At 150k/yr, to make 600k in a liquidity event, you would need to be holding .5% of a company that sold for $115MM --- or about 5.5 times as much as Flickr. In what valley job do you get a full half point of the company for a 150k dev job? How many companies have sold over the past 5 years for more than $100MM?
I really meant good experienced engineer. Such a person is worth much more than $150k/year, but you can't get much more cash as an employee in a startup (for good reasons). Also, at that level you are getting at least 10% target bonus, and that's included in the number.
Engineers do not make $150K a year at a startup. If you happen to run across this rare event, take the job, live on $40K and bank the rest (i.e. don't buy a BMW). Then, 6-18 months later when the company goes down in flames, you will have more than enough money to start your own company.
If you aren't a founder, the best job to get at a startup is some sort of "VP" role after the series A round. These guys DO get paid $150-$175K a year, get the same number of options as the early stage engineers, and don't have to do as much work. As far as I can tell, their only role is to go to meetings with each other. That said, the mere existence of these employees signals almost certain doom for the startup.
My apologies to the YC founders looking for employees, but being an early stage engineer (not a founder) at a startup is for suckers. You get paid paid $10-$50K less than you could at a big company, and your options are going to be worthless or worth far less than you could ever imagine. If you have an entrepreneurial bent, your best bet is to take the higher salary somewhere else and save money until you start your own thing.
"My apologies to the YC founders looking for employees, but being an early stage engineer (not a founder) at a startup is for suckers."
This is a pretty broad statement that I'd disagree with.
First of all, plenty of startups pay market rate (or close enough to it).
Second (and way more important) most BigCo jobs are woefully bad at preparing you to spin up your own thing. Don't believe me? Come to Seattle sometime and watch how fast all of the Ex-Microsoft entrepreneurs hire "program managers" and VPs. Working in a small startup can teach you a lot about what works (and what doesn't) on a small team with limited resources.
Third, it gets you into the game. You meet other folks who like startups who can be useful later (from co-founders to future hires to investors).
I'm talking about really early stage people... the guys brought on for peanuts and options, pre series A.
- Pre series-A, startups can't really pay market rate, unless they have huge angel investment or the founder is rich and financing the thing himself.
- BigCo jobs probably do encourage the entrepreneurs to do things the same way they did at the BigCo. However, in your example the Ex-Microsoft entrepreneurs are hiring program managers and VPs. Thus, they have enough money to pay these sorts of employees. Which means they got rich at Microsoft or their MS resume point convinced investors to give them money.
- Working in a small startup CAN teach you a lot about what works, but the same thing rarely works twice. Note I'm talking about engineers. All the stuff I learned about server scaling in 1998 wasn't as important in 2008.
- It does get you into the game, but so does being employee number 30 with a comfortable post series-A salary and free backrubs.
Tony, many of the YC aspirants posting here have zero experience in BigCo's or anywhere else --- but we all still buy the idea that they can start a company. I've worked with ex-Microsofties, and I know what you're talking about, but I disagree with the idea that a BigCo job hurts your chances of starting something when the time is right.
This is true if your business plan is a Hail Mary pass for an acquisition by Google, Microsoft, or IBM. That's because the goals of the founders and the goals of the employees aren't aligned; it's broken in the same kind of way as Freakonomics says real estate agents are.
I hope it's not true for startups that aren't drugged out on VC money. I don't know whether it is or it isn't. I can't tell, because I'm one of 3 founders, and the company is pretty much going to do what we want it to.
Everyone says "yeah, but the work is better at a startup". I actually don't know if that's true --- I've been through a lot of startup bitch work (and wiring up yet another web form to MySQL is exactly that), and I've been tempted by some pretty awesome BigCo roles. Our work here is pretty awesome (for instance, we've got people paid to hack on gnuradio), but maybe you can get that same work at Motorola.
This is a huge question and I don't have a good answer for it and I'm glad you brought it up. Outside the get-rich-quick schemes, what can we offer employees of real and lasting value? For a lot of us, it's training and reputation; but I want to keep the talent we're developing.
Really, really, really good engineers with keyword-compliant resumes walk in the door on Wall Street at 175k. I'm having a hard time with your numbers.
Cash compensation, yes. Total compensation -- I am arguing otherwise. SV engineers are asked to take more risk, and perhaps to sacrifice quality of life more. Thus higher expected compensation. That $175k in NY is probably $200k after bonus, so it makes sense that SV would be more.
Another way to look at it is that new grad is now close to $100k. The experienced guy is easily 10 times more productive. But only gets 1.5 in salary. So, he also gets 5-10 times as much equity, and that's valued because historically it made good money.
$115M is still a small exit. A successful VC exit is an IPO or similar size acquisition, meaning $300M+, in many cases quite a bit more. At that level the numbers work out.
Sure, the last 6 years have been tough, but there's been plenty of exits at level. For some of the smaller exits, the earn-outs/retention packages would have also been significant.
A successful VC exit happens once for every 7-10 companies they invest in. That's the model. Adjust your (I think) unrealistic $600k expectation for the risk. Moreover, look at the companies that sold for over $100MM in Tony's list: in how many profitable companies making $35MM/yr does senior engineer #3 or #4 hold a full half point worth of options? The CEO of that company holds 5-6%.
A good engineer has better dealflow than VCs. He can cherry pick companies backed by top VCs, within those he can pick the ones with the best engineering teams, for example.
I didn't mean that you should expect to double the salary for any given job stint. If you consider time horizon of, say 10 years, multiple jobs, 2x salary is quite a reasonable expectation.
If cherry picking worked, VCs wouldn't invest in the "not cherries". Actually, cherry picking does work, but the cherries aren't clear until after all of the big engineer stock grants are gone. VCs get to cut their losses and double-down on their wins. Engineers don't.
Even if engineers averaged as much gain as VCs, the distribution will be different. The typical VC would be close to the average because they get to make 10-20 bets/year while an engineer gets to make <1 bet/year. As a result while the typical engineer would be far below average return. (Yes, a small fraction of the engineers would be ahead, but ...)
