Does an average startup make financial sense for a very senior engineer?

Nov 14, 2018 162 Comments

I am new to the interview game after many years at one place. My TC is a bit over 350k a year, Bay Area. I applied at a few startups. All liked me. However, the best they can offer is 200k cash + ~0.3% at series B or A. If I run the numbers, these startups need to be worth about 1bln on exit for me just to break even. I am not even adjusting for risks and the misery of becoming poorer (albeit temporarily).

I am puzzled. Does it mean that an average startup makes economic sense only for second-tier developers or junior developers? Or that people don't run not-so-difficult calculations (standard rate of return on extra cash invested) and get sold on a bad deal?

It looks like at my level my choices are limited. It has to be a tier1 company or a Unicorn close to an IPO.

I appreciate any advice. Thank you.

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TOP 162 Comments
  • LinkedIn YVmc82
    The trade off of working at at startup vs. a large company is always going to include a drop in TC. For some the cultural and technical differences are worth it, for others not. Dan Luu wrote a good article on this.
    Nov 14, 2018 12
    • Lyft csDu30
      It’s an efficient market, big corps need to pay more because they’re such a miserable places to spend your precious time
      Nov 19, 2018
    • Google isthecoast
      Is working in startup so much better really? I always thought startup is yet anothet shithole with lower TC and prestige unless you are one of the founders.
      Nov 19, 2018
    • Microsoft BADC0DE
      That is a huge sweeping statement. I know places in a big corp that are great to work in, and startups where people are miserable. Thing with bug corps though is that you aren’t nearly as locked in to move (within the company, or even out as most RSUs have vesting measured in months) whereas in startups you don’t (no liquidity, and if you want to keep options as you leave you have to buy (and be taxed) on them with no idea how much they will be worth, nor when).
      Nov 19, 2018
    • Pinterest Impressed
      This is just a sign of how hot the private markets are. Valuations and expectations are super high for these startups and few are doing the calculation you just laid out. Sure, people will join some for passion/experience, but they certainly don’t make economic sense for most senior professionals assessing risk/reward
      Nov 19, 2018
    • Jeff, is that really you? Lol
      Nov 23, 2018
  • Uber / R&D jidao
    If you didn't adjust for anything then redo the maths, 0.3% x 1B/4y = 750k/y
    So sure you need to adjust for probable dilution, risk and delayed cash. But without adjusting you only need an exit at 200M, depending on the startup it could be a lot of nothing at all...

    So startup is for ppl who don't need the money right now, can do better math than you do, and who likes to gamble a bit.

    FYI, I was at a startup for 2y and exited with 700k on my shares, my base was low though, still I got 500k/y for those two years, so sometimes the gamble pay off a bit (disclaee, survivor biais...) And yes I'm sure many ppl on blind got even better outcome, but many more got nothing out of a startup... So yes it's a gamble
    Nov 14, 2018 25
    • Facebook FbECS
      @incognito I want in on this startup
      Nov 19, 2018
    • OP
      @FbECS: the one where for the price of a burrito you get 700k? I want there too. This is not mine, thought, but jidao's.
      Nov 21, 2018
    • Amazon Jeimd23js
      10% return consistently on the market is impressive. Did you invest right after the 2008 crash and get out a few months ago? If so, good timing.

      One important detail people sometimes miss doing the startup calculations is liquidation preference. There may be only so much left over at certain exit prices. But also people fail to factor in that there can be secondary markets for internal shareholders. Not sure how common this is, but does offer some potential for liquidity without a financial exit.
      Nov 23, 2018
    • OP
      I am buy and hold generally speaking. I have a separate trading account, but still I am net long there. So, no, I rode the 2008, although I had less money then.

      One point to keep in mind is that valuations of startups are directly correlated to my 10% target. If I am not getting 10%, startups are failing or valued lower probably as well.

      Doesn't selling in these secondary markets come with deep discounts?
      Nov 23, 2018
    • Amazon Jeimd23js
      Secondary markets are doing a risk/value trade-off as well, so they’re looking for upside. As I recall, most sales into secondary markets end up needing to be approved by the current Board. I did it at the startup I was at. Company had a successful exit at about 2.5x what I sold for. But it was dicey and the company had seriously considered selling below liquidation preference which would have sucked.
      Nov 23, 2018
  • Uber (Admin)
    Only join a startup in which you believe and for which you will work passionately.

    Don't do it just for cash.
    Nov 14, 2018 15
    • Uber / R&D jidao
      You discounted the equity by inflation, an 1B exit in 4y is not as rare as today, and way more likely than 10y ago...

      What about those 500M, where does it come from? Do you really need 50M a year?
      Nov 14, 2018
    • OP
      As I wrote earlier, I walk away from 810k after 4 years. I use future value because this is the most natural for this audience. This is how startups market to you their package. You then divide 810k/0.0020 to get 400m valuation just to break even.

      I then looked at whether I believe that that startup will be liquid at 4 years at 400m. I didn't see this.

      Your last paragraph is not what I was saying.

      My calculations account for inflation. They are in future money. You can easily go from there to today's money. I leave it to to you to calculate.
      Nov 14, 2018
    • Uber / R&D jidao
      My bad I misread the 500M, I thought you wanted 500M :)

      500M exit is not much in some field, if it was a sure thing every one will be doing it, it's a gamble, if you already have enough in your bank account to retire with a decent life you might be looking for a jump and not an incremental gain.
      Once again money is not linear, your first million is worth more than when you have 10...
      Nov 14, 2018
    • Google / Eng
      actim

      Google Eng

      PRE
      Nvidia
      actimmore
      I wonder if the startup needs to be worth 400m after 4years. What happens with your stake if you leave after 4y but wait 6 more years to sell? Surely a pre-IPO startup is going to increase in value faster than the broader market which appreciates 10% so waiting helps here? Is it not practical due to some restrictions on the startup options/stock that force you to forgo their value/exercise/sell your options?
      Nov 18, 2018
    • OP
      Dilution is one problem. You are right, thought, that leaving soon is a good strategy to consider. I considered joining for one year, but this felt risky. There is a chance in my mind that I won't be able to recover my income. Still, leave after 1-4 years should be considered seriously.

      As I noted in this thread, I found a startup where I can work part-time off regular hours. This look like a better deal than the above.
      Nov 21, 2018
  • Broadcom Ltd. rFkd21
    Fiscally speaking, joining a startup almost never makes sense.
    Nov 14, 2018 0
  • This comment was deleted by original commenter.

    • OP
      Totally agree. The big problem is a tiny share of the business given to labor for hire. In reality, startups can not give more: 1% to each only hires 100 people. People value excitement pretty high, it seems. Also, in my experience hiring managers pray on to be employees by promising unattainable valuations (at which point offers make sense)
      Nov 14, 2018
    • Apple Gg56fh
      Employee equity is diluted any time they need more money from investors.
      Nov 18, 2018
    • OP
      I get the dilution part. You will likely receive additional grants. In my evaluation I was assuming that my share remains constant as these two cancel each other. Granted, it is likely that the share of the company I own may shrink at the time of exit.
      Nov 18, 2018
    • Facebook 🤡town
      In reality you never get enough grants to avoid dilution.

      Also, if you are talking 2 year exits then you are also only 50% vested.

      I've not been able to make the math work out for myself. Once you have stable TC for L6+ at FANG, no startup as a non C-level employee is worth it.
      Nov 18, 2018
    • Microsoft / Eng JuicyFruit
      Founder or Faang. Anything else is for fun not profit.
      Nov 18, 2018
  • Apple vLwd48
    Last startup that tried to get me offered base + guaranteed cash bonus of 250k annually + stock to match my then Apple Pay. Absent the cash it made no sense. Don’t do it unless you know it’s a unicorn startup. A lot of startups are full of folks that didn’t hit big in a large company
    Nov 14, 2018 10
    • Google isthecoast
      @JuicyFruit but then why are at MS now?
      Nov 19, 2018
    • Uber / R&D jidao
      Startup make him progress in his career to get a much better title at Microsoft?
      Like going to University is a loss of money for the years you're in the university, but over time you might be winning... It's an investment
      Nov 19, 2018
    • OP
      I would join a startup in a heartbeat if my TC was 200k and a startup offered 200k+equity. This thread is about giving up cash flow today for capital gains in the future, plus experience.
      Nov 20, 2018
    • Amazon Jeimd23js
      I do think joining a well-managed startup can be good for your career. You learn a ton and build a network into the startup world. If the startup ends with a good reputation for having a good team, then more doors open down the road.

      I think you should consider pushing harder on the salary side. VCs understand top talent can’t always afford to take a big pay cut.
      Nov 23, 2018
    • Proofpoint / Other gaaandu
      The key, as stated above is management. There are lots of awesome technical startups with scary bad management. Most will crash and burn.
      Nov 28, 2018
  • New NullSet
    An “average” startup shouldn’t make sense to anyone. If you don’t believe in where you work, gtfo.

    And all you “focus on TC” people suck. There’s more to work than pure payment. Jesus fuck.

    Startups can’t compete with RSUs, and are usually not profitable. It’s a risk based on potential and love of the work. If Immediate TC is all that matters to you, fuck off back to FAANG.
    Nov 18, 2018 4
    • OP
      I have never said that I compare my current TC with a startup until liquidity. Rather, I intentionally pick up future time when startup shares are liquid and then compare two scenarios (stay v.s. join them). I believe that even unicorns cannot compete with tier1 public companies in year one for a senior IC.
      Nov 18, 2018
    • No shit. So, if that’s your priority, go back to FAANG.
      Nov 18, 2018
    • New / IT rcafelanrd
      Unfortunately NullSet, money makes the world go around. While, I hope it changes like you do; I have to agree with Cato. Startups are part time work. And I found that out the hard way. Never again.

      Lower TC, but your network grows. Growing a network is not worth it. And meeting people is something you can do at a bar after work.
      Nov 19, 2018
    • Lyft crossfire
      @nullset or @chlamydiac - chill bruhs. Start ups are not charities. It's an efficient labor market, and employees trade effort for reward. Nothing wrong with op/employees doing a risk reward analysis just like employers doing it. If startups want to compete for talent, they need to find ways to reward in other ways that the faang corps can't compete. It could be $, but that's not the only way.
      Nov 19, 2018
  • Facebook / Other
    ParrotBug

    Facebook Other

    PRE
    Google
    ParrotBugmore
    Don't join a startup if part of the decision making is money.
    What makes sense for a very senior engineer is to find another very senior engineer (or something else?) and solve a problem they're both passionate about, and found a startup. Odds at success are similar (or higher)
    Nov 14, 2018 3
    • Google Mqaz12
      It's best to find 1-2 cofounders with complementary skillsets (as opposed to the same skillset).
      Nov 18, 2018
    • Facebook / Eng
      onlysmellz

      Facebook Eng

      PRE
      Facebook, Google, Snapchat
      onlysmellzmore
      Like the cofounders at your company?
      Nov 18, 2018
    • Lyft crossfire
      This makes sense. Only Co founders might make bank or learn a lot. Either way it's still better than the other employees who get chump changed and trade pay cuts for experience along the ride.
      Nov 19, 2018
  • Uber / Eng DgoQ22
    When I was in school. My class did an exercise on calculating usual equity allocations for founders, first 5, 10 and later employees. The result is that it never makes financial sense to join as an employee in an early stage startup because you are taking on almost just as much risk as the founders, but a much sharper drop off in potential reward. You either be the founding team of an early stage startup, or don’t join one if you care about money.
    Nov 19, 2018 0
  • New hWhJ88
    If you hate money and enjoy working 60+ hrs/wk, startups are awesome.
    Nov 18, 2018 0
  • AT&T JgfX18
    I’ve done 3 startups and worked for a very big company for $200 k TC. Go with the cash always. Cash-poor startups live on deceiving people who are already too greedy.
    Nov 18, 2018 0
  • New AFQu71
    If you cry 200k TC is poor while working for startup then you are not a startup material. Join Microsoft it's good for dinosaurs. :)
    Nov 18, 2018 1
    • OP
      I have a Bay area mortgage, single payer. I am frugal, but ~ 1/2 income cut is not negligible. In reality, the cut is times more, if you evaluate it on a "free cash" basis, i.e. your cash per year, less mandatory expenses like mortgage, car, food...
      Nov 18, 2018
  • Amazon / Eng mrAmaze
    It clearly CAN be worth it. Think about it this way...nobody ever became a billionaire by working at a big company! In fact, VERY FEW become BIG TIME millionaires (like $20M+) being employees of big companies. Even the ones who do, have to work until they’re 70 years old and make wise investments + get pretty lucky.

    However, if your goal is to retire at 45 with $20M+ then your only hope is to get in with the right start up or start your own company.

    I personally have no interest in working my entire life away, and I’d therefore rather strike out several times batting for that $20M early retirement. In the long run, if it all goes to shit, I know I can always go work at a larger company and still likely have enough for retirement by 70 anyway.
    Nov 18, 2018 7
    • Amazon / Eng mrAmaze
      Also like you said, you could always choose a larger “start up” who is getting closer to IPO and has some guarantee of making money (like Uber).
      Nov 18, 2018
    • New / Eng cato
      It is basically a lottery
      Nov 18, 2018
    • Amazon / Eng mrAmaze
      No, it’s not lol...with the lottery you can do nothing to increase your chances. Working at a start up, you can do research about the market the company works in and make an appropriate decision. Working there, you will also have a say in aspects of their day to day operations. You’re basically investing in the company with your work rather than your money. VC’s are making a similar investment as yourself, except they are investing with money rather than work. If investing in start ups was like the lottery then do you really think VC’s would ever invest in them??? Absolutely not!
      Nov 18, 2018
    • New / Eng cato
      So maybe it’s more like a casino. Big difference 🤷‍♂️
      Nov 18, 2018
    • OP
      VCs get much bigger, meaningful portion of a company. VCs share is also protected against a dilution. VCs have a portfolio of companies. They only need one Unicorn or poni-Unicorn in their portfolio to succeed.
      Nov 21, 2018
  • New / Eng
    ioctl

    New Eng

    PRE
    Qualcomm
    ioctlmore
    Worked at two startups so far in Bay area - one successful and one not so great. You should join startup to gain fasttrack experience and/or change areas of expertise. View it like - a paid, hectic masters program. Do you need it ? If yes, go ahead it is better than university masters in terms of money and learning. If you do NOT need it, do not join. Financially, in my mind, it is crystal clear - working for a startup makes zero sense. No matter what the founders say 😃
    Nov 21, 2018 2
    • Apple Gg56fh
      Very useful perspective. Thanks!
      Nov 21, 2018
    • Pinterest Rainin
      Even for the one that exited successfully? How about unicorns or late stage preipo companies?
      Nov 23, 2018
  • Cisco Ard
    Never unless you are a founder. Maybe you will break even as the first hire. Otherwise being in a big company is almost the same wealth (and most importantly health wise) Cheers ! btw never join a first time founders startup
    Nov 18, 2018 0
  • Amazon vPza48
    If startup is paying you 200K and showing exit plan of 1M, they are trying to fool you. I remember good start ups pay around 500k in Bay Area.
    Avoid such startups, only stupid will go to startup with less pay.
    Nov 18, 2018 4
    • Zillow Group CTmV86
      I guess I’m stupid.
      Nov 18, 2018
    • Facebook ijPJ70
      I'd be interested to know which startups pay 500k because I haven't seen anything close to that.
      Nov 18, 2018
    • Marvell 88sd22hj
      No startups pay 500K. Worked in several.
      Nov 19, 2018
    • Facebook FbECS
      If you include uber, lyft and airbnb as 'startups' then yes it's possible
      Nov 19, 2018
  • PayPal wpwH00
    No. Focus on TC if you’re senior. 99.99% of startups don’t pay out. Even less make it to $1B valuations. 99.99% of founders screw over there team thinking they are more important than the folks who helped get them there. You most likely don’t have enough leverage to structure a contract in your favor or even have mutual consideration

    If you’re junior the technical breadth you gain from a startup is invaluable.
    Nov 18, 2018 2
    • Apple Gg56fh
      I can understand that a VP of Sales to get to 100MM ARR or a CFO to prep for IPO would have something the founders need. And therefore have leverage when negotiating comp. Is engineering talent more fungible?

      In a tech startup, what kind of skills could a very senior engineer have that would compel founders to offer sizable cash/equity? Unless they have the experience of building a team, a reputation in their domain, or track record of designing wold class infrastructure, what circumstances might give a senior engineering candidate sufficient leverage to negotiate attractive comp?
      Nov 18, 2018
    • PayPal wpwH00
      Almost no circumstance. How many companies need the ideal solution to move the business forward? Also technical founder has/should fill roles you mentioned above wrt engineering.

      How to measure your worth... if you don’t join that company what happens to the company? If you where at the company for 2 years and left. What impact would it have on current and future projects.
      Nov 18, 2018
  • Amazon Spock78
    “misery of becoming poorer”. You make way more than enough. Get off your entitled high horse. If you want to do something different do it. When you make that much and you complain about becoming poorer you miss so much.
    Nov 19, 2018 0
  • Airbnb i5overpass
    Are you seriously complaining about a tad under a quarter of a million dollars?
    “Oh noooo they’re offering to pay me pennies and hot dog water with a bonu KC a photo of a hotdog.”

    I don’t feel sorry for you at all.
    Nov 18, 2018 0
  • Apple Okidoki
    Once a person reaches financial independence, $ becomes less important than what else they get out of the job. For many they don’t just stop working, they want to keep challenge themselves, possibly do good for the world and just cover their ongoing expenses (knowing they already have a stash/investments they can rely on and don’t need to grow much). Startups can offer some options to these types of folks.
    Nov 19, 2018 3
    • TriNet AYwy24
      I hope I reach that level soon then
      Nov 20, 2018
    • Dropbox / Eng hd8FK
      Unfortunately startups usually come with long hours and a lot of stressful ups and downs. There’s definitely a trade off between finding something fulfilling (e.g tackling a tough challenge), vs something that makes you happier (e.g having dinner with friends).
      Nov 21, 2018
    • Apple Okidoki
      hd8FK, it depends on whether you feel like you can walk away at any moment (being FI helps) and whether you care about the outcome so much you voluntarily exchange long hours for a dinner with friends. I stopped working long hours because “my management wants it” early enough in my career, it just never paid off. If there is an emergency type of situation then I make sure to get a flexible work day or time off next week. I work to live, I don’t live to work.
      Nov 22, 2018

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