This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.
This reminds me of how I have seen a few asks lately for roles where a company is looking for a CTO for their “AI startup”. How an “AI startup” (whatever that might actually mean) can _start up_ without a CTO is beyond me, and raises some very big red flags about what that company might be up to.
Mostly someone has a Phd and convinced people to give them money to 'change the world', then need someone who has actually built things beyond a script in a python notebook.
Gosh. So much this! The difference between the "average" PhD graduate in data science and the "average" software engineer with genuine experience delivering production software that people use at scale is quite something. I have nothing against data scientists, but in the same way that I wouldn't get a software engineer to build a complex model (above a certain level of complexity), neither would I get a data scientist to build a production app (above a certain level of scale). Both of these things are specialist activities that require a lot of experience, wisdom, and nuance to get right. Being good at one does not (necessarily) mean you will be good at the other.
It’s not necessarily a red flag. Sometimes the founder/CEO is technical and decides to solo it with hired engineers until not having a real CTO is a flight risk, or until they’re too busy to be contributing code anymore, or both.
That is fair, assuming the CEO is technical, or technical _enough_. However, I see a lot of non-tech CEOs trying this on and in those cases, it is a red flag for me.
There are a lot of "tech businesses" that are actually using pretty pedestrian tech. What they are _actually_ doing is business model innovation with an underlying tech platform. Often, that tech platform can be commodity or relatively simple tech. There are other startup propositions, though, where the tech _is_ the thing, and if you get the tech right, then some of those other things end up being secondary (not irrelevant, of course) just not primary. This is assuming that you really have punched a hole thru the door with some amazing deep tech breakthrough, which not every company is doing, contrary to what they may claim.
There is a YouTube video [0] (which goes back to 2019) that does a pretty good job of making this point. Well, much better than I can.
To be fair to your original point: you're right that marketing and sales are hard. I'm just adding the subtlety that there are some tech businesses where the tech is _also_ hard, and perhaps even harder.
I don't think we disagree. There are definitely deep tech businesses that are very hard to pull off.
My point is - asking "how did they do it without a CTO" is weird, they are hiring a CTO to do it, and they're bringing their business experience and funding - valuable stuff that a tech guy probably finds annoying. The number one suggestion on this forum is to sell before building and when somebody does it, users get wide eyes?
I guess it comes down to what "it" is. My sense (and this is just a personal orientation) is that if a CEO came to me and said, "Hey, I need a CTO for this new business I'm building", the very _next_ thing they say is really important.
If it is a) "Right, I've had this braingasm, and you need to build it, and for the privilege, you get 5% of the company!" versus b) "Right, I've had this idea, done some market validation, lined up our first 3 customers, and now we need to do some technical feasibility and put a team together to build this, and as CTO, I need a 50/50 founder, what do you say?" then I will pick b) over a) every time.
To be fair, those scenarios are cartoons on purpose, but I just wanted to make the point by highlighting the extreme cases.
As far as "sell before you build" goes, I think that really does depend on the problem you're solving. If it's a tech-powered business model innovation (where the tech is a commodity), then we are in 100% agreement. If the tech is a bit trickier and you need to show something special before funding (let alone clients), then I take a slightly different tack.
I'm not sure I get the last point about wide eyes, but I suspect it's immaterial to the bigger point.
Interesting... My initial reaction about the startup looking for a CTO was the same as yours. I was a founder and CTO, so it seems odd that you would not already have that in the mix... however I can see how there could be an idea, a market, a sales strategy, and a tech idea without the actual tech. In that case you would need to find a CTO to build that tech.
Of course the real gotcha is that there is no 'idea, market, sales strategy' that will be perfect, and the work is finding out where those ideas are wrong and fixing them. The lessons from my successes and failures says it is only worth doing that as a founder, because the failure risks are both high and unpredictable. Time is expensive, so spend it where there is both risk and reward, not just risk.
The most successful startups that haven't been founded by technical people I have seen usually didn't even have much of an idea - but they had customers and kept talking to them and created a product vision out of that. All startups should be doing that.
I recently applied to a seed stage YC company that was offering me 1.5% equity for a founding eng role which they felt was generous. So basically I get to do all the work for like 1/50th of what the founder has? Get real lol. I even pointed this out to them and they said "it's totally normal, that's the way it's done". Like oh okay, as long as everyone else is getting ripped off too.
I went through exactly the same discussion in my last job search, and was assured that the offer was in line with industry standards. Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever. I liked the team and I think it would have been a fun job, but not quite fun enough to work nearly for free. I don’t think I’ll ever work for an early startup as an employee.
I recall a discussion where a founder kept insisting that a 10% offer for a pre-funding startup was beyond standard and that I should be lucky to get such an offer.. the experience left a bad taste in my mouth.
Ultimately, this individual needed someone to shape and build the core of their product and the net of a series B would have been at most a wash compared to current employment.
> Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever
this is why they don’t belong in start up land
running and working in a start up requires a certain type of insanity
The OPs complaint is not that the risk is high, the OPs complaint is that the risk relative to their market rate is not balanced. Often you can end up working for junior founders and would be better off as a founder yourself.
If the founder views you as replaceable, then why not work at a big tech which would pay you dramatically more? Successful startups are not often populated by the irrational.
> So basically I get to do all the work for like 1/50th of what the founder has?
Who raised the money that the company is using to pay salaries? When investors put money into a seed company, they're largely betting on the founders' perceived skillset and previous experience (or other bona fides like education).
One thing that most people don't realize is that being a founder means that you're inextricably tied to the company for its lifespan. Losing a founder is terrible optics and can be a death sentence for a startup. Regardless of the actual reason, every subsequent investor conversation will involve an explanation of what happened.
If you want more equity, you should ask for it! And you definitely shouldn't take a job where you'd feel under-compensated! But realistically, if you want a "founder-level" equity, you have to start your own company.
In my opinion, you should take the difference between their market salary and the salary they're being offered, and consider that an investment by the employee at the upcoming (not past) valuation.
For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (Of course if they already have the YC investment, then that would go down dramatically)
If that equity vests over 4 years, then frankly maybe 28% is a better starting point.
But what's fair isn't really relevant. What's relevant is what the market demand and supply is. If there's some dolt who would happily take 1.5% as a first engineer ("founding engineer") for a $125k salary cut, then the founders would be idiots not to take that deal. And frankly, if that $125k salary cut gets them their dream job, then maybe they're not even dumb for doing it.
I think what you are actually describing is that you should value equity at zero. If to work at a startup you would need 28% equity you are describing a founder. That's fine but there is an enormous difference between these two things. There is also the question of where the $125k comes from to pay your base.
Value equity at zero? I am not sure what you mean by that. If an employee sacrifices $500k to work at your company, then it would make sense to compensate them with $500k worth of equity is my point. The 28% is tongue in cheek, if you're so early that the amount of equity needed to compensate your first hire adequately is 28%, your company hasn't really started yet, and maybe you should just consider them a founder.
Bingo - if you need the kind of person whose market rate would be 28% of your company. They are a founder, if your don’t need that person… fine, but the “this is the industry standard” line is bogus.
In my experience, "fair" is almost irrelevant within a capitalist business.
Good capitalist businesses buy at the cheapest price they can, and they owners focus on balancing competing resources (control, dividends, ownership, status, information, etcetera...). However: people run businesses and people are not rational economic actors.
A good question is: what amount of equity can you negotiate? What do you have that will convince owners to share their ownership with you?
If you are negotiating with VC, then I think the game board and the rules of the game are already rigged against founders and employees. VC sets the rules and the mileau to play the long game, and employees are lucky to get a few leftovers.
You can be a founder or join a self-funded startup, that will give you a better chance of "fair" treatment, especially if you have the skills to join people that have high integrity.
In theory if you can marginally add 10% to the business value you should be able to argue to get some amount of that. However measuring an individuals effect on a business is usually really difficult (even consultants or businesses that specialise in increasing value usually only capture a tiny percentage of the value they add).
Also different people bring different resources to a business, and anyone with a monopoly on a resource can negotiate for more shareholding. There are idealistic economic theories for how people should bid in multi-party negotiations. Note that even though multiple people may each increase the value of a business by more than 50%, that doesn't mean each should get 50% of the shares (and obviously can't if more than two want >50%).
Generally if you need to ask for shares then you have already lost the game. Either found a business and put yourself in charge, or have something the owners want and demand ownership.
Disclosure: made small amounts of money as part of a self-funded startup joining high integrity co-founders. I've had little experience of VC funded companies or employee shares. Our SaaS business was doing something we'd done before and it was started decades ago when things were "easier".
> a lot of early stage founders looking for a "founding engineer"
I always just assumed that the Entrepreneur, Founder & CEO had come up with an amazing idea like "build an startup (Ai probably) that makes a lot of money" and got some funding - but don't know what software is, don't know how to code and isn't really sure what Ai is does or can be used for; so need someone to put the pieces together to execute their vision with (for) them.
Opportunity to get in the ground floor with a future Unicorn - must have 25 years experience, Salary $25,000, 2% equity with 5 year lock-in.
Having been in this exact position multiple times now (once quite successful, others not), you should probably consider it a wash.
Unless the company hits unicorn AND your shares become liquid (secondaries don't count—you generally won't be able to sell enough shares to make a meaningful dent), you'd make just as much or more at a FAANG firm with way less risk.
Of course, I say this while not at a FAANG firm, because I prefer startup type work.
> So you would get paid like at another company but get equity on top and it's not a good deal? How comes?
If it were truly market rate (total comp not just base salary) then sure, it's a good deal. How likely are you to find that in an early startup? It must be pretty close to zero percent chance. But if you find it, sure, it's good.
You'll still work harder and be more stressed but it'll be a different learning experience which is always nice.
A lot of it comes down to management/team quality. Do you want to spend an awful lot of time with these folks? Do you think you'll learn from each other? Do these folks seem to know what they're doing and are the building a product that interests you? If you can say yes to most (all?) of those questions, then all-in-all, it's probably a wash. If not, run.
Depends on the options available to the candidate. Typically someone joining a startup very early probably has the skill to get FAANG salaries with less stress and more free time. There are also hundreds or thousands of mid size companies that pay very well nowadays, its not just FAANG.
Yeah but smaller startups might be more open to non-US applicants, FAANG and other more established companies don't seem to be interested in hiring abroad.
That's what makes the early startup scene the only thing available for some.
How come? Most large companies have big legal/HR departments that are very efficient at the whole visa application process. A small company won't have that expertise/staff. I mostly see startups being more concerned about the visa status of applicants.
Remote + non-US is not as welcoming, so the hurdles are way higher as it's not fitting the usual way. While startups have no prior experience anyway, so it's easier to convince 1-2 people instead of changing a whole system (I believe).
Most early stage companies turn out to be poor companies for employees. Long hours, toxic leadership, unclear roadmaps etc. Working at a small firm doesn't guarantee high quality.
I was recently faced with this exact offer at seed stage vs a series B with a similar salary. YMMV but what I found when I ran the numbers is the series B offer had a lottery ticket with a similar risk/reward profile to the seed stage. Of course I got less total equity, but it was way more likely to ever actually materialize. Plus being employee 80 at a Series B is a lot easier.
Leveling up seems like a good reason for someone who’s stagnating at a bigger company. My experience is startup people want to recruit their most respected former colleagues, who by virtue of being respected are also getting promoted in place.
Titles obviously don’t transfer back to big companies, we had plenty of ex-cofounders and CTOs hired into the same junior roles as anyone else who could LeetCode.
It depends on the role and company, if you want to get paid 200k per year for the opportunity to do X - then sure. In practice, you may end up doing basic work at a lower quality than a large firm. Such experience doesn't translate the up-leveled title to a more standard position.
And at a large corp you can get laid off just as easily. Any business can toss you out at a moments notice. It's not unique to startups.
At least with a startup you are going into it knowing that you have a higher probability of thing going south financially. With a big company, you might not get any warning at all.
If the salary is market rate for that person, I suppose it's by definition a fair deal. I've seen startups hire "founding xyz" two years after they started. Looks to be a vanity title in many cases.
Total comp needs to be market rate, not just salary. And non-preferred shares should be valued lower than preferred stock. Lumping non-preferred shares with prefereed shares is one of the bigger lies startups tell employees.
>> What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?
OR....you could just become a founding engineer by actually founding and keep 90% of the equity. You can get that salary with an equity raise, its worth not being the low-person on the totem pole.
But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that.
So I am not sure it's that easy.
Of course, the idea is to keep the same work/life balance one would have at a more established company.
It is that easy. Employee 1 is getting paid below market. That’s why they offer 0.9% equity. Meanwhile, the founders are also getting paid. No one is working for free. One of the first things VCs tell you is to make yourself comfortable so you can concentrate on the company. That’s literally one of the reasons why VCs tell founders to sell equity early, to make up for lost income, while Employees 1+ has to ride the rocket into the ground.
