You probably shouldn’t work at a startup

https://www.producthunt.com/stories/you-probably-shouldn-t-work-at-a-startup

The basic proposition is this: “we raised a lot of venture capital and plan on becoming an enormous company. Join us, take a haircut on salary, but earn way more in the future in the form of equity.” <-> You probably shouldn’t work for a startup.

So how can you think about the financial rewards as an early startup employee? The big risk you are taking on is “will this thing actually work?”

The answer is usually hell no. The best data set I could find pegged unicorns at ~1% of venture-backed startups. Of the initial group of 1,119 seed-stage tech startups in the U.S., only twelve made it to unicorn status.

Let’s assume the most magical of scenarios. You are a senior engineer who joins the next hot startup and receives 1% ownership in the company as part of your compensation. After you get hired, the company stops taking venture funding and doesn’t hire any more employees, so your 1% remains undiluted. After four years, you’ve vested all your equity and the startup gets acquired for $1B! You now own 1% of a billion dollars—your equity is worth $10M.

Note: It never happens like this.

Don’t believe me? Let’s do an expected value calculation (yes this math is rough, there is a reason this newsletter is called Napkin Math!). Say you have a 2% chance of picking a unicorn and being a member of the founding team. That 2% is honestly way too high for most people, and perhaps a bit low for others, but a good median to anchor on. $10M * 2% = $200K. And realistically you’re only going to get that this tranche of equity every 3-4 years at most, so that’s a risk-adjusted value of $50–$66k.

In contrast, if you were to take a job at a tier 1 tech firm, such as Facebook or Google, as a high-quality engineer your salary can be $200-400k with an additional $100-250K in equity. You will receive the best benefits package known to mankind, with massages, free food, the finest gear money can buy, 401Ks, bonus programs, copious amounts of vacation, and the list goes on. Your total compensation package of salary + equity + benefits will be far higher versus a startup.

Startups are probably getting better to work at

1. Work at a startup that explicitly says you will work 45 hours a week: As wild as that may sound, there are now startups out there that believe this.
2. Remote remote remote remote: Remote work being normalized at startups allows for more flexibility than ever before.
3. It feels like a calling: Maybe you really do believe that a startup you are considering is performing a higher task for humanity. You feel genuine, almost religious zeal for the cause. If you can picture yourself doing nothing else, go for it!
4. You come from a nontraditional background: It can be very tough to get a job at Facebook (especially at the start of your career). Startups are a great way into the industry simply because most of the time they can’t be picky.