I keep seeing people diss startup offers compared to FAANG. The arguments generally fall under 2 categories: 1. Early stage startup shares are worthless because 90% companies fail. 2. Startup offer lower salaries so you'll lose $1M in 4 years had you picked FAANG. Both points are grossly misinformed. Startups backed by Tier 1 VC are not your average "new business in America" and have a very high chance of success. A VC partner looks at 500 to 1000 deals a year and makes 1 to 2 bets. Only the absolute best startups ever get funded. And you see this from historical performance (https://www.cbinsights.com/research/venture-capital-funnel-2/). A company that raised Series A have an 80% chance of either raising Series B or get bought out. Tier 1 VC's portfolios have an even higher chance. Venture-backed startup success rate has been increasing over the past decade as VC starts to see patterns of startups that exited. The fallacy of the 2nd argument is assuming you have to stay for 4 years even when things are bad. Remember that employments are "at will" and when people notice that things are not going well, most just leave and join FAANG. If things are going well, the startup will be raising mega rounds and your equity will be growing 5x each year. In other words, you're only risking at most 1 year of FAANG salary to join a startup, in exchange for very high upsides. Of course, don't join a "pre-seed" stage startup selling pizza that raised $100K from founders' aunts; but if you're offered a chance to join an a16z backed Series A company as one of the first 10 employees, more likely than not you'll have enough money to set up a trust fund in a few years. The point is - startup wealth is disproportionately given to the top 0.1% companies and funding from Tier 1 VC is the exact right filter. For the price of at most 1 year of FAANG salary, you get a very high chance of making trust fund money.
How much is trust fund money? Ballpark
You must know already right? 😉
Costs about $2k to setup a trust fund
I think you make some solid points here. However, even for tier 1 VCs though your 80% figure clearly includes face-saving acquisitions at downround prices, which account for probably half of that. Many of those end up with worthless options unless you are a key employee who gets a retention deal. I think if you can join a series A funded company with tier 1 VC backing and can still be in the first 10 employees and get a reasonable option package and the business model looks credible, by all means, go for it. I would not assume that success rates by no-name VCs are at all comparable, by the way.
Very true so long as the startup has that Tier 1 VC funding. A friend recently talked to me about an offer that included equity, we tried to find any information about funding rounds, nothing to be found on crunchbase, pitchbook, etc. Always important to do your due diligence and make sure the startup is funded by VCs that have a strong track record (like a16z that was mentioned earlier).
As someone that has been on both sides with multiple fails, 1 close call, and 1 successful exit as employee #1—the one thing I will say is that it depends. It’s not as clear cut as what you’ve highlighted, as there are many variables. Regardless of whether the co. was a YC hotshot or venture backed poster child, the way the co. is run over the time you are vesting will impact your destiny. Plus, as an employee of an early co. you are also taking on a much smaller slice of the pie compared to founders and investors. Your equity sits within an entirely different pool of shares, and like other shareholders, are also subject to dilution among other things outside of your control. There are plenty of co. out there that start strong, have great backing, have the TechCrunch headlines, but then stagnate due to industry shifts, cultural challenges, poor leadership, and moats drying up. All of which leave a lot of hardworking early folk stranded high and dry with a lot of wasted effort and no liquidity. FAANG has upside, it is marginally smaller for employees in comparison to that of a startup (and in some cases it’s diminishing) but it is easy and guaranteed, and this is usually the draw. Most folks that work at FAANG are too soft for the startup world, and aren’t cut out for the style of work or risk—hence why they like to justify their decision and TC. At startups the work and environment present you with a lot more autonomy and growth, however, there is no monetary guarantee until the shares have an actual dollar value and the liquidity is there for folks to exercise. Without those, the equity is merely a series of fictional numbers on a screen.
In other words, too afraid to take a risk and reasoning is just an excuse.
100%.
I think you're really disingenuous with some of these ideas. To the point of outright lies or completely misunderstanding how VC funding works. > A VC partner looks at 500 to 1000 deals a year and makes 1 to 2 bets. This is incorrect. A VC partner looks at 1000 deals, funds 3-4, knowing that almost every bet that year will barely break even, and the 1% statistical anomaly will make up for the rest of the bad bets. How VC works is more like a shot gun investment, fund lots of good ideas and hope that one ends up in a 100x payout. Obviously you don't give shitheads your money but there's huge risk here, even a "tier 1" levels. You can see this at the returns for top firms. They make 10-15% return per year. Which is a lot, but if you fund 3-4 firms a year, it means failures, and at a high rate. > Only the absolute best startups ever get funded....the startup will be raising mega rounds and your equity will be growing 5x each year. Yes, at the price of share dilution. This is not clear cut and I don't think you understand financing rounds. At some places, each round has different "rules" that investors follow and it's common to dilute existing shares to reach new funding sources. It's also common to say that investors for some round get 1x, 2x, 3x whatever their return. So if the company sells for less than expected, you are holding the bag and investors get paid first. This is called liquidation preference. > For the price of at most 1 year of FAANG salary, you get a very high chance of making trust fund money. This is so clearly false, I don't even know where to start. Even the top tier startups do not pay FAANG salaries and often under pay by significant amounts, relying on your greed of future options and IPO to tide you over. People talk about how much they made off AirBNB IPO, but don't mention that they are paid 40% less than FB, Goog or other companies. YOY, that adds up, especially given how illiquid options can be. That is not even mentioning the huge risk you take, where to be IPO status is a statistical anomaly. For the lucky few, the math ends up that you basically break even with FAANG, but you grow your career and learn much more. That's the big trade off. If you are the unlucky ones, which you are most likely to be, you took a pay cut for a break even price. Source: I was at a "Top 1% VC startup successful acquisition blah blah" (Sequoia Capital) I received a marginal compensation for my options.
Disagree with your analysis. Big VCs do mean higher likelihood of exit. Regardless of the share dilution, first 100 employees make 10x of top FANG salary. Even new grads could make 10x of L6 G salaries in a couple of years. 0.1% is not a reference for anything. The upside from those "greed of future options and IPO" is so ridiculously huge that the so called 40% cut in salary makes hardly a difference. By the way, 40% is stretching it too much and even you know that. It's more like 10%. Compared to the options value, YOY salary looks like peanuts anyway. Yes, there is huge risk and No, it's not a statistical anamoly. As long as the product-market fit is there and the market is hungry for a new solution, it comes down to the execution. I have seen it first hand. Besides, taking risk is what defines manhood these days. "for the lucky few" - Nope. Not lucky. They took a huge risk and even you admitted that. High risk = High reward. They make way way 10x 20x more than FAANG. You are so disingenuous in your last paragraph.
Your argument is basically: "big vc funds mean big IPO and big rewards" and that's so clearly bullshit. If you look at the top players, their returns are barely S&P 500 levels. https://www.theinformation.com/articles/andreessen-horowitz-returns-slip-according-to-internal-data So how is this possible, if they fund "only the best" but get marginal ROI? Shouldn't we see 100% YOE returns? 200%? The dirty secret of startups is that even at the elite level, most fail. That's true for even the big players like A&H, Sequoia, etc. Otherwise, they'd be making cash hand over fist, which they are not. The math just...doesn't make sense and support any of your arguments. I have no doubt that the person who got the winning lottery ticket tells people that playing it is a good investment. But there are plenty of stories from people who have been funded by top VC firms that have not gotten the magic golden ticket. The upside is great, if you get it, and many don't. So yeah, I am very critical of people evangelizing the startup world, because it's usually just people who have only seen success and not failure. I have seen both, and it's not as clear cut as you make it. Your entire post could be summarized as "I got very lucky, but I refuse to acknowledge this and instead chalk it up to various other unrelated factors that I had no control over" > "for the lucky few" - Nope. Not lucky. This is literally a lie. I don't know how else to say it. Luck is a significant factor.
Only founders and VCs make money. Even if a company "succeeds", whatever that means, beating FAANG numbers need even thinner odds (unless the startup itself happens to be the future FAANG kinda place.) Uber gave me a super low ball offer for $47 a share in 2016 saying it'll triple when they ipo in 6 months. You know the rest. Would you call Uber a startup that succeeded? I know a lot of folks working at FB coming from acquisitions. Many haven't even made back the taxes they paid for options after FB coughed up cash. Not to mention career role growths. I can give you numerous such anecdotal examples.
Joining Uber in 2016 was way too late
Uber in 2016 was a 40+B behemoth, far from Series A that we are talking about here. So it’s not a fair comparison.
These reputable startups also give less equity %. Even with a $1B exit, it’s still questionable whether the first 10 would fare better than at faang
This is key. If you run the expectation (current value ) numbers on what a series A startup would give you in $ worth of equity vs FAANG, it's like 10x less. So you need at least a 10x exit to make it up, which is far less than 80% op quotes. That said there is value in option value, that is startup hopping until you find one that takes off and enjoy the golden handcuffs for a few years.
Given 0.5% of equity for the first 10 employees. You’ll end up with roughly 0.3% after dilution or 3M in case of 1B exit. Obviously that number can be a lot higher, be that exit 2B, 5B or 10B. Obviously you need some luck, but hey, we are talking about 10x more equity comparing to FANG and you never get 10x without a risk.
nonsense. this is simply survivor bias coupled with stupidity
+1 for survival bias
Tech Industry
8h
971
Question about women in their 30’s?
Software Engineering Career
14h
2645
L4 Google -> 45 interviews, 5 offers, AMA
Tech Industry
3h
2572
BREAKING: Internal sources confirm another round of layoffs just hit emails at Tesla. For real.
Tech Industry
9h
911
The man I love hates me because I’m Vietnamese
Tech Industry
33m
462
Google or Amazon
Well said. Blind has a lot of good insights, but is blindsided to the startup world. Blind is obsessed with FANG.