I think this is a really good argument as why graduated corporate taxes really need to be increased in the US. I'd be curious how productive you felt at each position and if you think the FAANG job is more difficult and stressful.
I'd like to think that no matter which of these paths we chose - the more stressful and risky life or the more secure and corporate FAANG one - we'd all have a chance to live a decent life. I really enjoy working at a small company and we make a notable impact on society, but the money will never approach FAANG levels.
I really think the issue is that many startups don't offer alternative compensation and don't play to their strengths. You can be compensated in other ways, but often I've found much of the work at startups can be no more interesting than their Big N counterparts. Your career growth might also be similar. In theory, for startups, you sacrifice pay for other facets. The reality is quite different.
The work might be similar but you're paid 50-75% of your peers. That was my experience in startup land, at least. Few good challenges or career growth and half of what I felt like I was worth.
I think the benefit of working at startups is similar to the benefit of working for smaller companies in general. With a small team you'll get to touch more of the stack, and maybe even parts outside of your job domain altogether. In my first job I was the 2nd developer, the first was the CIO. In addition to writing most of the code for this project, I set up the entire production network including load balancers, database replication, firewalls, etc. I even picked out our hardware and physically installed it in the rack we rented at a local ATT data center. Now that's an extreme case obviously, but you will never get anything close to that broad of a base of experience working for a BigCo.
Not OP but I've been thinking about this as cofounder of a "hard tech" company. If we live long enough that we're in a position to hire real talent we can't compete on total yearly comp. The business just won't be able to afford a 500k a year engineer for years.
However right now FAANG companies generally do not offer either the following:
- Reduced work weeks
- Remote work
I've talked to several staff and principle engineers who've told me that for the right company they'd take a massive paycut to work remotely 3-4 days a week. I've had the opportunity to work a 3 day week while making enough to support myself and I have to say, it's incredibly freeing. I don't think this is a sensible offering for anything below a Staff engineer, but it could be a promising path to get truly top talent.
I work at one of the FAANGMs and my group of about 700 engineers are all allowed to be 100% remote if they want to be. It’s actually promoted by our leadership.
> I'd be curious how productive you felt at each position
I definitely felt "more productive" at startups since my work felt like it had a bigger impact to the company.
> and if you think the FAANG job is more difficult and stressful.
So far, it feels no more difficult and is stressful in a different way. With a startup, there's the stress of worrying about the company going under. At the FAANG, there's the stress of performing at a high enough level to justify the compensation.
Absolutely, stock options in the US are super strange, they can be performance tied and for non-qualified shares. The thing I'd actually like to see is a better default governance for companies - companies are wholly owned by founders and I think there is just something fundamentally wrong with treating all employees as contractors by default until it's decided to grant them options or actual ownership.
A bunch of people gather together and build a thing - why is the first person to the table the person who takes home all the profit? Sure employees are technically signing away their rights by agreeing to work without being compensated with a portion of their work, but it'd be really hard to actually pursue proportional ownership in the current labour market.
This. There is really no reason a founder deserves as much equity as they generally give themselves (I know the investors also have a say in what an acceptable cap table looks like so it’s not just on founders). If early stage startup founders split equity more evenly I think the numbers would start to make more sense. Maybe like 10% founder, 5% first 5, 2.5% next 5, and then 15% equity pool as you grow from 10 to 50. And that still leaves you with half your company left to raise capital with.
Then there’s advisors and execs. You can enter into an A stage startup as an exec or an advisor and generally expect ~1% equity post dilution. This easily eclipses all but the first few early employees who have been working their asses off with much less comp for a much longer time. Maybe really good execs and advisors are game changers but I haven’t seen it play out in practice. More often than not success of the early few hides failure of the new leadership to do anything remotely resembling what they’re paid so preciously to do.
So in the current market the only valuable part of working at a small gig becomes the alignment of risk profiles and consequential networking, and the do or die environment that accompanies an 18 month runway. I think these are good experiences for anybody to have at some point in their career. But since most people are rational they look at the numbers and it just doesn’t add up.
"deserve" doesn't really mean anything. As for why founders get the most equity, it comes down to the most risk. They have the most to lose and are usually are paid last compared to employees who get cash and benefits. It's easy to claim the profits and yet ignore all the risks and losses incurred by founders.
I've yet to see someone who thinks otherwise actually go out and start a company. Perhaps it's because the calculus changes when it's your business and livelihood on the line.
I’m talking about the equity distribution sub-10 here. What sub-10 employees are getting any more benefits than their founder(s)? Maybe marginally more cash but it’s all still below market so it doesn’t really matter. But most founders I’ve encountered are actually paying themselves more than their early employees because they have to in order to maintain their lifestyle in big city. But they also have remarkably disproportional slices of equity.
If a founder is investing large sums of their own cash it’s because they have that luxury. And I don’t think that’s actually very common. More often a founder drops some sweat and cash to incorporate and then maybe isn’t getting paid much while they pitch for seed capital but they’re doing so because they can’t afford to take no salary for very long. Even if you occasionally do see founders who’ve “killed” themselves for their cause, most of the founders I’ve encountered actually come out of cushy jobs where they essentially moonlit as a founder until they met someone willing to blow a few MM their way. In my opinion this type of story does not justify such disproportional equity distribution.
At this point I honestly think telling founders that they take on so much risk and should retain such a large portion of their company because they did all the hard work is a somewhat subversive tactic used by investors who want to retain control over their investments. It’s a lot easier to reason with a single founder than 5 large equity holders.
I think founders deserve a lot. I don’t think the typical founder deserves 10 times the equity of sub-10 employees. I think you’d see more people willing to join early stage companies if the attitude around equity shifted.
It doesn't mean anything because its a completely subjective moral judgement. There's no global arbiter of what people deserve.
And again, if you think founders should take less equity then you're free to start your own venture and show everyone how well it works. I've yet to see single example of this though. If it's so easy to start a company without risk and get rich then what's stopping anyone else?
Do you realize VC companies are less than 1% of all the small businesses out there? Most entrepreneurs are not well-connected wunderkind raising millions, they're just normal people busting their ass and risking everything they have to start and grow a business. Reality is much harsher than some wishful thinking.
I don’t understand the “if it’s so easy then go do it” argument. Personally I’m interested in founding something at some point in my life. And I’d much rather do it with a group of people who I’ve shared more equity with. But that’s not the point at all.
In this thread we’re talking about what stops people from leaving their cushy jobs at big corp to join a small gig where apparently the talent is sorely needed. My response to that is, “if it’s so needed then speak with equity and more favorable comp strategies that are more likely to pry those smart people out of FAANG’s grip”. If the world needs a few principle engineers for some incredible new idea then surely the world can find the capital to fund the equivalent of a few 500k salaries for a few years—whether it’s with more cash or more generous equity or both.
It’s a two way street. Every time I hear someone lament about the dying startup scene my response is generally that humans are acting rationally and the industry has realized that the ~0.2-1% equity offered for positions 4-10 at a small gig is not really worth the sacrifice required unless some other stars align (mega exciting domain, super unique opportunity, write off as professional development).
So either the startup industry is dying and all the good talent is locked up in FAANG. Or maybe startups don’t need principle engineers and 0.1% talent in the first place. It’s probably some of both.
And I’m certainly not sitting in a pile of my own self entitlement at FAANG thinking, “if you want me pay me more because I’m hax0r”. I’ve made my own sacrifices to be a part of growing a small company. We’re in a specialized domain where finding the right talent is especially difficult. I’m unable to fault anyone for rationally biasing towards more comp and stability and less stress. So when the topic comes up I like to remind people that the status quo equity/comp strategies that you see at most places are a little dated and despite it being (as it seems) somewhat presumptuous of me, suggest that founders might be biased towards overvaluing their own contribution to the cause. If the cap tables were a little looser I think you’d see the scene perk up again...
My replies are regarding your statement that founders "deserve" less, especially the rather extreme quote of 10%. That's nowhere near viable considering the effort and risk involved, and why I suggested you try it and show us.
And if most startups fail, why is equity worth so much to employees? Who wants to be paid in worthless options? This is the other common fallacy I see. Startups can compete by offering cash and better benefits like work flexibility. Equity rarely moves the needle and doesn't suddenly make people better workers either, regardless of all the hype leadership blog posts about ownership.
Some people respond to the increased responsibility and will always work at startups. Some people always want the big corporate gig. Neither will change much based on equity. What startups are competing over are the mostly average workers in the middle that could be swayed with the right offer, but there's not really a global shortage, just with hype FAANG workers (who are no longer 0.01% quality or anywhere close). You can get great people anywhere and plenty of startups have figured that out.
> And again, if you think founders should take less equity then you're free to start your own venture and show everyone how well it works. I've yet to see single example of this though.
This topic was covered in Episode 3 of Gimlet Media's "Startup" podcast[1]. He ended up do a 50/50 equity split. They seem to have done well for themselves[2].
Of course I am! But I don’t want to found a company just to found a company. We’re talking about attracting talent to small companies. I’m offering my perspective on why joining a small company doesn’t make tons of sense with the status quo equity packages and sub-market salaries offered. There’s some good discussion on another post about this exact problem and it seems, at least, that VCs are starting to come around as well and there is productive discussion about alternative early stage plans/strategy for capitalizing in a way that can attract top talent from big companies. I’m not founder bashing please don’t take my comment the wrong way.
Employees get cash, that's the compensation like any other worker.
Why should equity be a default option? Most startups fail so that's like saying workers should get something that has a high probability of being worthless while suffering all the tax implications. If anything equity should be decreased. Startups are better off competing on cash and other benefits like work flexibility and increased responsibility.
A business needs cash to operate. It doesn't matter what talent you have if you can't pay them. Startups die when they run out of cash, not because they couldn't hire anyone.
Startups offering more cash has no implication that they must generate revenue (although that's obvious to building a good business). The point is that operational costs exist - and so a business must already have cash to exist - and increasing costs for better salaries and benefits is a better trade-off than increasing equity which is mostly worthless anyway.
Also global tech talent has more supply than demand once you get past the SV/HN bubble. No serious startup has failed because they didn't get the perfect engineer.
Customers care about solutions to their problems, not the engineering behind it. Many VC funded startups with the latest AI tech have failed because they never actually served the customers. Meanwhile there are millions of profitable small businesses running with simple boring tech that works enough to provide value to their clients.
Engineering talent is in oversupply across the US and definitely across the globe. You can easily hire PhD level talent from Brazil or India. Also FAANG companies have long ago exhausted the best talent available. Most of their hires at this scale are no better than engineers elsewhere, it's more about the interview process, benefits, location and internal politics than raw quality now.
I'd like to think that no matter which of these paths we chose - the more stressful and risky life or the more secure and corporate FAANG one - we'd all have a chance to live a decent life. I really enjoy working at a small company and we make a notable impact on society, but the money will never approach FAANG levels.