by michaelochurch
culled from:wordpress.com
What I’m about to say is true now, as of July 2012. It wasn’t
necessarily true 15 years ago, and it may not be true next year. Right
now, for most people, it’s utterly correct– enough that I feel compelled
to say it. The current VC-funded startup scene, which I’ve
affectionately started calling “VC-istan”, is– not to be soft with it– a
total waste of time for most of the people involved.
Startups. For all the glamour and “sexiness” associated with
the concept, the truth is that startups are no more and no less than
what they sound like: new, growing businesses. There are a variety of
good and bad reasons to join or start businesses, but for most of human
history, it wasn’t viewed as a “sexy” process. Getting incorporated,
setting up a payroll system, and hiring accountants are just not
inspiring duties for most people. They’re mundane tasks that people are
more than willing to do in pursuit of an important goal, but starting a
business has not typically been considered to be inherently “sexy”.
What changed, after about 1996, is that people started seeing “startups”
as an end in themselves. Rather than an awkward growth phase for an
emerging, risky business, “startup” became a lifestyle. This was all
fine because, for decades, positions at established businesses were
systemically overvalued by young talent, and those at growing small
companies were
undervalued. It made economic sense for
ambitious young people to brave the risk of a startup company. Thus, the
savviest talent gravitated toward the startups, where they had access
to responsibilities and career options that they’d have to wait for
years to get in a more traditional setting.
Now, the reverse seems to be true. In 1995, a lot of talented young
people went into large corporations because they saw no other option in
the private sector– when, in fact, there were credible alternatives,
startups being a great option. In 2012, a lot of young talent is going
into startups for the same reason: a belief that it’s the only
legitimate work opportunity for top talent, and that their careers are
likely to stagnate if they work in more established businesses. They’re
wrong, I think, and this mistaken belief allows them to be taken
advantage of. The typical equity offer for a software engineer is
dismally short of what he’s giving up in terms of reduced salary, and
the career path offered by startups is not always what it’s made out to
be.
For all this, I don’t intend to argue that people shouldn’t join
startups. If the offer’s good, and the job looks interesting, it’s worth
trying out. I just don’t think that the current, unconditional
“startups are awesome!” mentality serves us well. It’s not good for any
of us, because there’s no tyrant worse than a peer selling himself
short, and right now there are a lot of great people selling themselves
very short for a shot at the “startup experience”– whatever that is.
Here are 7 misconceptions about startups that I’d like to dispel.
1. A startup will make you rich. True, for
founders, whose equity shares are measured in points. Not true for most employees, who are offered dimes or pennies.
Most equity offerings for engineers are, quite frankly, tiny. A
“nickel” (0.05 percent) of an 80-person business is nothing to write
home about. It’s not partnership or ownership. Most engineers have the
mistaken belief that the initial offering is only a teaser, and that it
will be improved once they “prove themselves”, but it’s pretty rare that
this actually happens.
Moreover, raises and bonuses are very uncommon in startups. It’s
typical for high performers to be making the same salary after 3 years
as they earned when they started. (What happens to low performers, and
to high performers who fail politically? They get fired, often with no
warning or severance.) Substantial equity improvements are even rarer.
When things are going well in a startup, the valuation of the equity
package is increasing and that
is the raise. When things are going badly, that’s the wrong time to be asking for anything.
There are exceptions. One is that, if the company finds itself in
very tough straits and can’t afford to pay salaries
at all,
it will usually grant more equity to employees in order to make up for
the direct economic hardship it’s causing them by not being able to pay a
salary. This isn’t a good situation, because the equity is usually
offered at-valuation (more specifically, at the valuation of the last
funding round, when the company was probably in better shape) and
typically employees would be better off with the cash. Another is that
it’s not atypical for a company to “refresh” or lengthen a vesting
period with a proportionate increase. A 0.1% grant, vesting over four
years, can be viewed as compensation at 0.025% per year. It’s not
atypical for a company to continue that same rate in the years after
that. That means that a person spending six years might get up to 0.15%.
What is atypical is for an employee brought in with 0.1% to be raised
to 1% because of good performance. The only time that happens is when
there’s a promotion involved, and internal promotions (more on this,
later) are surprisingly rare in startups.
2. The “actual” valuation is several times the official one.
This is a common line, repeated both by companies in recruiting and by
engineers justifying their decision to work for a startup. (“My total
comp. is actually $250,000 because the startup really
should be
worth $5 billion.) People love to think they’re smarter than markets.
Usually, they aren’t. Moreover, the few who are capable of being smarter
than markets are not taking (or trying to convince others to take)
junior-level positions where the equity allotment is 0.05% of an
unproven business. People who’ve legitimately developed that skill (of
reliably outguessing markets) deal at a much higher level than that.
So, when someone says, “the
actual valuation should be… “,
it’s reasonable to conclude with high probability that this person
doesn’t know what the fuck he or she is talking about.
In fact, an engineer’s individual valuation should, by rights, be substantially
lower
than the valuation at which the round of funding is made. When a VC
offers $10 million for 20% of a business, the firm is stating that it
believes the company (pre-money) is worth $40 million
to them. Now, startup equity is always worth strictly
more (and
by a substantial amount) to a VC than it is worth to an engineer. So
the fair economic value (for an engineer) of a 0.1% slice is probably
not $40,000. It might be $10-20,000.
There are several reasons for this disparity of value. First, the
VC’s stake gives them control. It gives them board seats, influence over
senior management, and the opportunity to hand out a few executive
positions to their children or to people whom they owe favors. An
engineer’s 0.1% slice, vesting over four years, doesn’t give him
any
control, respect, or prestige. It’s a lottery ticket, not a vote.
Second, startup equity is a high-risk asset, and VCs have a different
risk profile from average people. An average person would rather have a
guarantee of $2 million than a 50% chance of earning $5 million, even
though the expected value of the latter offer is higher. VCs, in
general, wouldn’t, because they’re diversified enough to take the
higher-expectancy, riskier choices. Third, the engineer has no
protection against dilution, and will be on the losing side of any
preference structure that the investors have set up (and startups rarely
volunteer information pertaining to what preferences exist against
common stock, which is what the engineers will have). Fourth, venture
capitalists who invest in highly successful businesses get prestige and
huge returns on investment, whereas mere employees might get a
moderate-sized windfall, but little prestige unless they achieved an
executive position. Otherwise, they just worked there.
In truth, startup employees should value equity and options at about
one-fourth the valuation that VCs will give it. If they’re giving up
$25,000 per year in salary, they should only do so in exchange for
$100,000 per year (at current valuation) in equity. Out of a $40-million
company with a four-year vesting cycle, that means they should ask for
1%.
3. If you join a startup early, you’re a shoe-in for executive positions. Nope.
Points #1-2 aren’t going to surprise many people. Most software
engineers know enough math to know that they won’t get filthy rich on
their equity grants, but join startups under the belief that coming into
the company early will guarantee a VP-level position at the company (at
which point compensation will improve) once it’s big. Not so. In fact,
one of the best ways
not to get a leadership position in a startup is to be there early.
Startups often involve, for engineers, very long hours, rapidly
changing requirements, and tight deadlines, which means the quality of
the code they write is generally very poor in comparison to what they’d
be able to produce in saner conditions. It’s not that they’re bad at
their jobs, but that it’s almost impossible to produce quality software
under those kinds of deadlines. So code rots quickly in a typical
startup environment, especially if requirements and deadlines are being
set by a non-technical manager. Three years and 50 employees later, what
they’ve built is now a horrific, ad-hoc, legacy system hacked by at
least ten people and built under intense deadline pressure, and even the
original architects don’t understand it. It may have been a heroic
effort to build such a powerful system in so little time, but from an
outside perspective, it becomes an embarrassment. It doesn’t make the
case for a high-level position.
Those engineers
should, by rights, get credit and respect
for having built the system in the first place. For all its flaws, if
the system works, then the company owes no small part of its success to
them. Sadly, though, the “What have you done for me
lately?”
impulse is strong, and these engineers are typically associated with how
their namesake projects end (as deadline-built legacy monstrosities)
rather than what it took to produce them.
Moreover, the truth about most VC-funded startups is that they aren’t
technically deep, so it seems to most people that it’s marketing rather
than technical strength that determines which companies get off the
ground and which don’t. The result of this is that the engineer’s job
isn’t to build great infrastructure that will last 10 years… because if
the company fails on the marketing front, there will be no “in 10
years”. The engineer’s job is to crank out features quickly, and keep
the house of cards from falling down long enough to make the next
milestone. If this means that he loads up on “technical debt”, that’s
what he does.
If the company succeeds, it’s the marketers, executives, and biz-dev
people who get most of the glory. The engineers? Well, they did their
jobs, but they built that disliked legacy system that “just barely
works” and “can’t scale”. Once the company is rich and the
social-climbing mentality (of always wanting “better” people) sets in,
the programmers will be replaced with more experienced engineers brought
in to “scale our infrastructure”. Those new hires will do a better job,
not because they’re superior, but because the requirements are better
defined and they aren’t working under tight deadline pressure. When they
take what the old-timers did and do it properly, with the benefit of
learning from history, it looks like they’re simply superior, and
managerial blessing shifts to “the new crowd”. The old engineers
probably won’t be fired, but they’ll be sidelined, and more and more
people will be hired above them.
Furthermore, startups are always short on cash and they rarely have the money to pay for the people they
really
want, so when they’re negotiating with these people in trying to hire
them, they usually offer leadership roles instead. When they go into the
scaling phase, they’re typically offering $100,000 to $150,000 per year
for an engineer– but trying to hire people who would earn $150,000 to
$200,000 at Google or on Wall Street. In order to make their deals
palatable, they offer leadership roles, important titles and “freedom
from legacy” (which means the political pull to scorched-earth existing
infrastructure if they dislike it or it gets in their way) to make up
for the difference. If new hires are being offered leadership positions,
this leaves few for the old-timers. The end result of this is that the
leadership positions that early engineers expect to receive are actually
going to be offered away to future hires.
Frankly put, being a J.A.P. (“Just A Programmer”) in a startup is
usually a shitty deal. Unless the company makes unusual cultural efforts
to respect engineering talent (as Google and Facebook have) it will
devolve into the sort of place where people doing hard things (i.e.
software engineers) get the blame and the people who are good at
marketing themselves advance.
4. In startups, there’s no boss. This one’s patently
absurd, but often repeated. Those who champion startups often say that
one who goes and “works for a company” ends up slaving away for “a boss”
or “working for The Man”, whereas startups are a path to autonomy and
financial freedom.
The truth is that almost everyone has a boss, even in startups. CEOs
have the board, the VPs and C*Os have the CEO, and the rest have actual,
you know, managers. That’s not always a bad thing. A competent manager
can do a lot for a person’s career that he wouldn’t realistically be
able to do on his own. Still, the idea that joining a startup means not
having a boss is just nonsense.
Actually, I think founders often have the worst kind of “boss” in
venture capitalists. To explain this, it’s important to note that the
U.S. actually has a fairly low “power distance” in professional
workplaces– this is not true in all cultures– by which I mean bosses
aren’t typically treated as
intrinsic social superiors to their
direct reports. Yes, they have more power and higher salaries, but
they’re also older and typically have been there for longer. A boss who
openly treats his reports with contempt, as if he were innately
superior, isn’t going to last for very long. Also, difficult bosses can
be escaped: take another job. And the most adverse thing they can
(legally) do is fire someone, which has the same effect. Beyond that,
bosses can’t legally have a long-term negative effect on someone’s
career.
With VCs, the power distance is much greater and the sense of social
superiority is much stronger. For example, when a company receives
funding it is expected to pay
both parties’ legal fees. This is only a minor expenditure in most cases, but it exists to send a strong social message:
you’re not our kind, dear, and this is what you’ll deal with in order to have the privilege of speaking with us at all.
This is made worse by the incestuous nature of venture capital, which
leads to the worst case of groupthink ever observed in a supposedly
progressive, intelligent community. VCs like a startup if other VCs like
it. The most well-regarded VCs all know each other, they all talk to
each other, and rather than competing for the best deals, they collude.
This leaves the venture capitalists holding all the cards. A person who
turns down a term sheet with multiple liquidation preferences and
participating preferred (disgusting terms that I won’t get into because
they border on violence, and I’d prefer this post to be work-safe) is
unlikely to get another one.
A manager who presents a prospective employee with a lowball offer
and says, “If you don’t take this, I’ll make a phone call and no one in
the industry will hire you” is breaking the law. That’s extortion. In
venture capital? They don’t have to say this. It’s unspoken that if you
turn down a terrible term sheet with a 5x liquidation preference, you’re
taking a serious risk that a phone call will be made and that
supposedly unrelated interest will dry up as well. That’s
why VCs can get away with multiple liquidation preferences and participating preferred.
People who really don’t want to have “a boss” should not be looking
into VC-funded startups. There are great, ethical venture capitalists
who wouldn’t go within a million miles of the extortive shenanigans I’ve
described above. It’s probably true that most are. Even still, the
power relationship between a founder and investor is far more lopsided
than that between a typical employee and manager. No manager can legally
disrupt an employee’s career outside of one firm; but venture
capitalists can (and sometimes do) block people from being fundable.
Instead, those who really want not to have a boss should be thinking
about smaller “lifestyle” businesses in which they’ll maintain a
controlling interest. VC has absolutely no interest in funding these
sorts of companies, so this is going to require angel investment or
personal savings, but for those who really want that autonomy, I think
this is the best way to go.
For all this, what I’ve said here about the relationship between
founders and VCs isn’t applicable to typical engineers. An engineer
joining a startup of larger than about 20 people will have a manager, in
practice if not in reality. That’s not a bad thing. It’s no worse or
better than it would be in any other company. It does make the “no boss”
vs. “working for The Man” selling point of startups a bit absurd,
though.
5. Engineers at startups will be “changing the world”. With
some exceptions, startups are generally not vehicles for world-changing
visions. Startups need to think about earning revenue within the
existing world, not “changing humanity as we know it”.
“The vision thing” is an aspect of the pitch that is used to convince
22-year-old engineers to work for 65 percent of what they’d earn at a
more established company, plus some laughable token equity offering.
It’s not real.
The problem with changing the world is that the world doesn’t really
want to change, and to the extent that it it’s willing to do so, few
people who have the resources necessary to push for improvements. What
fundamental change does occur is usually gradual– not revolutionary– and
requires too much cooperation to be forced through by a single agent.
Scientific research changes the world. Large-scale infrastructure
projects change the world. Most businesses, on the other hand, are
incremental projects, and there’s nothing wrong with that. Startups are
not a good vehicle for “changing the world”. What they are excellent at
is finding ways to profit from inexorable, pre-existing trends by doing
things that (a) have recently become possible, but that (b) no one had
thought of doing (or been able to do) before. By doing so, they often
improve the world incrementally: they wouldn’t survive if they didn’t
provide value to someone. In other words, most of them are
application-level concepts that fill out an existing world-changing
trend (like the Internet) but not primary drivers. That’s fine, but
people should understand that their chances of individually effecting
global change, even at a startup, are very small.
6. If you work at a startup, you can be a founder next time around. What
I’ve said so far is that it’s usually a shitty deal to be an employee
at a startup: you’re taking high risk and low compensation for a job
that (probably) won’t make you rich, lead to an executive position,
bring great autonomy, or change the world. So what about being a
founder?
It’s a much better deal. Founders can get rich, and they will make
important connections that will set up their careers. So why aren’t more
people becoming founders of VC-funded startups? Well, they can’t.
Venture capital acceptance rates are well below 1 percent.
The deferred dream is probably the oldest pitch in the book, so this
one deserves address. A common pitch delivered to prospective employees
in VC-istan is that “this position will set you up to be a founder (or
executive) at your next startup”. Frankly, that’s just not true. The
only thing that a job can offer that will set a person up with the
access necessary to be a founder in the future is investor contact, and a
software engineer who insists on investor contact when joining an
already-funded startup is going to be laughed out the door as a “prima
donna”.
A non-executive position without investor contact at a startup
provides no more of the access that a founder will need than any other
office job. People who really want to become startup founders are better
off working in finance (with an aim at venture capital) or pursuing MBA
programs than taking subordinate positions at startups.
7. You’ll learn more in a startup. This last one can be true; I disagree with the contention that it’s
always
true. Companies tend to regress to the mean as they get bigger, so the
outliers on both sides are startups. And there are things that can be
learned in the best small companies when they are small that can’t be
learned anywhere else. In other words, there are learning opportunities
that are very hard to come by outside of a startup.
What’s wrong here is the idea that startup jobs inherently more
educational simply because they exist at startups. There’s genuinely
interesting work going on at startups, but there’s also a hell of a lot
of grunt work, just like anywhere else. On the whole, I think startups
invest less in career development than more established companies.
Established companies have had great people leave after 5 years, so
they’ve had more than enough time to “get it” on the matter of their
best people wanting more challenges. Startups are generally too busy
fighting fires, marketing themselves, and expanding to have time to
worry about whether their employees are learning.
So… where to go from here?
I am not trying to impart the message that people should not work for
startups. Some startups are great companies. Some pay well and offer
career advancement opportunities that are unparalleled. Some have really
great ideas and, if they can execute, actually
will make early employees rich or change the world. People should take jobs at startups,
if they’re getting good deals.
Experience has led me to conclude that there isn’t much of a
difference in mean quality between large and small companies, but there
is a lot more variation in the small ones, for rather obvious reasons.
The best and worst companies tend to be startups. The worst ones don’t
usually live long enough to become big companies, so there’s a
survivorship bias that leads us to think of startups as innately
superior. It’s not the case.
As I said, the worst tyrant in a marketplace is a peer selling
himself short. Those who take terrible deals aren’t just doing
themselves a disservice to themselves, but to all the rest of us as
well. The reason young engineers are being offered subordinate J.A.P.
jobs with 0.03% equity and poorly-defined career tracks is because there
are others who are unwise enough to take them.
In 2012, is there “a bubble” in internet startups? Yes and no. In
terms of valuations, I don’t think there’s a bubble. Or, at least, it’s
not obvious to me that one exists. I think it’s rare that a person who’s
relatively uninformed (such as myself, when it comes to pricing
technology companies) can outguess a market, and I see no evidence that
the valuations assigned to these companies are unreasonable. Where there
is
undeniably a bubble is in the extremely high value that young talent is ascribing to subordinate positions at mediocre startups.
So what is a fair deal, and how does a person get one? I’ll give some very basic guidelines.
1. If you’re taking substantial financial risk to work at the company, you’re a Founder. Expect to be treated like one. By
“substantial financial risk”, I mean earning less than (a) the
baseline cost-of-living in one’s area or (b) 75% of one’s market
compensation.
If you’re taking that kind of risk, you’re an
investor and
you better be seen as a partner. It means you should demand the autonomy
and respect given to a founder. It means not to take the job unless
there’s investor contact. It means you have a right to know the entire
capitalization structure (an inappropriate question for an
employee, but a reasonable one for a
founder)
and determine if it’s fair, in the context of a four-year vesting
period. (If the first technical hire gets 1% for doing all the work and
the CEO gets 99% because he has the connections, that’s not fair. If the
first technical hire gets 1% while the CEO gets 5% and the other 94%
has been set aside for employees and investors, and the CEO has been
going without salary for a year already, well, that’s much more fair.)
It means you should have the right to represent yourself to the public
as a Founder.
2. If you have at least 5 years of programming experience and the company isn’t thoroughly “de-risked”, get a VP-level title. An
early technical hire is going to be spending most of his time
programming– not managing or sitting in meetings or talking with the
press as an “executive” would. Most of us (myself included) would
consider that arrangement, of getting to program full-time at high
productivity, quite desirable. This might make it seem like “official”
job titles (except for CEO) don’t matter and that they aren’t worth
negotiating for. Wrong.
Titles don’t mean much when 4 people at the company. Not in the
least. So get that VP-level title locked-in now, before it’s valuable
and much harder to get. Once there are more than about 25 people, titles
start to have real value and for a programmer to ask for a VP title
might seem like an unreasonable demand.
People may claim that titles are old-fashioned and useless and
elitist, and they often have strong points behind their claims. Still,
people in organizations place a high value on
institutional consistency (meaning
that there’s additional cognitive load for them to contradict the
company’s “official” statements, through titles, about the status of its
people) and the high status, however superficial and meaningless,
conferred by an impressive title can easily become self-perpetuating. As
the company becomes larger and more opaque, the benefit conferred by
the title increases.
Another benefit of having a VP-level title is the implicit value inherent of being VP
of
something. It means that one will be interpreted as representing some
critical component of the company. It also makes it embarrassing to the
top executives and the company if this person isn’t well treated. For an
example, let’s take “VP of Culture”. Doesn’t it sound like a total
bullshit title? In a small company, it probably is. So meaningless, in
fact, that most CEOs would be happy to give it away. “You want to be ‘VP
of Culture’, but you’ll be doing the same work for the same salary? By
all means.” Yet what does it mean if a CEO berates the VP of Culture?
That
culture isn’t very important at this company. What about
if the VP of Culture is pressured to resign or fired? From a public
view, the company just “lost” its VP of Culture. That’s far more
indicative than if a “J.A.P.” engineer leaves.
More relevantly, a VP title puts an implicit limit on the number of
people who can be hired above a person, because most companies don’t
want the image of having 50 of their 70 people being “VP” or “SVP”. It
dilutes the title, and makes the company look bloated (except in
finance, where “VP” is understood to represent a middling and usually
not executive level.) If you’re J.A.P., the company is free to hire
scads of people above you. If you’re a VP, anyone hired above you has to
be at least a VP, if not an SVP, and companies tend to be conservative
with those titles once they start to actually matter.
The short story to this is that, yes, titles are important and you
should get one if the company’s young and not yet de-risked. People will
say that titles don’t mean anything, and that “leadership is action,
not position”, and there’s some truth in that, but you want the title
nonetheless. Get it early when it doesn’t matter, because someday it
will. And if you’re a competent mid-career (5+ years) software engineer
and the company’s still establishing itself, then having
some VP-level title is a perfectly reasonable term to negotiate.
3. Value your equity or options at one-fourth of the at-valuation level.
This has been discussed above. Because this very risky asset is worth
much more to diversified, rich investors than it is to an employee, it
should be discounted by a factor of 3-4. This means that it’s only worth
it to take a job at $25,000 below market in exchange for $100,000 per
year in equity or options (at valuation).
Also worth keeping in mind is that raises and bonuses are uncommon in
startups, and that working at a startup can have an affect on one’s
salary trajectory. Realistically, a person should assess a startup offer
in the light of what he expects to earn over the next 3 to 5 years, not
what he can command now.
4. If there’s deferred cash involved, get terms nailed down. This
one doesn’t apply to most startups, because it’s an uncommon
arrangement after a company is funded for it to be paying deferred cash.
Usually, established startups pay a mix of salary and equity.
If deferred cash is involved in the package, it’s important to get a
precise agreement on when this payment becomes due. Deferred cash is, in
truth, zero-interest debt of the company to the employee. Left to its
own devices, no rationally acting company would ever repay a
zero-interest loan. So this is important to get figured out. What events
make deferred cash due? (Startups never have “enough” money, so “when
we have enough” is not valid.) What percentage of a VC-funding round is
dedicated to pay off this debt? What about customer revenue? It’s
important to get a real contract to figure this out; otherwise, the
deferred payment is just a promise, and sadly those aren’t always worth
much.
The most important matter to address when it comes to deferred cash
is termination, because being owed money by a company one has left (or
been fired from) is a mess. No one ever expects to be fired, but good
people get fired all the time. In fact, there’s more risk of this in a
small company, where transfers tend to be impossible on account of the
firm’s small size, and where politics and personality cults can be a lot
more unruly than they are in established companies.
Moreover, severance payments are extremely uncommon in startups.
Startups don’t fear termination lawsuits, because those take years and
startups assume they will either be (a) dead, or (b) very rich by the
time any such suit would end– and either way, it doesn’t much matter to
them. Being fired in established companies usually involves a notice
(“improvement plan”) period (in which anyone intelligent will line up
another job) or severance, or both, because established companies really
don’t want to deal with termination lawsuits. In startups, people who
are fired usually get neither notice nor severance.
People tend to think that the risk of startups is limited to the
threat of them going out of business, but the truth is that they also
tend to fire a lot more people, and often with less justification for
doing so. This isn’t always a bad thing (firing too few people can be
just as corrosive as firing too many) but it is a risk people need to be
aware of.
I wouldn’t suggest asking for a contractual severance arrangement in
negotiation with a startup; that request will almost certainly be denied
(and might be taken as cause to rescind the offer). However, if there’s
deferred cash involved, I would ask for a contractual agreement, if
there is deferred cash, that it becomes due immediately on event of
involuntary termination. Day-of, full amount, with the last paycheck.
5. Until the company’s well established (e.g. IPO) don’t
accept a “cliff” without a deferred-cash arrangement in event of
involuntary termination. The “cliff” is a standard arrangement
in VC-funded startups whereby no vesting occurs if the employee leaves
or is fired in the first year. The problem with the cliff is that it
creates a perverse incentive for the company to fire people before they
can collect any equity.
Address the cliff as follows. If employee is involuntarily
terminated, and the cliff is enforced, whatever equity would have vested
is converted (at most recent valuation) to cash and due upon date of
termination.
This is a non-conventional term, and many startups will flat-out
refuse it. Fine. Don’t work for them. This is important; the last thing
you want is for the company to have an incentive to fire you because of a
badly-structured compensation package.
6. Keep moving your career forward. Just being “at a startup” is not enough. The
most credible appeal of working at a startup is the opportunity to
learn a lot, and one can, it’s not a guarantee. Startups tend to be more
“self-serve” in terms of career development. People who go out of their
way to explore and use new technologies and approaches to problems will
learn a lot. People who let themselves get stuck with the bulk of the
junior-level grunt work won’t.
I think it’s useful to explicitly negotiate project allocation after
the first year– once the “cliff” period is over. Raises being rare at
startups, the gap between an employee’s market value and actual
compensation is only growing as time goes by. When the request for a
raise is denied is a good time to bring up the fact that you really
would like to be working on that neat machine learning project or that
you’re really interested in trying out a new approach to a problem the
company faces.
7. If blocked on the above, then leave. The above
are reasonable demands, but they’re going to meet some refusal because
there’s no shortage of young talent that is right now willing to take
very unreasonable terms for the chance to work “at a startup”. So expect
some percentage of these negotiations to end in denial, even to the
point of rescinded job offers. For example, some startup CEOs will balk
at the idea that a “mere” programmer, even if he’s the first technical
hire, wants investor contact. Well, that’s a sign that he sees you as
“J.A.P.” Run, don’t walk, away from him.
People tend to find negotiation to be unpleasant or even
dishonorable, but everyone in business negotiates. It’s
important. Negotiations are indicative, because in business politeness
means little, and so only when you are negotiating with someone do you
have a firm sense of how he really sees you. The CEO may pay you a
million compliments and make a thousand promises about your bright
future in the company, but if he’s not willing to negotiate a good deal,
then he really doesn’t see you as amounting to much. So leave, instead
of spending a year or two in a go-nowhere startup job.
In the light of this post’s alarmingly high word count, I think I’ll
call it here. If the number of special cases and exceptions indicates a
lack of a clear message, it’s because there are
some startup
jobs worth taking, and the last thing I want to do is categorically
state that they’re all a waste of time. Don’t get me wrong, because I
think most of VC-istan (especially in the so-called “social media”
space)
is a pointless waste of talent and energy, but there are
gems out there waiting to be discovered. Probably. And if no one worked
at startups, no one could found startups and there’d be no new
companies, and that would suck for everyone. I guess the real message
is: take good offers and work good jobs (which seems obvious to the
point of uselessness) and the difficulty (as observed in the obscene
length of this post) is in determining what’s “good”. That is what I,
with my experience and observations, have attempted to do.
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10:08
Executive Republic
culled from:startups.co.uk
