I've come to appreciate that equity for your time !== equity for your money. Take cash in excess of your burn rate in-hand over equity any day. Then take that excess cash and buy equity.
Compared to taking a $250k base and $250k equity offer from a startup, it's substantially better to take a $500k cash in-hand offer from FAANG and use your extra $250k to cut angel checks. Some early-stage startups that try to court you will instead take a $10k check on the spot as an early investment. So not only do you diversify your investments and get a better class of equity with cash, you also get the upside of guaranteed outcomes on a salary.
As a startup founder who doesn't pay himself much, IMO people either care about money or they don't. Depends what you're optimizing for. But if you're obsessed with cash you shouldn't start a company IMO. You're better off working for "FAANG" or whatever the cash obsessed optimizers are calling it these days.
I mean obviously if you start a company you want to optimize for it making profit, but the original goal should be, primarily, totally disconnected from money. Any monetary benefits should be a side effect of providing value. In the most ideal world, your equity turns into cash 10-15 years later, but you shouldn't set out with that being your goal.
My perspective on this is coming from someone who made easy money on a ridiculous business selling proxies to SEO spammers in college, and I didn't know what to do with the money (I spent it all on worthless shit). I've learned I'm much happier when I'm meeting some minimal survival baseline while trying to build a sustainable organization that produces a useful product.
To be fair, not everyone who optimizes for cash is "obsessed with cash" or a "cash obsessed optimizer" -- life circumstances like dependent family, the oppression of college debt, etc make stability of a large corporation attractive to some, even if they would take on risk given other circumstances.
Example: taking 80k/yr out of college while having to retire 2k/month of college debt, then using the rest to afford bay area rent + commuting expenses + rest of life would have been hard and arguably not a good use of a young person's early career phase. They might opt instead to work at a bigco until their debt was sufficiently retired, then with the safety net of {an established career + no debt + some money in the bank} swinging for the fences at a startup later. You're more likely to get leadership roles at startups when you have a few years under your belt anyway.
Oh, totally agree - what you optimize for is a personal preference. I don't have a wife nor kids and that significantly affects the constraints of what I'm willing to do. And I've got nothing against anyone who chooses to work for FAANG, this is just my personal outlook: if you're concerned about money, you should take it from the people willing to pay you for your work. But if you've got an investor willing to pay you to develop something, then you better not be thinking about your own personal "total comp," because you've got (a) employees who need to be paid and (b) investors who want to see your company amount to something. As someone who's never had "a real job," I can promise you - my friend at FAANG contemplating quitting to pursue their own ideas - the grass is always greener on the other side.
> if you're concerned about money, you should take it from the people willing to pay you for your work
I think this is half-right. When I evaluate startups I'm often expecting FAANG pay, but I don't expect some of the benefits. Generally the hefty expectation is in RSUs, because at a FAANG those are almost a third of what I make. I also don't accept inflated future leaning valuations, I rate them at current value. If I'm taking a gamble on a third of my salary I want to put the risk multiplier on that third, so I'll charge more.
Passion can get you so far in startups, but if you're engineer (especially not engineer zero) then you likely won't walk away with much unless you're accurately assessing risk. That said, there's a fair amount of startups that are not worried about having a reputation of early engineers working away with very little.
That said, I still have a mortgage and that's what informs my strategy when dealing with startups. If I didn't have a mortgage, I'd probably accept lower RSUs and a higher cash incentive.
You should pay your employees their market rate. Your risk of going out of business is higher is what warrants the bigger equity.
You spend all this time and salary to build a team that works like a well-oiled machine. It would be a shame to lose them to someone who simply pays the market rate.
Your team is likely going to be working more than overtime helping you build your dream. You should match what FAANG's paying them, if thats your competition for talent.
Yeah, I definitely agree. I'd rather pay a premium to get the best employee and take a discount myself, rather than pay someone below market while paying myself some absurd salary. Frankly I don't care what I pay myself as long as I can afford an apartment and groceries, and so far this has worked out well, as I love the employees we have. If I were exfiltrating a bunch of money for my own salary we would have been out of business months ago.
As a spectator to your conversation, I have to say I like and agree with your general philosophy. While I can't quite put a finger on what I like, I think the gist is operating under assumption of how the world, finances, and incentives SHOULD work, as opposed to how they currently work. And also maybe some dose of minimalism(?). Either way, I wish you all the best in building your startup!
> Some early-stage startups that try to court you will instead take a $10k check on the spot as an early investment.
How often are you seeing these deals?
In my experience, any company raising in increments of $10K is really only doing so as a way to get people invested (literally) so they can continue to hit them up for funding, connections, and networking later on. $10K doesn’t really go very far in terms of paying employees.
Of course that’s fine if it works out that way, but I’ve also seen companies who gather $10K from every random person who can invest end up with some wacky cap tables, which becomes a turnoff to future investors. This creates weird situations where they put a lot of pressure on buying people out of their investments just to clean up the cap table. Again, could be fine for a quick turnaround but it’s not quite the same as investing for the long term.
And then there’s the fact that most angel investments are just going to go to zero, but that’s the nature of the game.
That makes sense if you're optimizing for money. I think a lot of us that do startups actually enjoy the process as well. My years at FAANG were the years I felt the least proud of myself.
Twogler and ex-founder here - I ping-ponged from entrepreneurship to Google to entrepreneurship back to Google again.
I take the opposite approach, but with some caveats. Your financial success in any market is going to come down to information advantage - you need to have better data and better insights on the success of your investment than your competing investors. In general, you have much better data and insight into the risk factors and success probability of your own startup than you do into any startups you angel invest in. You also have better data on your own startup than you do on startups you work for, but probably have better data on how a startup you're employed at is doing than the investors in that startup do. Therefore you can make better choices about where to spend your equity (either sweat or monetary) when you're working for the company.
The major caveat - and one that took a lot of hard lessons for me to learn - is that you have to actually pay attention to that data. If your gut tells you it's not going to work out, cut your losses and find some other opportunity, regardless of sunk costs, how much you might be emotionally attached to the company, how much you love your coworkers, your fear of letting them down, etc.
But similarly, you also end up with a much higher-resolution model of the business world from actually experiencing work at several different startups than you would get from angel-investing in startups. So unless you've previously experienced worked at or founded startups, your angel-investing is basically going to be spray-and-pray, and do a lot worse than investing in your own company stock or even index funds.
The highest cash portion I’ve seen at mid to late stage startups was around 175k for a senior SWE. Equity offered was in the five digits, but I was coming from a boring enterprise company and not a hot FAANG.
Startups do not offer such high salaries. I'd be surprised to find a startup advertise a salary like that. You have to negotiate those salaries.
You aren't negotiating with a startup against their current bank account. Their bank account is only relevant in determining what they can _afford_, not how much they should pay. They should never pay more than they can afford, that's bad for both of you, but beyond that there is no ceiling to how much they should pay.
You are negotiating against the pool of risk-adjusted returns you are going to provide the startup. The more directly coupled you are to their ability to fundraise and generate revenue, the larger the pool of risk-adjusted returns you are negotiating with them against.
If there is a high probability that $10m in value over the next few years will directly result from hiring you, $10m that would be hard to unlock with any other hire, you aren't negotiating a salary anymore. You are negotiating your share of that $10m.
An oversimplified example: Let's say you expect to deliver that over 5 years. A $500k offer that is 50% equity is a 25% share with half paid upfront in yearly installments.
If you close that deal, the company is appraising the expected return of hiring you vs. the risk of the impact to their runway and making the bet that reducing their runway by ~$30k/mo will payoff without them going bankrupt.
I've found this is a good rule to follow in general. I never pay myself with value I don't unlock. I always appraise my salary, contracting rates, etc. by estimating the expected ROI for the work I do and I pay myself out of that. If I overdraw (charge more than the ROI), I won't take the job.
As an aside, this is part of the reason why (I believe) CEOs are so well compensated. They obviously provide value. But that value is incredibly difficult to measure. You know a good CEO is extremely valuable and a bad CEO is extremely expensive, but you don't exactly know how to measure the value they really unlock. So, short of an actual appraisal, they are perceived as infinitely valuable. Since neither side in the negotiation knows the true dollar value of a CEO, they are negotiating against what the company can afford since they both know the company will pay as much as they can afford to get a CEO.
I've come to appreciate that equity for your time !== equity for your money. Take cash in excess of your burn rate in-hand over equity any day. Then take that excess cash and buy equity.
Compared to taking a $250k base and $250k equity offer from a startup, it's substantially better to take a $500k cash in-hand offer from FAANG and use your extra $250k to cut angel checks. Some early-stage startups that try to court you will instead take a $10k check on the spot as an early investment. So not only do you diversify your investments and get a better class of equity with cash, you also get the upside of guaranteed outcomes on a salary.