> The engineers building the future deserve a fair equity share in the value they create; today they don't get one.
I understand that this is from 2001, but oh boy has this changed drastically.
For arguably the first time in history founders of businesses operate controlling interest of their stock on the public market. More billionaires have been minted from tech companies in the last 15 years. Not only have engineers gotten their fair share, their power is now being questioned (see Musk, Zuck, etc.).
You're right: funding is extremely founder-friendly right now.
From my perspective, though, the original article is talking about everyday engineers (the "technical team"). If you're an early, senior engineer at a startup, you might be offered 1% of the company. Over the early years of the company, you're often critical to the success and velocity of product development - usually just as critical as the technical cofounder. After four years, your company is acquired for $1B! Your 1% has been diluted to 0.75%, so you walk away with $7.5M. After long-term capital gains, you pocket a bit more than $6M. Objectively, you're now very wealthy - if you're still relatively young, this is enough money to buy a nice house, fund your retirement, and do some angel investing, even in the most expensive cities in the US.
Meanwhile, the technical cofounder walks away from the same story with $200M tax-free. That's dynastic wealth. Does the founder's additional year of work justify this difference? What about the partner from your primary VC, who's likely to personally take home tens of millions despite doing nothing more than investing other people's money and sitting in the occasional meeting?
This is the rosiest scenario - the engineer, founder, and VC all earn life-altering amounts of money. Things get much worse if you're a less senior engineer, you're hired after the first large round of funding, or (especially) the company's exit isn't as good. In all those situations, the founder and VC still get a life-altering windfall, while the senior engineer might barely get enough to retroactively bring their salary up to market rate.
> If you're an early, senior engineer at a startup, you might be offered 1% of the company.
The alternative for the senior engineer is to start a clone competitor with 25% ownership.
The reason an engineer accepts 1% is because: 1. they would be starting their horse after the race has started, 2. they don’t have the skills to be a CTO or found a team, 3. they don’t want to take the risk. Those 3 things are worth the real money, not just being an engineer.
If an engineer wants to own 25% at founding, they need to become a founder rather than bitch about the reality that your employer will pay you as little as possible to acheive what they want. Oh, and mathematically a founder clearly can’t give 25% to more than 4 senior engineers that join subsequently ,and why should they?
> The reason an engineer accepts 1% is because ...
In the case of most people I've spoken to, the reason they don't start companies is they don't have the savings to work on it for 6-12 months, and gamble on getting accepted into YC or another angel/accelerator. They don't have a safety net to fall back on if that fails.
> they don’t want to take the risk
As many many articles have discussed, this is more about having personal financial security than any difference in personality or character.
> they don't have the savings to work on it for 6-12 months
A founder* is a hacker that never uses excuses.
Virtually any single person in the US can find a way to work for a year with low expenses, if they accept compromises. Appropriately enough for this thread, perhaps even by offering a very small percentage of equity to a friend to board.
Edit: How many founders have divorces, neglected children and ignored parents? How many founders avoid a relationship? Not a requirement to neglect family, since a successful founder is likely to be skilled at finding good compromises in business, and likely to use the same skill making reasonable compromises with their family life.
Hard to believe car repair shops or taxi businesses can ever get started, since they need a million more things than a desktop and a chair. And yet they do, and they don’t get millionaire in the end.
So, you don’t need a quarter million dollars to start a startup. I did it with $12000 that I had saved from my previous job, spent over a year, with a little consulting nightjob.
“What about if you have 3 kids, 2 dogs, 1 swimming pool and 7 secondary flats.”
Entrepreneurship is not owed to you. What we’re owed is renewing the elites if they are doing a bad job, using companies that start and replace the existing ones. Facebook, Whatsapp, Tesla and SpaceX didn’t exist 20 years ago, and 84% billionaires are first-generation billionaires, the rest are women and got rich by inheritance or marriages. So elites are ~96% renewed at my generation.
Needing money is the #1 excuse for avoiding founding a business.
I have helped found two businesses. The first I put in all I had (~10k), and the second was founded a year later because the first was failing and I was essentially broke. The 3 co-founders who all had small children drew down mortgages to fund themselves. Being hungry for money, we started doing some irrelevant consulting to pay ourselves some money: which was about minimum wage for the first year (not enough to pay all bills). I lived in a derelict building with opiate addicts (not my scene, but it was my friend’s addiction). As founders we were fortunate that we couldn’t get VC funding, since now we still own all of the business. The business hasn’t turned into a unicorn, but has been mildly successful, and now the founders have a better financial story than most first employees (@1%).
YC provides living expenses while you validate your idea and get funding.
There is usually a way to succeed but you must have the right thought patterns. If you are the sort of person who finds excuses, you are far better off being an employee. The amount of money a good engineer in the US can earn is astonishing.
On average, being a founder is a financially stupid decision. Most VC funds fail, and VC has seniority for any business sale, so founders have a much higher risk than VC. The chance of a 20% payout is nowhere near enough to cover the risks of failing. Be an employee, take your 1%, value it at $0, and enjoy banking your low risk salary and avoid screwing your health and have a social life and look after your family.
Please, try to avoid selection bias where you see a founder win $200M but you ignore the other majority of founders who failed and ended up with $0 and a broken life.
I founded 4 startups after moving to SF with $600 (and without support from my family).
It's easy to make excuses for why you can't start a company and in fact there are a million great reasons why you should never do so. Starting a company is a terrible decision from a purely rational or financial perspective.
But don't act like it's not possible unless you're rich. That's just not true.
Growing up poor and hungry tends to turn some people into hustlers. That's how it worked for me.
Then it was just "right place, right time."
First startup was acquired after Series A by a publicly traded company. Second startup was bootstrapped by the founding team of the first startup and was acquired by a publicly traded company. Third startup was acquired after the Series A by a competitor. Fourth startup was acquired after the Series B by a publicly traded company.
I had incredible co-founders and worked with some amazing teams. I only had one bad investor and was lucky enough to work with some incredible board members. But most of all, I had incredible timing and I embraced the grind.
Can you share more about how you managed to get the first startup up and running, and especially the seed and series A fundraising process in your specific case?
We started working out of a coffee bar, using our pooled savings along with credit card debt (representing about 7 months runway). We were introduced to a great Angel investor by a former boss who gave us glowing recommendations. This Angel did the seed round along with a small syndicate they brought along with. We subleased a super crappy office in San Mateo. Our MVP was quite successful, and we decided to go out for our Series A (using intros from our lead investor). Over the course of 40 days we pitched pretty much every institutional VC in the Bay Area (and every single one passed on us). Just about when we were ready to give up, the very first VC we pitched called us and asked us to come back and re-pitch. They ended up leading the Series A, and our existing investors took the rest of the round.
Calling people sociopaths is against site guidelines - flagged.
Making nasty assumptions about any group of people is unhealthy - I hope you can learn to be more open minded.
I would like to see some figures for the average $ received by the founders of YC companies, for the first five years of YC. It wouldn’t surprise me if employees of those companies have a higher average $ return than founders.
> the reason they don't start companies is they don't have the savings to work on it for 6-12 months, and gamble on getting accepted into YC or another angel/accelerator. They don't have a safety net to fall back on if that fails.
Which is part of the reason for their compensation.
Did the first few factory workers and car design people at Ford become millionaires (in their equivalent dollars)? Probably not, but if you're the first engineer of a Twitter, Google, etc. it's not unreasonable to see your net worth to reach 7 figures, if not 8 figures. Early engineers are compensated just fine IMO, they are just taking a big gamble relative to the market (i.e. $500k annual salary at Google).
> Which is part of the reason for their compensation.
Right, those without capital are always compensated poorly relative to the value they produce. They don’t have a better option, which is part of the problem. One of the people with access to capital but possibly far less skill will end up being their boss and also receive the vast majority of rewards for their combined efforts.
> Did the first few factory workers and car design people at Ford become millionaires
> They don't have a safety net to fall back on if that fails.
However many people also start companies without safety nets. Some of them fail and they might have drastic life moments, but in tech you always find some job, in fact your failed startup might be seen even positive by some employers...
When my startup failed I did contracting for a while. And the trauma probably kept me from pursuing startups for almost a decade. Our angel skipped off back to SV and I went back to the European job market with no professional references, no employer to verify my qualifications, and no real network. And I had a baby on the way.
> your failed startup might be seen even positive by some employers.
It's gotten much better since those days but having that startup is seen as an asset to the right company.
You can continue that line of reasoning: there is surely an equally competent and hard working engineer in some large company, or Europe, that for the same 4 years got $0 extra on top of inflationary increases. You got $6M - how much should you redistribute among those competent developers to make it fair?
Maybe you took some risks, maybe you didn’t. Maybe the founders took more, maybe they didn’t. But at some level, if neither engineer showed up for work, the world would be largely the same. If the founders didn’t act as prime movers at a critical inflection point, there would’ve been one fewer IPO and a lot less value creation for everyone to try to split up.
It's worse than that, the VC gets millions in management fees and a 20-30% carry on a diversified portfolio so they take on no risk. There's literally no downside for them and they push companies to take on a ton of risk because they're looking for 1% of their investments to return the whole fund, which makes no sense for an employee who only has a tiny fraction of shares in one of the companies.
You forgot that the engineer got paid from day 0, plus 1% equity. While the cofounder got the idea, filtered it among all bad ideas, pitched and mounted it, and was on 100% risk. I have the same discussion with my employees, they want 100k$ per year from day one with guarantees of permanent employment, then they want equity.
More likely you got options, and they are taxed as income at a liquidity event (acquisition, IPO)... unless you were confident enough in the startup to execute those options & immediately pay the resulting taxes out of pocket. And you have to have that confidence before the valuation is too high & the taxes are unaffordable to absorb.
I understand that this is from 2001, but oh boy has this changed drastically.
For arguably the first time in history founders of businesses operate controlling interest of their stock on the public market. More billionaires have been minted from tech companies in the last 15 years. Not only have engineers gotten their fair share, their power is now being questioned (see Musk, Zuck, etc.).