This is why if you're joining a startup as an employee you should ask for either a competitive market salary or real equity (not the insultingly low amount that normally gets offered as equity -- an actual stake).
I think a lot of people join startups and take a bad deal because they think the company will take care of them when the company makes it. Or they think they'll have more opportunity for promotions in the startup because of its small size and their early stake. The problem is usually executive roles are filled from outside the company rather than from internal promotions, and as this article illustrates, the founders don't necessarily care about the people at the bottom until it's bluntly pointed out to them how mass departures could fuck up the business.
I'm curious for you to expand on what you mean by real equity? I was hired as the first backend developer at an enterprise startup last August. they told me they were securing next round of funding (all family money so far) by end sept/oct and at that point id get market salary (Ive been at ~40% less since hire). in november when it was clear we wouldn't have the funding or revenue to raise salaries, I negotiated another point in equity and higher six figure salary when we do get funding/or revenue. we agreed (me and CEO) that we would reevaluate things in April. now it's almost June and I still held off on having our next talk bc even though we launched a month ago, were still another 1-2 months away from realistically getting revenue. I am at 2% equity which he says is more than any other employer but I'm not sure what my next move is. I'm senior level full stack and do much more than I was hired for from client to backend to devops and helping lead. if I stay longer, how much equity should I go for? again I was told my salary would go to market by sept/oct last year prior to me starting... thanks!
Yeah... all those promises were what are technically known in the industry as "lies". You will never see a market level salary or even a raise, and once that 2% equity has been through dilution it will be more like 0.2% at most. Sorry, but there's no way this situation will play out well for you. Another thing you probably don't want to hear is that you are not "senior level" if you lack the experience to have figured this out for yourself. Not even close.
You can learn from this and never be played like a sucker again, but many people it takes 2 or 3 goes around to realize. But it's fine for the CEO, there'll be another 22-year-old around to take this deal in a year.
> Another thing you probably don't want to hear is that you are not "senior level" if you lack the experience to have figured this out for yourself.
There are many examples where I don't think there's a strong connection between the level of professional experience with the familiarity with the startup environment/lingo/negotiation.
There is nothing really startup-specific in the scenario. There are exploitative bosses in all industries and all sizes of company. Someone who's played knifey-spooney before would know this.
I know this post/comment is aging but I feel I have to add my disagreement. Depending on skill and perhaps more than a little luck, navigating your way up to a senior position in the "old school" corporate world can actually be relatively conflict-free. Certainly, exploitative bosses are as widespread as you suggest, but that doesn't mean that every boss is exploitative.
I definitely agree about seeing the raise to market level... When I was hired they were supposedly going after 2-5M funding (so far its been ~1M in family money put into it), they said once either the additional funding or 50k mrr was hit that my salary (and the others) would go up. A few months ago the CEO's position shifted to wanting to "grow organically". Now it's pretty clear it could be 6months - 1 year before either funding or the mrr are hit (if the company survives that long) and I don't plan to wait, BUT, the main reason I hadn't made a move yet is because it's buying me time to work on a side project while still having some income stream. The thing is I don't want to get played like that and if the company suddenly sees growth (possible), I don't want to be stuck with low equity for all the work I'm contributing. I also only meant senior level in terms of development work, I'm sure I have more to learn in the startup realm.
yes very true! although the main reason I haven't made a move is it's buying me time to work on a side project while still having income... as my gf's dad said, "prostitution goes two ways"
The marginal utility of money makes this argument pretty bogus, none of the investors are depending on this investment to "turn out" or they won't have money for rent or groceries.
10K in the hands of an employee is a hell of a lot more valuable to them than another 10k is valuable to a millionaire/billionaire
I worked at minor start-up once. They actually had not very much money* and I needed work badly. The contract was explicit that I was being paid a percentage of my hourly rate with a hard promise to pay the rest in monthly installments the second year. The advantage of this is once the 'teaser rate' expires you aren't 'negotiating a raise' to get you back to market rates.
* As opposed to no money, aka the types of companies where the real profit is in the difference between what they pay their employees and the market rate.
Thats a really good question that I'm unfortunately not qualified to answer. When I said "real stake", to an extent I mostly just meant being a founder or an executive, where you have a seat at the table and if your shares are going to be diluted, at least you're trading it for something.
As an employee, for some of these equity packages you'd almost need an MBA to decipher if they're any good with all the things that can happen, so I usually don't even bother and just go to places that pay fairly or have interesting work.
Maybe a simple way to think about it: if your market salary is 100k, and they offer you 60k/yr and 2% of the company, is that 2% of the company worth 40k? (And how far can they dilute it?) To me that generally sounds like a bad deal, but your milage might vary depending on the circumstances.
yeah also I forgot to mention that there are no benefits yet and I'm having to pay health insurance on my own... the only reason I've not left is its buying me time to work on a side project while having some income stream
I think a lot of people join startups and take a bad deal because they think the company will take care of them when the company makes it. Or they think they'll have more opportunity for promotions in the startup because of its small size and their early stake. The problem is usually executive roles are filled from outside the company rather than from internal promotions, and as this article illustrates, the founders don't necessarily care about the people at the bottom until it's bluntly pointed out to them how mass departures could fuck up the business.