Does an average startup make financial sense for a very senior engineer?
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.
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
Thanks for sharing. Assume pay cut in cash of 165k, 4 year exit, 3% cash increase, 10% market return, 6 month reinvestment for cash, 12 month for 3% delta. After 4 years this is 810k. At 0.25% equity, maintained, this is 324m valuation just to break even. Time is key here. I would take a job if I knew it will be 2 y. exit. More than that and your calculation is not so simple because you have to discount future money appropriately (or, do how I showed by calculating true value of money you walk away from)
Startup is for gamblers who are optimistic. Given the way you do math, it is definitely not for you
Only join a startup in which you believe and for which you will work passionately. Don't do it just for cash.
Do you care that you will lose money in the end? I hope I can have both: a job I like, but without paycut. Ultimately, it is a job and not a hobby.
You'd be taking a gamble: if it works, you're set for life; if it doesn't, oh noes, $200k base.
Fiscally speaking, joining a startup almost never makes sense.
Don’t know what u r really struggling at...u know exactly what u gonna expect from joining startup these days. U join startup only if u are at lower level and want a step up or u are financially stable that u can take risk investing into a product/business u are interested in
I am fine with risk. I don't see corresponding reward (with e.g. 0.25% ownership). Risk-adjisted reward appears to be small here. I see better investment opportunities with much less work (e.g. stock/bond market investments).
Then dont go. No one is going to persuade you to go to a startup if you want to go. Not sure what you're looking for.
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
Your last 2 sentences is also my view exactly. Not clear what you meant by "Absent the cash...". Cash you would have to forgo at Apple?
I was paid 250kTC at Google 😥, went to a startup, exited 2y later with 500kTC for these 2y (yes I got lucky), my next gig I had a TC of 400k+TC because of my experience start-up. Don't undervalue the potential growth for your career
Still would be a tough sell due to the tax hit of exercising unless you know with some degree of certainty there will be an exit within 4 years. But at series A/B that’s not likely at all.
Some startup offer early exercise making it even better on the tax side than your RSUs
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)
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)
Employee equity is diluted any time they need more money from investors.
No it doesn't unless you are also a time traveller.
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.
I can understand that some people are fine if they get less TC, counting liquidity event, for their time at a startup. I personally have hard time seeing that I will be happy under this assumption. I suppose that I value money more than some others and I work primarily for TC.
If you work primarily for TC, then startups are not for you.