These are good points for finding your first engineer, but here is a tip for helping close your dream hire: offer more equity.
Your first eng hire will shoulder nearly all of the technical burden soon after as the founders transition into more of the non-technical roles (sales, outreach, recruiting, fundraising, business strategy). The amount of blood, sweat, and tears poured in by the first eng hire is somewhat less than a founder, yes, but not the 30-50x typical equity ratio we see today.
Depends on pay, right? If you are offering employee #1 market pay, why would you give them 10% equity? That is potentially millions of dollars for not taking a risk.
I have been on both sides of this, and have thoughts. What do you think is fair for employee #1 making at or near market rate?
Even if you pay your #1 employee at market rate he is taking huge risks and should be compensated accordingly. Working at an early stage company often comes with huge job insecurity, loss of medical benefits more mature companies might be able to offer (better insurance etc.) and a possible kink in your CV (3 years at Microsoft look much better than spending 3 years at an unsuccessful company that eventually shut down).
To sum it up, I would expect a #1 engineers equity to be at least half of a founders equity AND payed at near-market rate.
lol @ startups with no engineers yet paying “market rate”... they will maybe pay market rate within their stage band i.e. compared to other SV seed-stage startups, but this will still be way below the liquid total comp at a post IPO tech company. At this point in the tech cycle the math is so out of whack in favor of big co that I can’t with a straight face recommend to anyone that they join a seed startup as an early employee engineer unless they’re already well off financially (5-7 years ago I felt like I could). There are exceptions, of course.
Yeah but those exceptions are pretty big. The hiring pipelines at FAANG are so over-tuned for false negatives that there are plenty of engineers who are good enough to work at a FAANG for FAANG-level compensation yet are not actually getting offers from FAANG companies. They're on the market for (market minus FAANG)-rate compensation.
Then you have to remember that FAANG companies are large enterprises, by definition, and that comes with a lot of overhead - design by committee, politicking between middle-management fiefdoms, not being a part of the conversation when irrefutable directives are issued by executives four levels above you, varying levels of paperwork and documentation that are necessary in large organizations. That's soul-sucking for a lot of people, and those people will exclude themselves from FAANG-level compensation, and are on the market for (market minus FAANG)-rate compensation.
The real reason why a lot of founders can't hire at market rate compensation is that any early employee, even if you're paying them market rate, needs to buy into your vision just as much as you do. The upside for early employees, even more than potential compensation, is in being a strong influence, including at relatively senior levels, as the company grows. If, as an IC, you find yourself being recruited by somebody who you think is a strong and experienced leader, selling a product that you personally think is important, then you grab the bull by the horns and get on. If somebody who rambles and can't make eye contact asks you to join to build out Uber-for-pidgeons, it doesn't really matter how much compensation is being offered; you're going to walk away.
>The hiring pipelines at FAANG are so over-tuned for false negatives that there are plenty of engineers who are good enough to work at a FAANG for FAANG-level compensation yet are not actually getting offers from FAANG companies.
What happen is that these people will keep trying until they get in. They will focus only in one thing and one thing only: FAANG.
> That's soul-sucking for a lot of people, and those people will exclude themselves from FAANG-level compensation, and are on the market for (market minus FAANG)-rate compensation.
I find things have changed a lot where housing dictates personal career choices lately. It sucks to not be able to buy your own property. I don't care what people strategy is (be it work 4-5 years for FAANG and move midwest or whatnot).
There are many companies that offer pretty good pay and great job security outside FAANG. Try Microsoft, Oracle, Siemens, Airbus, SAP or one of the million medium sized companies whose name you've never heard of unless you're in the same line of business.
My experience has been that those companies (except for Microsoft and Oracle) have been well below FANG compensation levels, while being in line (and sometimes lower) than what I can get from later stage startups and not much higher than I have heard from early stage startups. I have only looked for opportunities in NYC and Dallas, though, so that might skew my observations.
Absolutely. Having said that, I won't join non-SV startups. Why? very simple: the chance of hitting the jackpot is significantly higher in SV.
> You realize not all job markets have developer jobs paying 400k?
For sure, but why would I joined non-SV startups getting paid peanuts while I can join a more established company and get paid double (base, stock, bonus, health benefit).
I felt that First Engineer is a sucker if you don't get compensated well enough (be it way more equity than the typical 0.5-1% or something else).
At the end of the day, I'd choose to maximise my career: be it joining a startup to gain experience knowing the whole stack or joining large enterprise for better career-path and compensation.
I don't join startups to "Change the World" or to "Hit the jackpot with 0.5-1% equity".
> Even if you pay your #1 employee at market rate he is taking huge risks and should be compensated accordingly. Working at an early stage company often comes with huge job insecurity, loss of medical benefits more mature companies might be able to offer (better insurance etc.)
Sorry, but no. Jobs are very easy for a good dev. You are taking no zero risk as engineer #1 at a startup if your pay is market rate.
> and a possible kink in your CV (3 years at Microsoft look much better than spending 3 years at an unsuccessful company that eventually shut down).
To who? I would hire the 3 failed startup guy any day over the 14 years at Microsoft guy.
> To sum it up, I would expect a #1 engineers equity to be at least half of a founders equity AND payed at near-market rate.
Haha. I mean I guess it's fair to expect that. Maybe someone would give it to you. To me, it sees like a very inflated value of self worth if you are wanting to take little to no risk but then reap MOST of the benefits of being a founder.
I mean "market rate" in terms of salary is 30 - 50% pay cut over total comp compared to working at an established company with RSUs and massive EoY bonuses. That coupled with the general resume risk means your first hire is leaving a lot on the table.
If you need the best, you're going to have to pony up equity since you just can't compete otherwise. The open secret however, is that for most startups, you really don't need the best. You don't need top quality to throw together a web backend and a mobile app and start growing a base; for those companies it makes no sense to dilute the massive payout for the founders by sharing anything with the code monkey actually delivering the app.
I think the earlier stage you are (seed, angel) then yes, there is definitely risk for a large class of employees. You're taking a risk on the founder's ability to execute, joining a company that is not cash flow positive and tying your mortgage payment/insurance to their ability to raise money in the future... it's derisked in each successive round and startups/founders are not all equal, but I think if we're talking 1rst employee it's fair to say there's some risk.
Yep...if I'm going to be offered $x as employee #3 with little to no equity, and the same $x at a stable company...I don't see why I should risk joining when there's little reward.
Risks can be:
Stress due to working more (wearing more hats, not enough employees)
Not having a stable paycheck because company needs to pay venders otherwise they go bankrupt.
Recession or downturn, loss of job immediately while big company can weather.
If your first engineer is any good, “job insecurity” is the last thing he’s worried about. In today’s environment, even a slightly above engineer can get a job within a month.
Loss of medical benefits is just another number to add to thier salary. Statistically, equity especially for an unproven idea is meaningless. It’s likely not to be worth anything.
Three years as the lead engineer at even a failed startup looks a lot better on your resume than just being a low level drone at Microsoft. You will probably also have your hands in a lot more pots making you even more valuable.
> If your first engineer is any good, “job insecurity” is the last thing he’s worried about. In today’s environment, even a slightly above engineer can get a job within a month.
Can get a job. There is no end to the stream of recruiters offering jobs that I am overqualified for and pay well below what I currently make. The companies that can match what I have now (which, to be honest, is still lower than I could get at the Google tier) are few and far between.
Can we just charitably assume that s/he knows that English lacks a gender-neutral second-person pronoun and picked one out of he or she (like those baby books that alternate between gendered pronouns) to finish what s/he said so s/he didn't have to use the thought-interrupting construct "s/he"?
It'd sure be great if people didn't make that assumption, but the HN guidelines ask you to make the strongest-possible interpretations of comments when responding, as doing otherwise leads to unnecessary, off-topic flamewars.
Other commenters use different pronouns when describing hypothetical scenarios, and that's great, but it also sometimes triggers flamewars from a different direction.
About what kind of startup are we talking here?
When we discuss #1 engineer compensation we are most likely talking about a very early stage company that likely lacks a profound company structure and employee benefits program.
So I would assume that #1 engineers will most likely not be greeted with a good health insurance on the employer side.
I was employee #1 at a startup. Right out of the gate our medical was better than Google’s. Having been exposed to the financial side of things, the cost difference between shitty and decent insurance for employees was inconsequential in the overall cost of doing business.
I was engineering hire #1, and we had no insurance and pay was half market rate, but at least the founders were incompetent and abusive depending on the day.
And therein lies a valuable lesson: don't be employee #1 if you don't know the founders personally, or can otherwise make sure they have a good track record.
> If you are offering employee #1 market pay, why would you give them 10% equity?
So that they care about the company on a similar level to the founders, and feel a real sense of ownership, dedication, and responsibility.
I've been in a position several times now where at work I'll have a reputation as a very capable engineer, typically placed on or leading the most critical projects etc. —but, my employers still have no idea what my contribution could have been if I were made to feel like the company was partially my project too, and that there wasn't some massive (though never explicit) social divide between the founders and everyone else, the rest of us being mere tools for the founders' use (only one job I was at really gave that impression—the others were pretty good about creating an environment where everyone felt equal. But from speaking with many other prospects, it appears to be a typical attitude).
There are thresholds in perception of ownership which when crossed give access to new categories of behavior in the perceiver. Think about 1%, 5%, and 10% equity in terms of sharing an object among a corresponding number of people: how much do you feel that thing is yours when sharing it with 100 people? With 20 people? With 10 people?
For me, 10% is about where the line would be where I'd be willing to drop side projects etc. and seriously dedicate myself to the company. (And in my experience, this is not atypical: in the very early stage startup I was in, basically everyone was laying groundwork for their own startups on the side, or at least had other projects they were more interested in—but they'd make sad, fake displays of their dedication to the company to try and cover. At our largest there were still only ~7 people in the company.)
This comment resonated with me. I have always felt this way as an engineer, whether it be a startup or a big company. I was always at kids table by virtue of being an engineer.
I solved it by becoming a product manager. I miss engineering, but I no longer have that angst on a daily basis. I have found PMming is a job where sense of ownership + willingness to work to further overall success of the given project is heavily rewarded. And the precision of thought that is a pre-requesite for engineering can equally be applied to PMming (though not all PMs have it!).
The problem is market rate. You mention market pay and equity as two separate things. But market rate is really total comp: base, bonus, and equity. For a senior engineer in the valley this is hitting $300k+. Saying we are close to market on salary and ignoring the rest of a total compensation package is disingenuous but suits startups (and others). A package with a value of $1.2M over 4 years would take a significant chunk of equity from a seed stage startup, or about 10% of equity on a convertible note round at a 10M cap, right around what the parent suggested. It’s fair to say we can’t give that up, but it’s also fair to say you aren’t matching market rate.
Depends on pay, right? If you are offering employee #1 market pay, why would you give them 10% equity?
Because this is how you get good people. If you want to offer them what they could get by working someplace else, they may as well work someplace else (likely without the hours, stress, or potential instability of a startup).
Startups offer a lot of non-financial benefits over working at the big established companies.
1) Looser culture. Less likely to have a dress code or an attendance policy.
2) Less meetings, more coding. For someone that wants to get stuff done, way more to do in a startup.
3) Sense of purpose. A huge part of life satisfaction is doing something that actually matters. WAY easier to do this when you are shipping a product to actual customers vs sitting between 6 layers of management at google writing code to improve ad conversion by 0.1%
Well what do you mean by market pay? Because savvy engineers playing the SV game will say 300-400k total comp they get from FANG is "market". However that's assuming A) you can jump through the hoops to get one of those positions and B) you can stomach the politics of whatever team you happen to land on.
Neither of those things are much of an indicator of a good #1 engineer hire—yeah you want an above average engineer, but you don't want someone who is dependent on world-class tooling, world-class colleagues, or is so focused on tech that they can't see the forest for the trees of the business landscape they are in.
You need a solid engineer who is a hustler, willing to dive deep into whatever area is necessary, but doesn't fetishize some aspect of technology or become obsessed with implementing something in-house because it's an interesting technical problem. Current hiring practices are largely cargo-culted off of successful tech giants who face very different problems from what the average startup does.
If you find someone who gets it and has the skills to back it up then they deserve to be brought in with both a real salary and real equity because at this stage every hire is still life and death for the company. The challenge is whether you can recognize this person.
I disagree with you on different grounds. Your points downthread about how it's not a risk are on the nose. No stigma for being part of a startup (the opposite) and even startup benefits are pretty great these days. This isn't ramen/buddies closet sort of work any more.
I'd say the reason you want a strong equity package is a question of alignment and incentive, though. Ideally this person is going to be a VP of Engineering for you someday if you scale up and on top of that needs to have architect + SRE + hacker + sysadmin skills. On top of that, you'll probably want them to make similar sacrifices that you (as the founder) are making to get the business off the ground. It shouldn't be founder equity, and maybe the standard 4 yr + cliff structure isn't right for it, but you probably want this person to have a substantial vested interest in the success of the company.
Two tranches: one a number of shares at par value to make up the difference in pay, the other the same grant you'd give any employee. Really though either pay cash market rate or else give them a meaningful stake.
I understand your point, but I won't take market pay for being the first employee. If I wanted market pay, I will go with a well-established company.
I am assuming that you won't sell goods and services you produce at cost price. If that is case, you'd have worked as an employee of that buyer. Similarly, if I don't get a share of the value I produce, I won't join any startup as a early employee.
The huge career risk of having a string of no name companies on the resume rather than Google, Microsoft or Apple. I am quite certain I’d be much farther along in my career today had I taken the job at the big name 20 years ago instead of horsing around with a bunch of failing small companies.
Most of those developers "doing okay" are doing significantly worse than us SV and FAANG company engineers. I save more every year now than a good number of junior engineers take home in a year, and I'm a crappy average developer not even at FAANG with a much smaller total comp than their staff. There are a tiny, tiny number of SE jobs having more than 50% of my current salary (let alone equity and other benefits and perks) just about anywhere else that isn't also a hot tech/startup market (Austin, NY, Chicago).
The average software developer V in San Francisco makes about $190K according to salary.com.
In most other major American cities outside of New York/DC area its about $140K. If you compare the cost of living in any of those cities, it starts looking a lot worse for Silicon Valley.
Yes this is a realistic range. I’ve been given firm offers to do that type of work (AWS not Google) but the travel requirements would be too disruptive right now.
Software Emgineer V on Salary.com represents the tippy top outlier of the elite senior engineer totem pole. It’s a stretch to call that an average anything. For a more realistic median salary range, just look at the figures for plain Software Engineer.
The Software Engineer V salaries at salary.com for the cities that I'm familiar with seems to represent salaries for a developer/architect with 10-15 years of experience who avoided management.
But the idea that software developers can't do well in other lower cost cities without working for a FANG or even companies that most people have never heard of is another example of the SV/HN bubble.
The best #1 engineer is someone who is willing and will want to help do some cold call as well. Offer not just more equity but better base pay. They deserve better base, real cash. Then we talking. If you offer me my current salary (not faang level), plus a very good equtity (2-5% stake?) then I will work 15 hours every day likr I do now anyway. I will pull in 18 if you want. As a workalochic, I am up for all night. I will do cold call and go out to reach new users as well. I will clean the office with you. You want your founding team to feel they own a stake.
Your first eng hire will shoulder nearly all of the technical burden soon after as the founders transition into more of the non-technical roles (sales, outreach, recruiting, fundraising, business strategy). The amount of blood, sweat, and tears poured in by the first eng hire is somewhat less than a founder, yes, but not the 30-50x typical equity ratio we see today.