Okay, and as someone who has hitherto largely worked at startups (2/3rd of my career), let me tell you the counterpoint.
There is not a lot of risk from your perspective, but there is a large amount of risk for us.
At a startup, you push all you can towards steering the ship in the right technical direction. For example, unlike at a BigCo, you are likely to be that person who will write the technical debt that later-joining younger engineers will call you stupid for, but you did it while producting your startup to scale.
But you only get the pay-out if you actually manage to last until the exit. If you leave before then, because of politics or some failed product push or what-have-you, then you will have to exercise your options, which puts you in a bind in terms of financial risk. If you do exercise, you will be subject to dilution. If you'd stayed at the company, it's often the case that they continue to grant options to employees they want to keep.
So to "make it," you effectively have to grow into a BigCo employee anyway. At that point, what is really the point to working at a startup? Especially since your pay will be like half that of a BigCo? Especially since it's A LOT more stressful? Especially since you actually need your critical thinking skills to compensate for your founding team's shortcomings?
Now at a BigCo, you drink the kool-aid, you jump through the hoops (working at BigCo is more about jumping through hoops because that's how they "scale" things), but if you do all that, you're more or less set. You may have to "work" hard, but your life is on autopilot.
I've had this conversation with lots of folks who've been there, and I myself have helped build one company from the pre-10 engineers phase (more like 3 engineers phase) to something that had a real shot. To be quite frank, the financial incentives are certainly not there, and for most companies I see, I'm no longer sure about the growth/learning incentives either. It's just a bad deal, and you should care because by and large, the smart engineers who can make your boat float aren't going to work for a startup.
> But you only get the pay-out if you actually manage to last until the exit. If you leave before then, because of politics or some failed product push or what-have-you, then you will have to exercise your options, which puts you in a bind in terms of financial risk.
Employee #1 of a startup that sold for 9 figures chiming in. I loved the people I worked with (until we got to around 70+ and bureaucracy/meetings grew), the company had an amazing life/work balance (it was one of their core principles and it was real), I learned a bunch of things (a lot of dead knowledge now though), and it seemed like my best shot for $$ because I knew the product was good. It took a decade to sell. Around year 7 the company started changing and I grew to like working there less, but the possibility of the payout was still my best bet for a pile of cash. It was then that I really felt the golden handcuffs and grew anxious. I couldn't leave and keep my options because of the exercise tax. We finally sold and the amount I got was so embarrassing that they offered me a second pot of cash that was more reasonable, but still a far cry from what the founders got.
I probably could have made the amount over 10 years working for one of the bigs. I will never put on golden handcuffs again.
Not sure how to reconcile the fact that a) you had golden handcuffs because of the exercise tax and b) the amount u got was embarrassingly low. Was your strike price too large or something? Obviously you made a lot of money if you couldn't afford the taxes up front.
Typically exercising options gets taxed as regular income on the difference between option strike price & fair market value.
If OP had something like $300k of options, that'd be about a $100k tax bill assuming the strike price was appropriately low. Not a very big payout on a 9-figure exit, but also not pocket change for the taxes.
Well, if the "9 figure" was 100M, then 300k seems fair, since after 10 years of fundraisings and even minor dilutions, it's very easy and expected to go from 1% to 0.3%.
On the other hand, if the amount was 500M, 300k seems very low, hinting to a final ownership of ~0.06%. If that was true, even after considering all dilutions, that makes me think that OP didn't negotiate a fair equity package to begin with, since as employee #1 you should definitely have at least 1%.
I would love to understand how employee #1 got an "embarrassingly" low amount from a 9 figure sale, especially when you say that the exercise tax would have been high. What was the issue? I can think of:
1) Massive dilution or liquidation preferences?
2) Failure to negotiate significant equity at the beginning of the company?
> So to "make it," you effectively have to grow into a BigCo employee anyway.
Currently at a startup that is angling for IPO and it got very corporate in a hurry. I'm finding it fascinating to experience, but it has more in common with a BigCo now without as much of the upside.
I think that's the other thing that happens, the transitioning to normal corporate practices ends up being a culture shift that ends up breaking a lot of people's interest in an organization. There is a reason why some of the bureaucracy exists at BigCo and people have to experience that in a culture that may be hostile to it. It also in those early stages doesn't have the years or decades of practical application of BigCo processes that have been figured out and tailored specifically to a company in question and there's just teething problems all over that make the whole effort more frustrating as these new business processes get figured out.
So I wrote a longer post about founder risk, but I realized maybe I misunderstood what you meant by this:
>There is not a lot of risk from your perspective
You mean, from my perspective, it sounds like I don't think early employees take on a lot of risk? I wanna be clear: Options are risky. Working at a startup for options is much riskier than taking cash. I hope it doesn't sound like i'm denying that.
If you're making market salary, and you're getting equity on top, then maybe its not so risky. But if you're taking a pay cut for equity in any form, you are absolutely taking a financial risk.
> So to "make it," you effectively have to grow into a BigCo employee anyway.
This is an excellent point. I know quite a few people who joined my company before I did (~50 people when I joined), stayed for a couple years, but didn't have the temperament to grow into the process, politics, and red tape that inevitably started accumulating, and left. Some of them didn't have the resources (or foresight) at the time to exercise their options, and got nothing, even though they put in a couple years when it was very risky to work there. I did stick around for the long haul, and it's paid out very well, but it still makes me a little sad to think of some of the earlier contributors who laid the foundation, but IMO weren't compensated enough for it.
Agreed. I'd also add that there is frankly risk to your resume by working on a failed product that no one has heard of. (Or perhaps it's even worse if it's a failure that people HAVE heard of!) Working at a BigCo at least gives some weight to your resume.
"You may have to "work" hard, but your life is on autopilot."
Mmm... I get what you're saying, and I don't think you're necessarily advising auto-pilot, but I want to put a word out against career autopilot, even in BigCo.
You want to put some thought into your career. I've always got my metaphorical finger in the wind to figure out whether or not I'm working in a part of the company that is rising or falling and taking appropriate steps. Sometimes it's figuring out how to make something falling become something rising by improving alignment, sometimes it's working toward shifting assignments, sometimes it's by shifting companies. Depends on a crap ton of things. Honestly it's just been maybe three or four explicitly-made choices I've made over the past 10-15 years, but it's made a lot of difference with where I am now vs. where I'd be if I just went on autopilot too much. (I know some similar people who did just kinda go on autopilot, and can compare with their results.)
My meta-advice is just to look around and think about where you are and where you are going, though. Even when a company genuinely cares and works with you to develop your career, there's still an irreducible element that is your responsibility.
There is not a lot of risk from your perspective, but there is a large amount of risk for us.
At a startup, you push all you can towards steering the ship in the right technical direction. For example, unlike at a BigCo, you are likely to be that person who will write the technical debt that later-joining younger engineers will call you stupid for, but you did it while producting your startup to scale.
But you only get the pay-out if you actually manage to last until the exit. If you leave before then, because of politics or some failed product push or what-have-you, then you will have to exercise your options, which puts you in a bind in terms of financial risk. If you do exercise, you will be subject to dilution. If you'd stayed at the company, it's often the case that they continue to grant options to employees they want to keep.
So to "make it," you effectively have to grow into a BigCo employee anyway. At that point, what is really the point to working at a startup? Especially since your pay will be like half that of a BigCo? Especially since it's A LOT more stressful? Especially since you actually need your critical thinking skills to compensate for your founding team's shortcomings?
Now at a BigCo, you drink the kool-aid, you jump through the hoops (working at BigCo is more about jumping through hoops because that's how they "scale" things), but if you do all that, you're more or less set. You may have to "work" hard, but your life is on autopilot.
I've had this conversation with lots of folks who've been there, and I myself have helped build one company from the pre-10 engineers phase (more like 3 engineers phase) to something that had a real shot. To be quite frank, the financial incentives are certainly not there, and for most companies I see, I'm no longer sure about the growth/learning incentives either. It's just a bad deal, and you should care because by and large, the smart engineers who can make your boat float aren't going to work for a startup.