Founders hiring the first employees need to really scour their network for diamonds that big tech might miss, because it's pretty well accepted that your odds of getting rich are much higher in big tech than startups.
Innovation in compensation is great, but this feels like a "I want to play with crypto" move rather than a mature revision of an inequitable existing model. Options that don't expire are a huge incentive! Offer that. 10% is a huge incentive! Offer that.
If you know you're turning off smart candidates with crypto shenanigans it's a good sign that this is not a mature or pragmatic team.
I have a few pragmatic reasons why I want to use a crypto token, instead of traditional instruments.
The first one is liquidity timing. With a crypto token, you can have 24/7 trading and liquidity from basically day 1. There is no need for second markets with high fees and complicated process. Just a 10 second Uniswap contract.
Second, you don't need to "manage a cap table". The token trades and moves freely on the blockchain, permissionlessly for anyone who wants to use it.
The best example is how money transfers work in the current banking system. A money transfer is the canonical example of why you need transactions in a database: you want to deduct money from person A only of you successfuly transfer money to person B. But guess what: this is never executed as an actual atomic transaction, because A and B are usually at separate banks, in separate DB's.
Compare this to the blockchain: every single transfer is an atomic, universally auditable transaction. If you ignore all the noise and scams in crypto, this just makes 10x more sense to me as an engineer.
FetchFox as a company has two goals:
(1) Make the best possible AI scraper
(2) Prove that crypto tokens are viable and better alternative to traditional company structures
It's lame that so much crypto stuff is caught up in scams that obscure the underlying value.
Well, they don't have to be employees. It's not for everyone, if you don't want a crypto token compensation, Fetchfox is not the right company for you to work for.
I find your answer incredibly arrogant as a developer because you don't have a successful product so it's a gamble for anyone choosing to join your company. For me it looks like you want to skirt regulations and not pay developers for what they're worth.
We pay very competitive on the cash side (over 200k for exceptional engineers), and have offer options that are 10x more competitive on company stake side than other companies (up to 20% for exceptional engineers, but with lower cash as a tradeoff).
Our founding engineering team is going to be capped at 3 or 4 max engineers, and to get 20% you need to take a pay cut. So far people have generally taken the higher cash offers. The token grants on those translate to 4-8%, which is still more than typical.
> I find your answer incredibly arrogant as a developer because you don't have a successful product so it's a gamble for anyone choosing to join your company.
To be fair, this is true of any equity model, which is precisely why most engineers (at least in our data set) place very little weight on equity.
(1) Make the best possible AI scraper (2) Prove that crypto tokens are viable and better alternative to traditional company structures"
For everyone watching this is the opposite of pragmatism. This is idealism. Your company will succeed or fail based on your ability to execute on your primary mission. Here it should be (1). If you're labouring under a (2) then you have an idealistic company, which is fine, but don't pretend that (1) is your primary mission.
On the other hand, what difference does it make if the greater fool is a dentist’s brokerage account or a dentist’s crypto exchange account? The price of the thing is as imaginary in both scenarios.
Stocks are regulated by legal frameworks in most countries. You can't dilute at will and you can't remove access to stock nor voting rights if they were issued as such.
These crypto tokens aren't even guaranteed to be issued to a wallet you control.
I never understood who takes up these offers. You want me to give up my $220k+ salary plus RSU (let's say worth $60k/yr), to join a startup and take $100k/yr salary.
In effect, I'd be "investing" $180k/yr and putting in crazy hours for a 1% equity that gets diluted to nearly nothing in a few funding rounds. How does that make sense?
You can only invest your time and salary cut into a single company, while angel and VC investor can invest their time and money into many companies. They only need 1 of those investments to skyrocket. You need 100% of your investments (size 1) to skyrocket for it to make sense.
Sure, if you hit the jackpot and join Facebook, then you're set for life. But that's an extreme outlier, otherwise I wouldn't be using it as an example.
I think the biggest problem with these offers is that the payoff for the founders vs a "founding engineer" is so wildly out of whack despite minor differences in their work and effort. That is, after a seed round, founders typically (obviously "typically" is doing a lot of work here) retain ~80% of the company, and after a Series A ~20-30%. So, lets say there are 2 founders, and a founding engineer is hired shortly after the seed round. That means at that point each founder will have about 40x the equity of said "founding engineer". Yes, the founders had to come up with the idea and get the initial seed funding, but that process usually takes on the order of 3-6 months. The founding engineer is going to be working just as hard after starting as the founders (oftentimes harder), usually making similar cash compensation, for 40x less equity.
My main point is if you think you might want to be a "founding engineer", just be a founder instead. As a good example, consider Nathan Blecharczyk, one of the 3 cofounders of AirBnB, and was its original CTO and coded its first website. He's now worth about $10 billion and according to Wikipedia is the 203rd richest person on the planet. If he instead took a job as "founding engineer" at AirBnB, and let Brian Chesky and Joe Gebbia instead take on the sole founder titles, he'd be worth orders of magnitude less (granted an order of magnitude less than $10 billion is still hundreds of million, but point being there is no reason he should be compensated less than his other cofounders).
IMO if you're reasonably talented and working harder than the founders as an early employee, it's time to value your options at 0 and look for another job.
Even beyond just the success of the company, I'd find it demoralizing (unless they paid me more than I would expect).
I knew someone who was the lone engineer at a start up who got a call from the founders, all on the golf course who wanted to talk about a new feature. At first he thought it was a joke because it seemed absurd, no they were serious. He quit the next day. He figured they were non serious founders. Company just rand itself out of money not too long after.
Maybe not many people making $220 take these offers?
There has to be a fair number of start ups that really don't "need" a $220k engineer if their business is "uber...but for cleaning your windows".
It would be interesting to see the breakdown of who does take these roles.
Granted "founding engineer" implys a lot so I'm not disagreeing with the premise or article, but sometimes on HN the idea that an engineer costs $200k+ is just assumed where often I think that isn't the case.
Not many people are going to totally ignore their opportunity costs to join as a "founder-ish" engineer at a startup.
I have taken a role like this before, but when I did so, I was making a lateral move from a compensation standpoint. This is without factoring in any expected value of equity (because there was none).
I'm willing to concede the highest paid engineers are almost by definition doing their opportunity costs math.
I'm willing to also bet that most people do not do a lot of opportunity costs math.
But as your example points out, like mine, maybe this whole idea of top paid engineers not getting paid, or even taking those jobs isn't a thing as much as we might imagine.
"Uber ... but for walking your cat" might offer far less than 220k, but they also don't need that guy might be offering more lateral move type people / money.
100% agree.
I'm happy to trade hypothetical equity in one startup for same salary and hypothetical equity in a brand new startup, if the new startup has just plain a cooler founder, or tech, or broader opportunity. As an early founding engineer, my impact is much much higher as well.
That's a good point. When I joined a startup as the 6th person, I was a college student working part-time freelance gigs and making maybe $30k. The startup was initially a freelance client, they offered to take me on as an employee for $40k part-time / $80k when I could work full time. They gave me some tiny amount of equity, probably less than 1%; it turned out to be worthless. But everything else was a significant improvement: I no longer had to juggle multiple clients and haggle to get paid, I got health insurance, and I had more money in my pocket.
So you want to scale up a new venture with (potentially) risky, low wage talent? That sounds like a bad bargain. I would wage that there's not that many interesting "uber for windows" companies, versus those with at least a modicum of challenging problems. And one of the biggest challenges is managing software complexity at scale, which is almost inevitable in a software startup.
I get that the typical $220k dev probably has a different mindset than the one you'd look to when building a new company. That said, I've focused most of my career on being the 2-5th employee and helping guide startups to viability. I've been able to do that while still pulling in reasonable $$ and hours to make my lifestyle work.
Maybe this alternate model is gone now with the credit crunch, but it does seem like we're missing out on a workable yet oddly unpopular approach here.
Ok, yes that is a particular term that describes a later process. I meant it in the literal sense of writing code and making a business, not the capitalized version.
I think this is right. There's no way to make it rational for a successful FAANG or FAANG-adjacent engineer to be an early-stage startup employee, but there are other kinds of people who want software engineering jobs. Unfortunately a lot of founders look to their personal networks which only contain people for whom the role doesn't make sense.
By and large, don't do something that you just hate unless that's your only option. But if you can find something you mostly like (and that's a pretty reasonable bar) for pretty good money, that's not a bad target.
I can imagine that hopping between these places might be fun for someone in their early 20s who is unattached and can focus all of their time on the grind. Live cheap, build stuff, have more of an impact than you would at a faang or m7 or whatever we’re calling them now. Maybe you make it big, or maybe you just build a network and get good experience, but not a terrible outcome either way. But yeah, once family and life outside of work need time and comp, no thanks.
From my point of view, I make 400k right now with 7 years of experience at a large tech company. I could reasonably retire in a year or two at my current level of expenses. I could probably make the next level with a fair bit of work in something like 3 to 4 years from now and expect to make somewhere between 500k to 600k, but to me that doesn't seem to seriously change my life trajectory (this is only a bump of 70-140k after tax). Without devoting to something like 10 to 20 more years of working and becoming a director or something similarly soul sucking, I don't see a route where I could reasonably have much more than say 10 million 10 years from now.
So I've thought about saving up enough to comfortably retire, and then going to work in a more risky company for the chance to get a life changing amount of equity (something more than single digit millions). I don't know that I will though, because the odds are seriously bad.
> I don't see a route where I could reasonably have much more than say 10 million 10 years from now.
You have to ask yourself this- how much is enough, and how hard are you willing to work/risk for it? On the low end, how much is the minimum, and what pros would make that acceptable, quality of life, risk, anxiety levels, etc.
Your way forward will be much clearer when you know what your parameters are, even though life may happen between now and the end date of your plans.
I constantly am :) well, not constantly, but I've put thought into it. I'm not exactly thrifty, but I spend way below what I could. I've been trying to spend less (eat out less, live in a cheaper apartment, etc.,) to see how comfortable that feels to try and figure out what sort of budget I'm happy with.
On the flip side, it's funny to think about what life would look like if I spent all my disposable income, but it's not really an experiment I want to run haha.
I think the most likely scenario is that I take some time off and decide to continue working similarly to now, but I think it'll be nice to have some confidence that I can have more freedom to choose what I want to do if I show myself that I could afford to retire. I largely like my job. I wish there was less stress and external pressure, but it seems difficult to keep the parts of my job that I like without those.
Being a founding engineer at what grows into a billion-dollar company basically is $10 million 10 years from now, but against incredibly long odds, whereas staying at bigger companies makes it more likely than not. There's no risk premium.
Maybe, hopefully I realize it by the time I'm not too young :) I don't know that I necessarily have goals. I definitely don't want to become a director or anything like that or feel like I need 10 million dollars to be happy, if that's what you got out of my post.
> You want me to give up my $220k+ salary plus RSU (let's say worth $60k/yr), to join a startup and take $100k/yr salary.
Not really. They don't want you to give up anything or some do and you can just say no. The reality is that people want to find other people who want to work in startups to be their engineers. You really can't get top performance out of a guy who hates doing some work by paying him. You'd much rather get the guy who loves doing some work and pay him enough that he feels appreciated. Mercenary hires are useful in prop trading firms, but anywhere else the mercenary is better contracted than hired.
Besides, startup salaries are not $100k/year and you can get 2% as a founding engineer.
Taking more money to do a job you hate is a recipe for burnout.
I re-read the top-level comment and don’t see where the “hates the work” assumption is coming from. Or is expecting to be compensated fairly for effort a form of hating work?
Your view was completely my view until 7 years at Google.
When I joined, I was shocked how high the turnover was. And not anecdotally! there were stats you could slice and dice every which way, and...it was shocking.
How!? This was paradise.
After clearing enough years, and getting enough advice from people at 50+ who stayed at BigCo, once you got a pile o' money, it looks more like:
$170K/yr + $30K bonus + $100K/yr RSUs at Google - $150K/yr existential dread.
vs. startup:
$150K/yr + $15K bonus + $2.5K/yr (1% chance of $250K/year)
Increasing the money pile becomes not worth it once you've stacked Google RSUs, and the choking existential dread of what goes on inside BigCo is worth the pay difference.
I know that sounds nuts. Hell, when I was doing my big "Where do I go now that I've sold my startup?" interview rounds, I also interviewed for positions with a couple ex-Googlers who told me it'd be awful to join there.
I thought a lot about it and decided they were wrong, they didn't understand how little savings I had.
And they were wrong: it was totally worth building the money pile so I could move on like they did, to more productive areas where there's room to grow.
aside: I'm not sure anyone would get $220K/year base then only get $100K/year base. I usually see roughly the same base, frankly, its usually a bit higher than Google's.
another aside: stereotypes are stereotypes, from what you characterize startups vs. BigCo as, I think you'd be very surprised how many Googlers feel about workload
Speaking as someone that's worked at a startup and also in FAANG, if you're the type that's predisposed to existential dread, the sense of dread in a startup is differently but equally existential when the startup may not be able to cut paychecks or even be around in 30 days, and you have to scramble to find a new job.
At the startup, there's not even the $150k to subtract out.
You're right, 'existential dread' was a lazy handwave on my part, I don't know how to expand un-briefly :/ "The stuff that drives people away from BigCo", which is a tautology, so perhaps not useful.
I'll try to reply with more specifics to the sibling
Sometimes the quick short quip has more truth to it than the long verbose answer.
It's a different dread working for a startup, but really believing that you're helping its mission to save the world, or at least, not making it worse is it's own form of payment.
Some people work at a Fang only do after convincing themselves that to do so would be wrong, but the pay is just so good, and so they hate themselves for working there. They haven't drunk the Kool aid and have bought into a narrative that the company they're working for is eeeeevil. Other people just buy that BMW and provide a better life for their kids than they had, and the thought doesn't even register.
Gosh this is hard. Excellent question. "Existential dread" was a cheap handwave. This is a random collection of thoughts.
First thing I should say is none of what I'm going to say matters if you are the world's most well-adjusted person. i.e. you have 0 inherent desire to do anything other than A) get a paycheck B) do what boss says.
The ex-Googlers I interviewed with put is as "you can't get anything done", which I took as a challenge. And succeeded. Then failed. But not because that's not what leadership wanted, it was the opposite, they had been asking for years: because I was low enough on the totem pole, and in engineering, in a way people could screw around and have 0 consequences.
Hyperbole: every single job I've worked at was better managed than what Google had become at the end, including food service ones. There's a professionalism-as-don't-speak-up authoritarianism in play.
Another handwave I've used to describe it is "humans are humans, everywhere.",
This was the first time I was with a group of really, really smart people. Ivy Leaguers, etc. I dropped out from the #116 ranked university.
I expected that meant the level of shitty behavior would be lower, but, it was higher. Much higher. There's much more training data accumulated in smart people. Making it easier to construct internal narratives for why somethings a bad idea, but, this was usually lazy and slotting into some stereotype. One lesson I learned quickly is there's a parable for every possible decision.
Another problem was you had a ton of people who were just Ivy Leaguers who said "ehhh I guess finance is more evil?", ended up in tech, and really could not fundamentally understand at all why you'd do anything, or talk about anything, or think about anything, other than what someone in authority explicitly said to do and documented and had 0 ambiguity at all. This actually played well with the authoritarianism I mentioned, despite "thriving in ambiguity" being a catchphrase used in perf a lot.
Last thing I'll mention: there were two major decision points that ended up causes an exponential increase in issues:
#1 in...2018?...moving promotion review into the local team, instead of a panel of reviewers from throughout Google. Won't belabor the point too much, TL;DR: that's an excellent way to enable authoritarianism and adjacent issues, because no one can be good enough to just do an end-around.
#2 in late 2022, moving performance reviews from a variety of feedback from collaborators to your manager and whoever your manager bothered picking.
Anyone, if you've made it this far and are very curious, feel free to reach out to jp0hhhh@gmail for deeper conversation (replace the 0 with an o). I'm offering just to pay it forward, i.e. give what I didn't have before Google, someone with a direct sense of tradeoffs.
If all it takes is a 10M valuation, sign me up! I mean, 10M sounds like a lot, but in terms of a remotely successful SaaS company (as opposed to a side project hoping for beer money), it's not that much. That's around 500 people paying $200/month, assuming a 10x multiplier of revenue to valuation. (or 5000 paying $20/month)
The problem is that there's no easy way to cash out with just a valuation and you need the $100k now to pay for whatever, not when the board says there can be a liquidity event (which may never even happen).
Hopefully this doesn’t mark me as a troublemaker among the founders here, but this is a good way to negotiate your salary. As in “I’m valuing your equity at 80% of its 1xPP price at your last round, which makes my total comp 100 + (grant x 0.8 x PP/4) = N. I would accept an offer right away at 1.3N, preferably in cash/equity, but at the current level, I will need some time to evaluate my options to see if this makes sense for me.”
It's even worth than that. The personal utility of money is definitely sublinear. Hence a small chance to make a lot of money is worth considerably less than getting its expected value with certainty.
To follow that line of thinking, it could be way more profitable for you to take your $180/yr "bonus" and put it into angel investments. If you have decent connections and have a good eye - you'll probably have a much higher expected return than your 1% at a startup.
Or just investments in an index fund. I know someone who mad a pretty big pile of money at a company and he told me that he could have done a lot better than angel investing. He still does some--but only companies he particularly believes in.
How does he know he could have done better? Did he actually calculate a realistic rate of return for high risk short term investing or did he assume he would reliably pick winners?
I assume he just looked at his rate of return vs. NASDAQ/S&P over the same period. A lot of people here assume that startup investing is a road to wealth (that's only open for the wealthy) and that mostly isn't true.
I would imagine that for some people $100,000 a year is enough? Or there are people who aren't getting $220k+ offers and $100,000 is what they can get?
There's nothing inherently wrong or illogical about making less than the maximum amount of money you can make.
They are, but my health insurance premiums (which don't cover everything) went up to $3,600/month this year, and I've got two kids going to college soon.
I'll happily take substantially lower salaries for publicly funded healthcare and undergrad education.
The math simply never works out in favor of lower salaries/publicly funded healthcare for high paying US roles like software engineering. Even taking your (high, assuming family of 4) premiums and 0% employer contribution (very uncommon), that’s an additional $43k a year, pretax. US SWE salaries are double, sometimes triple international with absolute numbers at $50k+.
This doesn’t even factor in general higher tax brackets abroad
The problem is you can't put a price on intangible things like being scared of a medical bill.
The premiums don't cover everything and if you (heaven forbid) get a curable form of cancer you're gonna be paying quite a bit out of pocket past the quoted $43k, and it's not just about the money, but dealing with the whole system as well. Getting claims denied and having to contest it, having a mystery bill hanging over your head. If you break an ankle, it might just be less hassle to buy the things you need off Amazon than deal with insurance.
Meanwhile you can complain about eg long wait times in, say, Sweden, but the total deductible per year there is approximately $100 and then you don't pay more than that. Getting a curable cancer just doesn't have the same implication there.
There's also other intangibles. Things like time off, infrastructure, social safety net, dating pool, culture, human rights, cost of living. inequality (good or bad). What's it worth in dollars to you for your daughter to be able to afford to buy a house someday when it also turns out she wants to be a painter when she grows up?
I'm not making any argument for or against a particular county. What I'm saying is, live where you want to live. Money isn't everything so make sure to read past the numbers on a spreadsheet.
Making career decisions "not about the money" is an incredibly luxury for someone who needs to live or raise a family in the regions where tech startups are a notable factor.
Perhaps that's the answer to the previous commenter's question about "who takes these offers", then.
Having a tech career at all is an incredible luxury compared to pretty much any other way of making a living. It is easy to have a comfortable life without bothering to chase the high end of the market. One cannot ignore compensation, but neither need it be the focus of one's career decisions.
It's not easy to have a comfortable life in a tech hub! Your home, commute, school district, etc. will be incredibly bad compared to a replacement level college-educated career if you aren't already wealthy and don't make comp a primary focus.
Do you consider Seattle to be a "tech hub"? I suppose it depends on the level of your expectations, but it's hard for me to imagine how anyone could call my family's situation "incredibly bad". Despite my never having been wealthy nor made comp a primary focus, we have a nice modern house in the center of the city, near friends and everything we need, where I can walk to work every day. It's true that the school district is not so good, but that's what private school is for.
What is a "replacement level college-educated career"? That's not a phrase I have heard before.
It's to gaslight you into thinking the nineteenth shitty enterprise SaaS for ultra-niche market is going to make you a billionaire. In reality, you're just cheap labor for lining the pockets of the VCs who will sell off their shares to the next sucker at the first chance they get.
fr fr, the only way I will join your startup is if you have a very interesting idea and I will be coming in as a founder with a very different slice of pie than "founding engineer".
Why does no one run a completely employee owned tech company? What is the disincentive for modeling your company as employee-owned and operated? It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling.
I’m guessing that no investor will back a company that they can’t sell for Y times the investment.
EDIT:
Thank you for the thoughtful replies everyone. I totally spaced the idea that I was asking this question on HN, a VC owned forum. I am glad that it was not interpreted as flame war baiting.
> Why does no one run a completely employee owned tech company
I think this might be selection bias or something along those lines. There are probably more companies than you'd expect that are techy bootstrapped companies, but they don't make the news because they don't have the funding round type of announcements. These companies also tend to do something not centered around AI or socials, so again, they fly below radar. I've worked at more than one
How do you take outside investment if all ownership is with the employees?
Even a self funded company has a different problem, the person/people who started it did a lot of the heavy lifting and took on massive risk, they want to be compensated for that risk, and are loath to share it all with others but in some sense, many self funded startups are 100% employee owned… just by a small subset of the employees.
It happens with partnerships sometimes. But it's generally a pretty risky move for a would-be partner to make unless there's already a money-making engine.
But VC backed companies have way more risk for average employees. How can that be true if you might never get a non-diluted share or any compensation when sold off?
There is a base package of employee shares you get upon being hired. The investment portion would be separate from the base package as part of adding the investor-employee to the company.
> There is a base package of employee shares you get upon being hired.
Where do these shares come from? Do you dilute the pool? Will people who are no longer part of the company (but are still partial owners) want their ownership pool diluted? If so, how fast can you grow before they start saying no?
> The investment portion would be separate from the base package as part of adding the investor-employee to the company.
Where does that money come from? Employee stock ownership plans where money is taken from their salary?
How much has to be invested before they feel like owners?
And again, where do these shares come from? Is there a market? Is the share pool diluted? If dilution occurs, what’s the mechanism for this?
This is obviously decided by the employees. One option is that the company reserves a pool of shares for hiring, another is to dilute. Again voted and agreed on by the people that work there.
> The investment portion…
> Where does that money come from?
“The investment portion” is the portion of the package you’re giving your investor in exchange for the money being invested. That part of the package could include: more shares, a later lump sum payment, etc.
I imagine the share dilution or split or whatever would be tied the continued success of the business, requiring everyone to understand how adding a person would financially change their risk/ownership pool.
The ideas you’ve laid out sound really good while theorycrafting over some drinks.
The reality that I’ve seen is that it rarely works out like you are suggesting.
Real examples that I’ve seen twice in detail is that senior management (and later retired management) ends up with a lot of shares. Upper management prefers disbursements/dividends, while lower-paid folks prefer pay increases. Sometimes neither of these are optimal — better to re-invest.
The senior management and retirees do everything that they can to minimize share dilution, and they are very aware of where their share of voting shares stands versus the labor shares, and the management is much more savvy about this knowledge and process.
Bitterness on both sides ensues, and the company turns to shit via in-fighting.
As for getting new folks to invest their own money into shares, there has to be a very clear path for ROI for these folks, as often there is no dynamic market for shares.
Other examples I’ve heard stories about (but haven’t seen numbers) have similar tensions.
Maybe I’m biased, because I mostly hear about failed employee buyouts. That said, the number of success stories I’ve heard of are few — bobs red mill (still newish) and Publix… I’m sure there are a few more.
Force people to sell when retiring and cap share ownership. I’m not suggesting a blanket single approach to each and every out lying problem you may encounter but I am saying the general idea of employee ownership could work out better than risking everything on a potential VC success story.
When creating an employee owned company these are great things to consider when drafting the agreement but I didn’t read anything from your anecdotes that suggests it wouldn’t be a successful model.
My comment was never about the employee base package requiring investment from the hired employee. I was commenting on offering the base and an additional package for bringing on an investor employee.
That is basically the 1% equity founding engineer model! You "buy in" with free labor, the delta between your compensation and market rate. Some of the problems are:
* You can only "invest" in one company at a time this way, so the risk profile is much worse for you than for a VC with a lot of different portfolio companies.
* It's rare for a 100-person company to be valuable enough that a 1% equity stake is competitive with the levels.fyi payscale.
You typically need to pay salaries before you have money coming in the door. Some founders cover this out of personal savings, and some businesses make more than the cost of an employee before they need one, but generally you need outside capital. So you'll need to provide something of commensurate value in exchange for it, which is either debt or equity.
A business with a chance of success in the 90s might be able to get a bank loan. As an early stage tech company, the capital available to you is venture capital.
An early stage tech company can get a loan. The key is not hiring anyone until you can write a business strategy and plan that supports repaying the loan.
Investors want ownership, so to be completely employee owned means completely employee funded.
So unless you have 5-10 employees willing to work for free until profitability PLUS paying infrastructure costs in the meantime, you are constrained to activities that can be profitable from day one.
This is why you can see employee owned consulting and services companies but not major development projects.
> Why does no one run a completely employee owned tech company. What is the disincentive for modeling your company as employee-owned and operated. It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling.
I worked for a company like that. It was a start-up size company that was in business for 20 years or so. It stayed small and had not external VC breathing on their neck and such.
So it does exist and it has it benefits and downside. For one, just because it's employee owned doesn't mean that the few founding employees won't screw anyone over and it does't mean everyone gets an equal amount of shares. Initial founders may still keep 99% of the shares, and maybe dole out a crumb here, and a bit there.
> Why does no one run a completely employee owned tech company?
I thought about setting up Fetchfox this way, and in some ways we are an employee run company. Everyone including me gets the same crypto token as our stake in the company's success. I get a higher stake as the founder/ceo, but some offers give the employee 0.5 for every 1 of my allocations, which I think is pretty fair.
Long term, it would be nice if I had <50% stake in the project, and it self-managed somehow, similar to crypto projects like Ethereum.
That said, the phrase "employee owned" has some bad connotations. It has an implication that you are not trying very hard to grow, or that you are somehow less committed to company, or that you are some sort of co-op. For these reasons I don't like use that phrase.
I’m not sure avoiding specific phrases because the general populace has stigmas is helpful however. I don’t view employee-owned or coops in those ways at all. For example, your growth rate should be attributed to the quality of the product. The product quality should be attributed to people’s interest in their work. Good compensation/benefits such as ownership should be the incentive of a quality product.
1) It's not a security, so it's not a share of the company. In order to be compliant with US law, we can only offer a utlity token
2) Crypto is a 10x better underlying data structure and architecture for the financial system: https://ortutay.substack.com/p/the-computer-science-case-for...
The only reason to sell any of your company is to raise money. If you can raise all the money you need from your employees, then you can be employee-owned.
I think in an employee owned model the CEO is less visible and a different role, that role is then incentivized to actually drive the business instead of creating hype in the market to ensure valuation for investors/stock markets.
The value of an employee owned business is that you can vote the CEO out if they’re not working in the best interests.
Frankly what the CEO actually does day-to-day doesn’t matter relative to a startup or a publicly traded tech company, or anything in between in the scope of ownership and organized employee value.
I’ve watched a company in deep debt spiral out of control because the CEO didn’t understand the business and let bottom up management be how the company runs. The board that also didn’t understand the business just let 3 rounds of layoffs occur before forcing the CEO out. When layoffs come, if it is going to be the employees who pay the price, they should have a mechanism to push the pilot out of the seat before it costs them.
I run a bootstrapped cheminformatics company that’s been gaining traction, and I currently own it outright. I’m genuinely interested in a model like you’re describing—something that aligns everyone’s incentives and keeps them at the top of their game, not just waiting to vest or check out once they do.
In my experience, equity alone can become more of a distraction than a motivator. It sometimes encourages people to mark time rather than consistently push the envelope. I’m wondering if a profit-sharing model, possibly combined with some consulting-group best practices, might be more effective at sustaining high performance over the long haul.
If you know of a proven employee-owned approach that doesn’t dilute accountability—and actually ensures teams stay fully engaged—I’d love to explore it. My goal is to bring in the best talent, focus everyone on building the best product, and reward them in a way that keeps us all hungry for continued success.
I don’t have a model specifically but companies like “Bob’s Red Mill” and “King Arthur” are employee owned and rather succesful. Though those are not tech companies I can’t imagine the base model being drastically different when adapted.
Cooperatives are great, but collective governance is a big challenge.
There is also a major issue with realizing equity because employees generally don't buy in or sell out when they leave. This means that equity is essentially locked away from the employees.
The model works well for stable businesses with regular profit that can be split up, and not so well for growth companies. Employee labor investment in capital growth never gets paid out because there is no exit.
Well another reason is that as soon as VC enter the space they provide capital for companies that you could otherwise beat to do really inefficient things like give equipment away for free or "leases" that you can't compete with without taking VC funding. In my experience it's been yet another variation on "worse is better."
You give them shares like every employee has. Employee-owned just means that you need most of the company to agree with it. As long as there is a fair playground where your on boarding investor doesn’t end up eating all the shares then it could work. Ideally your investor would come on as an employee validating their stake instead of an outside pressure.
Probably because most companies aren't able to make profit on the first day, and most employees aren't willing to invest significant capital to get the company to the profitability line?
There are niche examples of 'bootstrapped' companies that are employee/founder owned...
> Why does no one run a completely employee owned tech company. What is the disincentive for modeling your company as employee-owned and operated. It seems that would be the best path to an efficient company and a focused company that’s not angled to be taken over by outside aggressive for profit interest and dismantling.
It is very tough to pull off an employee-owned company over the long term.
1. How do you handle it when someone leaves? How do you handle a new employee when they come in? There are many ways to do it, but I don’t think I’ve seen an implementable way that keeps incentives aligned.
2. What happens when the company is extremely successful? In many examples I have seen, the employee-owners give themselves substantial raises and/or distributions, become way better off than they ever expected, then they aren’t really motivated to do the hard things that make a business work over the long run.
Source: A friend of the family who buys up employee-owned SMBs, gets them back on track, and then sells them.
Note that often times the “employee buyout” is a founder/owner who can’t sell at a price that they like, so they basically sell it to less sophisticated buyers (their employees).
I'm a founder who is pretty sympathetic to the idea of cooperatives.
The simple answer is that I am not savvy enough with financial instruments to be confident that I can structure something that can't be preyed upon if it's successful. I know I care about making sure my employees are well-treated - you shouldn't believe me when I say that, but I believe me, and that means that in terms of my own ethics there's not much reason not to maintain control and depend on my own judgment. If I want to divide 70% of the profits up among my employees, nothing is going to stop me from doing that, so why not keep my options open?
You guessed it. I know some totally employee-owned tech cos, and they can work, but the one thing they can't do is raise money like founder-centric startups.
I would think as long as the company is happy then investors wouldn’t matter. Then your goal would be for example, to pull in a wealthy person who could invest in the company and work (law? Accounting? Cto?). Then sell their shares when they help it grow in value and would like to exit. That at least would allow investment growth without selling the farm.
But yeah that was a situation of a privately held company opting to make that transition, I'm not sure they had any investors to complicate things. And they're definitely an outlier.
The typical answer is finance. As a socialist myself, I think all finance should be done through loans instead of selling off parts of the company. That way it stays employee owned.
Suppose instead of loaning to a single company, you loan to many different companies to balance out the risk and return. Just a thought. Additionally, it would make sense to randomly give out larger loans for the sake of potential innovation.
You assume loans need to be profitable. In a situation where the government is issuing loans, it also reaps the rewards of increased tax revenues from high performing businesses. The objective of the loan is to stimulate the economy, not to turn a profit.
Your original premise here was that 90% of these investments fail. You need to invest in the ones that fail to get the good ones. You can appreciate this dynamic when the funds are privately managed.
One method of return is equity ownership, the other is taxes or low interest rates. I don't think the latter is nearly as viable to recoup the investment.
Look at the numbers. We're talking about going from 1000+% to 5%.
Additionally, I don't think the government could manage an investment fund without complete corruption. Would you trust the president or Congress to invest your money?
VCs make money when they invest their money in winners. Politicians make money when they invest your money in their own pocket.
There is a thing called "electing", which in democratic countries allows you to put trustworthy people in positions of power. Additionally, there is no real reason for a head of state to be personally managing a national bank, and within such an institution there may well be rewards for productive uses of funds. Again, the government doesn't need to recoup the money it loans out through interest because a government will always have sufficient funds through taxes to cover the deficit. Those taxes will, of course, be levied on the precipitants of said loans and raised through the increase in productivity derived from the loans. The government is not a person, it is all people. The objective of government lending is not to extract money from society and transfer it to the government, the objective is to increase productivity within society and thus make things better for those living in it. The issuance of loans and investments is not a practice of profit making, but one of management—deciding which projects are undertaken and by whom. The positive effect of this is to improve society, and the fact that investors profit is a negative outcome of the whole arrangement, as was pointed out earlier. For someone so concerned about government corruption, you seem to have no issue with private corruption. Investors are the people we task with managing our economies, yet their wages are massive. They extract huge quantities of funds from the enterprises they manage. The payment they receive is far greater than the actual value of their work in a free market, but they avoid such pressures by maintaining a monopoly on their wealth. The position of "shareholder" is not one for which there are job applications. The skilled workers actually managing money are paid far less for their work than the shareholder expects to make dividends. If you remove the shareholder, but maintain the person managing investments, you drastically streamline the entire system.
I don't think government is up for that task. I do not trust it to be free of corruption, and I do not think it will result in net positive productivity.
I do not trust the democratic electoral process to keep politicians honest and effective. The idea seems almost laughable, all I have to do is look out my window or read a headline to disprove the idea.
Similarly I don't trust the electorate. I think they aren't much better than the politicians. I think it has no problem destroying lives and robbing a minority blind if a majority thinks it can get away with it.
The only thing keeping it in check is slowly eroding limitations on government power.
It isn't that I trust private investment more than the government, but at least I can say no to one and not the other.
What do you think would stop politicians from giving all the loans to their friends for fake companies, and just taxing everyone else more to make up for it? It would just be PPP loans, but permanent.
The same thing that stops them from doing whatever they want to the interest rate. The people managing the economy would not be politicians. Not every activity of the government is undertaken by politicians directly. In fact it would be entirely impossible to elect enough politicians to handle money at that scale. The matter of issuing loans would obviously have nothing to with politicians.
I always find it a little stupid when people claim the government is too powerful. The governments of most countries are massively beholden to business interests. It is to the degree that people cannot separate the ideas of government and corruption. "The democratic electoral process" is not a real thing. Every country that claims to be democratic has a different way of going about this, with differing results. The system in America is one where politics is driven by whoever has the most money. If you gave government the power to subjugate private wealth, you might have an actual democracy.
You seem to treat corruption as a fact of life, but it clearly isn't. You can make laws banning it.
>The system in America is one where politics is driven by whoever has the most money. If you gave government the power to subjugate private wealth, you might have an actual democracy.
I don't understand how you can make those statements about corporate capture of politics in parallel with advocating for a politically appointed body to hand out free government money. Why do you have no trust in the politicians, but do trust their agents?
You seem to agree it is corrupt, but think giving more power to the corrupt will fix it. Do we need a dictator to drain the swamp?
I've done that, but there is still corruption, so there's obviously more to it.
This gets to the point that you are describing a hypothetical. If thing A were true, then this would be possible.
If we all had identical values, perfect information, and unlimited time to review it, then yes many things would be possible.
I don't think it is possible for the electorate to provide any more than the most superficial oversight and direction in the US Federal governmental system. It is far too big, and far too distant. And that's even if people agreed on what they wanted. 99% of people are ignorant of 99% of the activities of their elected representatives. My state has more than 5,000 bills proposed per year. Even the full time representatives don't read most of them.
You say it is as simple as voting for the corruption to stop, as if that is even possible. Collective action problems are hard, as information problems. You can't just hand wave them away.
Are you asking why startups need investors? Seriously?
Yeah, if a company is profitable from day one, there is no reason to take investors money. However that happens rarely. And while some people are happy to work without salary in the beginning if they get equity, for others with different risk preferences or life situation it is a big no-go, therefore also different shares of equity and different compensation...
Your insinuation is that a startup that can barely support 1 employee would need 10 employees day 1 instead of growing as it goes. VC money isn’t the only way to expand your business. If you’re not racing to market then there’s really no need to be successful 10+ employee company on day 1.
I agree that early employees need to share in the win. However, this approach has several fundamental problems:
(1) 10 years in, your founding engineers won't have had much more impact than number 4, or 5, or 10. I think you'll have a real problem on your hands when two peers have 100x different equity stake and their tenures are just 1 year apart.
(2) In fact, your founding engineers probably won't be your best or highest impact folks. I much prefer the approach where you give very generous re-ups to your high performers.
(3) Founders and founding engineers are not the same.
(3a) Founding engineers eventually will require market compensation. Founders will not.
(3b) Founding engineers can leave at any time without inflecting the direction of the company. In fact they leave all the time: I've never seen a company where all the founding engs are around 10 years in.
(3c) Founding engineers do not have the investor, customer, and executive relationships that the founders have. An I'm sorry to tell you that those are much more important than engineering prowess.
Equity isn't mainly based on performance. It's based on risk. If I join as the first engineer, before any paying customers, that is in fact worth exponentially more than when there is some revenue, the first cease and desist is conquered, the rest of the core team is put together and working well, etc.
Trusting a potentially insane one-man shop of the founder is way different than trusting a group of 5-10 people who pay rent at the end of the month as proof that the concept might work.
Investors have even less to go on: the founder might be an outright crook and run off to the Bahamas.
(A) I don't know who told you that equity compensation was based on risk, but it's not. A CRO hired at series C will get more equity than any IC level employee hired as employee #1. It's a compensation lever like any other.
(B) I keep hearing people talk about "risk". Is this "risk" in the room with you right now? The reality is that founding engineers at many startups get competitive salary, get to work on incredible problems, and can leave after a few years having vested a bunch of equity and added a solid entry to their resume.
(C) Yes, if you're currently an L6 eng at Google you'd get a pay cut working at a startup. This isn't risk, it's opportunity cost. And guess what: those people very rarely join early stage startups. Those that do negotiate hard and get bigger equity packages. Most early stage startup employees are earlier in their careers / haven't hit the Google jackpot yet.
(I'll set aside the fact that many people leave big tech and join startups for non-financial reasons. Harder to draw generalization about those because the motifivations are so personal, but I know many.)
I've noticed that recruiters recently will use euphemisms for crypto/blockchain/etc. companies in their initial DM and the JD. The only hint might be in the third paragraph, where the word "token" or "chain" is buried in the middle.
> Using a crypto token gives our employees a very important, 10x improvement over traditional stock grants. A crypto token enables continuous, 24/7 liquidity within the first months of the startup's life.
That's not altogether bad (I have always lost with traditional ISOs), but what kinds of coworkers are those kinds of crypto token grants going to attract, and where's the sufficiently long alignment for the coworkers who got skittish early?
> I've noticed that recruiters recently will use euphemisms for crypto/blockchain/etc
I've seen this also, and I think its lame.
This is why at Fetchfox I explicitly use the phrase "crypto token" in the article and in all offers offers to prospective hires. It's a crypto token, so we call it that.
There are a lot of negative associations with the term, but using euphemisms just confuses people and makes it seem like you're afraid or that you're trying to trick them. I say, call a spade a spade, and call Voldemort "Voldemort".
There isn’t a single founding engineer at a publicly traded company that regrets their choice to sacrifice salary at a more stable company for 1% of a startup.
Becoming a founding engineer is a wealth-building, passion-for-your-work risk, not a pure salary optimization decision. HN never seems to understand this. If you’re optimizing for stable salary, go for the FAANG position. You’ll be comfortable, but you’ll most likely never be able to fly private, and you’ll have to be OK existing as a cog in a massive machine. Plenty of people are ok with this. These people should not be founding engineers.
Being a founding engineer is not wealth-building. Only 10% of startups succeed. Of these successes, only a small fraction (likely less than 1%) will be large enough to compensate for missed salary.
I would categorize it more as an extremely high-risk gamble. Actually your odds would be better taking your $3M in FAANG compensation over the same time period and making a 20:1 bet with a 2% chance of winning in Vegas. Probably double your chances of being able to fly private.
While I agree that 1% is low. 25% seems crazy?
There is a lot that goes into a company before the first round is even raised and if you join after that low single digits seems quite reasonable. Often at this stage you will earn more than the founder does in cash to compensate so you take on significantly less risk.
You can work for just equity if you prefer, that's usually what the founders do for the first few months to a year, before there is enough money to pay a salary at all.
I usually make a few different offers that have cash / token allocation tradeoffs. Higher token = lower cash, and lower cash makes you more like a founder.
Just to give a concrete example, for a recent very good candidate, the offer on the high token side was ~20% of the expect total allocation and 150k cash. There is also a higher cash option with lower token allocation.
For less exceptional candidates, the offers are a lower token allocation the equivalent cash.
I'm sympathetic to the sentiment - founding engineers take on much of the same effort and ups and downs as founders, the relative difference in stock is not commensurate with the work.
While I don't like VC math and we (I'm CEO and co-founder) at Aryn AI give more than 1% for founding engineers, numbers like 5% to 25% are really a reflection of the risk and not the work. Prior to an equity round, you can give that away and you're treating the founding engineers like minor founders. Post an equity round, there isn't enough left to give everyone that and still build a decent team.
After an equity round with decent funding for 2-3 years, the co-founders have convinced someone to part with lots of money with no guarantee of an exit. There are innumerable YC startups and well-known VC-backed companies that have been sold for parts. After an equity round, you are joining a startup with some runway that you would not have gotten on your own, and hopefully, working on an opportunity that is outsized. Otherwise, you shouldn't take it.
Outsized means that even if the founders are gazillionaires, you may be 1/20 of a gazillionaire, which is still a gazillionaire. Otherwise, it would have been better for everyone to have worked for some big tech firm anyways. It really is a zero to one game, and you don't get to do it often. So do it if its compelling and fun and the outsized reward is and has always been a lottery ticket.
The point that this article makes is that founding engineers shouldn't accept 1% equity. I think it's more nuanced. I've worked in startups for a long time and my experience is that early engineers are more motivated by the 0 to 1 aspect that by equity. Most of them leave within a few years and do not buy vested equity anyway.
I think the experience and exposure to new tech, new people and the professional growth is what makes it worthwhile for more junior folks.
I agree that for the top engineers that doesn't make any sense.
sometimes "founding" contributors join long after founding.
sometimes they join during funding.
Neither case justifies a number either. Think founding team secures $3M based on something, wants to bring in engineers.
Founder(s) worked for 1 year researching on their own dime.
Then it's also about who bears the load. Founders typically bear the load, if other members do that, they should be cofounders.
Otherwise, it's more or less pareto / power law with a risk adjustment.
If you do the Math, 1% seems fair. The typical YC company raises a seed round at a valuation of around $20M. 1% of that with standard vesting terms equates to $50k/yr.
If the typical founding engineer equity was 5%, that would equate to $250k/yr which would mean most startups would have greater total comp than Google.
As a founding engineer, I do almost the same amount of work as the founder (e.g. 90%), and get only 5% or less of the reward.
If the founder is the main source of capital, I can understand. But if all the founder does is build the product and raise money, how different is (s)he from you?
> As a founding engineer, I do almost the same amount of work as the founder (e.g. 90%), and get only 5% or less of the reward.
If you believe you're doing 90% the work of a founder and getting paid 5%, then you should be an actual founder and get paid 20x as much as you be as a founding engineer
What % of startups fail before they even get to the stage of being able to hire a founding engineer? You can either make the choice to be a founder and start before this selection filter or be a founding engineer and start after the selection filter.
Of course, the odds are not static and some people genuinely do have a better RAROC by being a founder but most people overestimate their founder abilities vs the odds and feel like they're not fairly compensated at 1%, which is fine, most people shouldn't be founding engineers either.
But there's a reason it's equilibrated around the 1% mark because early equity compensation is about risk, not effort.
The 50k/yr value of the 1% equity already prices in future dilution. Just because the equity is going to be less than 1% in the future doesn't mean it's not worth $50k/yr today
Why shouldn't a startup engineer earn more than an engineer at Google? Think about it, they take much much more risk. Their comp can go to zero. It's not liquid like a google engineer. Also they are creating something net-new that can benefit society in the long run. We want, as a society, to reward people for taking those kinds of risks!
In other words, we need more startup engineers and less google engineers.
I would tend to refuse such an offer but not because of an irrational fear of crypto. Rather, I would have very real concerns about the value of the tokens:
How do I know they will be worth anything when the company exits? I probably won't get a contract with the company that tells me exactly how I'll be paid in cash if the company is acquired. Instead, I will get a token that will be bought back by the company at a price set by the company at a time set by the company.
Another similar issue I see is dilution: How do I make sure the company doesn't just issue a billion new tokens so that my tokens are diluted to nothing? How does the token price change when new real shares of the company are issued (presumably investors want to get real shares instead of tokens)?
> How do I know they will be worth anything when the company exits?
They won’t be worth anything. Equity isn’t perfect, but it offers at least the bare minimum of legal protections. Any crypto token will just be ignored by the acquirer (or any present or future company leadership) and you’ll have no legal standing.
I hate to be That Guy, but I strongly suspect the article authors would categorize the very idea of being concerned about the value of the tokens as an irrational fear of crypto. Dilution and contracts are tradfi concerns - what you're meant to understand is that crypto tokens will always go up when their associated projects do well, as a law of the universe.
I think this is just subject to normal market forces and very product dependent?
If you have engineering skills that are not easily found, then you can ask for more. If the founders don't give it to you, then they might not be able to build their idea.
If the product do not require niche or sophisticated engineering, then the founder will just move on to the hordes of candidates that can do the job.
I don't think "fairness" can be intrinsic (nor objective) in a market-driven economy. It's always going to be a push-pull, negotiation, calculating business. And you disenfranchise yourself out of this economy if you don't have the stomach for it.
The bigger lie is that 1% doesn't mean 1% of the total sale price of the company. It means... whatever the founders and investors want it to mean. Every time the startup gets a new investor, the founders print new shares and give them to the right people who deserve it: the new investor, the old investors and the founders of course. The thought of giving more shares to the "founding engineers" rarely crosses their minds and the original 1% quietly becomes 0.1%, then 0.01% and then nothing. If you want a real 1% you need a contract similar to those given to investors.
Dilution does happen, but in good companies, it's not as cynically done as you're describing it. Earlier investors usually demand safeguards to prevent this.
Risk is important, but the value of something is a function of its opportunity cost. In other words, if you think a role is not worth the compensation, simply found your own company. Presumably, if the founding engineer compensation is mispriced, your new company will have an advantage over the others. I suspect most will find that founding a company is actually much harder than being a founding engineer.
Frankly, one of the satisfying things about a free market is that we don't have to rationalize these numbers at all. If the numbers are wrong, the market will select for better theories.
I generally just work for nothing anymore. The personal finance bookkeeping is much simpler: I make less than the federal poverty line, so my minimum mothly payment on my student loan package is zero. As soon as it reaches as much as the poverty line, my minimum monthly payment jumps to $2500. An unrealistic amount. In a few more years, my 25-years will be up, and it all goes away. Of course, I'm already well-past the age that anyone would hire me for my engineering skills, software or hardware. My last advanced degree was awarded in 2006. I got by on community college degrees until rather late in life, and nobody wanted to believe my knowledge was current.
I've never understood how 1% equity to be the first hire is attractive. It's irrational greed. You see stories like Google or Instagram and you think "that could be me". You're more likely to win the lottery than for that to be you.
It's the same thing with crypto bros not wanting to miss the next Bitcoin.
Not only is 1% substantially less than the 33% the last founder got, those shares aren't equal. Voting power, clawbacks, dilution, acceleration on change of control and so on.
Thje most likely outcome is that equity is worth nothing. The next most likely outcome is an acquihire. Participating and liquidity preferences may mean your 1% stake is actually worth $0. Maybe the buyer offers you a new equity package but how is that different from just getting hired directly? Meanwhile, the founders often get huge bonuses (which are really a way of paying the equity holders less) with generous new equity packages (even with earn outs).
If you're good enough to be hired as a founding engineer, you're good enough to be a founder or simply to work in big tech or fintech for $500k-$1M+ a year in total comp with next to no risk. And that total comp beats the expected value of your employee startup equity value by a mile.
Indeed, usually by the time a contractual agreement is relevant the CEO will purge most founding staff, employees often lack funds necessary to properly execute the shares clause, and or the board simply transfers the Assets for $10 to an adjacent entity fudging everyone.
This is why sweat-equity deals are a huge red-flag for terrible arrangements. Mostly these schemes target fresh grads, and the credulous. =3
You and I don't have a meeting of the minds for what a founding engineer is. I understand it to be the first, non-cofounder, salaried engineer. This is the highest-equity receiving engineer-focused early employee. They should be getting a market-ish for a startup salary. In this day and age, in the US, it's probably 150-180k + 1% equity + healthcare.
If you are not making a salary / a well below market rate salary (50k for an engineer), you are a co-founder, not a co-founding engineer.
Either the crypto is not actual equity and is worth nothing. If it’s tight to actual equity, this is an ICO and is now illegal in the US apart if you basically IPO.
The role of founding engineer is generally a rip-off if the salary isn't market rate. If you're not an actual founder, my advice is to ignore the equity entirely, try your best to get market rate, and look at the opportunity as a means to grow. If you can't get close to market rate or you're not breaking into some hard-to-reach industry/vertical that will help your career, then keep moving.
Sort of a side note, but the exit assumptions in this article are naive. If your YC backed company makes an early exit, I'd imagine it's pretty much guaranteed the preferred equity holders are going to get most, if not everything, of the acquisition price.
Also, founders may get some liquidity at funding rounds, but I don't think founding engineers typically get to benefit from these.
Do accredited investor regulations not apply to this market? Is the crypto token a registered security since it apparently represents stock in a company?
I’m turned off because it sounds like the company wants to play fast and loose with money in a way that is more than just “move fast and break things”.
Off topic but on your home page https://fetchfox.ai/ the wider your screen the fewer 'Our Happy Users' anecdotes you get. Somewhere around 2400px the number goes to zero.
Spoke to a co-founder from a YC startup today, and had the exact same thoughts. Why in my right mind would I like to be paid such little equity and salary (38K AED / month)
> Assuming two founders and a 7% stake by YC, the founders retain 48.5% equity.
I think its usually more accurate to state that the company retains some N% of equity, while the founders are granted some further amount M% where M<N. Every company is different, but at least in VC backed companies, you're going to keep dry powder on the cap table to hire employees and prepare for future capital raises. Though, for a very early liquidation event, things are different. The far more common estimate of M that I've seen at liquidation, after enough time and capital injections to get to a $10M+ sale, is like 10-15%. Its pretty rare to see a founder exit at $10M+ valuation with 45%+ of the company still under their control (but, it does happen, for sure).
My biased take is that founding engineers uniquely make ultra-high leverage technical decisions that have the power to save or cost the company millions of dollars, not just in cloud costs but much more importantly in engineer salaries and lost revenue due to an inability to deliver on product priorities. There is no other "founding" role beside the founders themselves which can claim this. Oftentimes, if you come to the "right" side of one of these high-leverage technical decisions a year later, its too late, and the cost-benefit of implementation might fall in disfavor of the expected return.
So, yeah: I am definitely in favor of the idea that 2% is the bare minimum a founding engineer should accept, and something more like 5% is far more fair. I've joined startups as Engineer #6 before, and received something like 0.4%; to suggest that a founding engineer should get as low as 1% is an insult to the positive leverage they can assert on the organization at that stage.
Stop taking the deals :) The problem is engineers are usually risk adverse, and that's taken advantage of. Your skills are far more valuable than you think. Charge what you're worth
FetchFox is inventing a new model for Founding Engineer compensation. Our goal is to solve the problems with the current model from above: disproportionate stake, and improbable liquidity.
This is a glib, but important insight. If the split between founders and early employees is fundamentally off, then we should see many more early employee types start companies and take the other side of that bargain. In fact, they do not!
... I empathize, but it's a voluntary market, so clearly people think it is worthwhile.
The article misses a few details that explain some of the difference. Founders have a lot of responsibility beyond engineering. E.g. they need to raise funds, hire, and go through 20 years of stress in 12 months to make sure the business gets off the ground. They often do not take a salary to make it work out, etc.
A common ratio is ~10% first 10 employees, 10% next 100, 10% next 1000. If the investors take ~30%, and 30% is going to employee equity, then that leaves (with some wiggle room) 30% for founders. It is entirely fair to say that the first 10 engineers take on a huge risk, and deserve more than 1%, but you very quickly run out of company to hand out. For a good founder, it is not worth the loss of family time, stress, and opportunity cost to exit with ~5% equity.
In every equity discussion since, I keep in mind what happened to the employees of Skype[1]. As a "founding engineer", I'm gonna need a lot more than 1% of options that will be worthless if the company fails, and probably worthless if the company succeeds.
When I was in college, I was asked to be a founding engineer. The other two involved were business guys that were pursing a $1Mil grant and needed the MVP in 9 months. I asked for 33% and they laughed me off. A few months later I saw many salty posts on their socials about "engineers expected to own the company when they don't contribute any vision or direction".
It's like captaining a ship and not being willing to repair the ship. Good luck on your own I guess.
It's different when they already have a product and are looking to expand. That's closer to hiring a sailor to manage the sails. But when you're hiring a ship builder expect a ship builders wage.
Also, don't hire a college kid to build your MVP. That's a big enough red flag right there.
> Also, don't hire a college kid to build your MVP. That's a big enough red flag right there.
That seems like a pretty big generalization. I can think of several going concerns where a college kid might have not only written the MVP, but actually what they have in prod. There are tech plays out there where the tech part is embarrassingly easy, the tricky bit is the politics of getting the contract(s).
Example: signing up certain populations for government benefits. Sometimes there's a nice cut to be made and it doesn't take much more than a couple of online forms. The hard part is recognizing the opportunity then getting the deal inked, not the implementation.
While I agree with some points, crypto solution seems horrible. Just give them non voting shares, why do this crypto nonsense?
That said to play the devils advocate, the founding engineer can always leave the company when he wants while the founder is generally expected to sink or swim with the company. If the founding engineer could sign a contract that forced him to work for the 4 year time period, if he refused to work, he would get arrested etc then I suspect his compensation would be much higher. But of course such contracts are illegal
“Even mature startups have thin liquidity. When I worked at 23andMe, we had a once a year liquidity event, and you had to sell a large number of shares with high fees. If you missed the event, you had to wait a whole year before you could sell again.”
Post Series C startup equity is almost universally more liquid than a shitcoin.
> To illustrate this in dollar terms, consider an acquihire exit. At 1% of $10 million, the acquihire nets the Founding Engineer around $100,000, enough to buy a nice Tesla. Meanwhile, the founders net $4.8 million, enough to buy a house in Palo Alto, a small yacht, and two nice Teslas.
I stopped reading after this paragraph. Why to take advice from articles that is presenting delusional scenario about the returns? $100k after tax is good enough for Model 3.
Found the catch.