This piece is golden: "Just remember, the vast majority of startups fail and only a very very small percentage become big financial successes. So I encourage you when thinking about equity is ...don't think of it as a fixed pie which is meant to be divided but rather as a tool that's going to increase your chances or your likelihood of being one of those few big financial successes"
@@wronggg Why would you say that? Because early Microsoft/apple/fb employees got (what later turned out to be) a ton of equity value? - how do you think those companies survived and got big? Those early employees took a big bet and worked hard, and they got very lucky.
I have an interesting question for debate. To be clear, I obviously think that generosity to first employees is by far the best way to approach building a company for a number of reasons... BUT the question stands: When you say that you haven't met a successful founder that was "too generous" with early employees(4:22), is this because of "survivorship bias"? Wherein the successful founders weren't generous enough and that may have actually been a contributing factor to their success? Would love to hear some perspectives here.
@@dboyagod The figures mentioned in the video appear to be quite accurate. Speaking from my own experience, I was an early employee (#11) and held the position of the first generalist Designer-Engineer. They granted me 0.25% equity, which I consider to be a favorable arrangement. While I cannot speak for other employees and whether they were granted more or less than myself, I am quite happy with the deal I received! I wouldn’t be surprised if OP gave a similar range.
As an early employee for a startup here is a simple equation I wish someone told me with balancing opportunity costs with pay: risk of success * equity + income at startup > income you can earn elsewhere eg. if you can earn $150k elsewhere, and the start up offers $200k equity a year, and an income of $100k. The success rate of a start up is about 1/9, or it could have already found a market. 1/9 * $200k + $100k > $150k income at some company equals $122k > $150k don't work for the startup. You also need to consider it's painful working on a reduced wage. You might not be able to cash out your equity. The failed startup would look worst on your CV. There is a much bigger lifestyle difference between a salary of $60k and $70k, than $120k and $150k.
wow, it's very useful and truthful since Tim's background. also, Can you give us some advice on how to deal with the equity of employees after they leave? Thanks.
By YouSum Live 00:00:32 Early employees deserve more equity for risk & effort. 00:01:18 Startups allocate 10-20% equity for employee incentives. 00:02:43 Consider cash availability & employee's equity value. 00:04:00 Equity is a tool to enhance startup success. 00:04:05 Early employees need strong ownership for startup success. By YouSum Live
This is only a theory. Maybe in Silicon Valley it works better. It does not work in Eastern Europe at all. I was very generous with the first employees in my startups, 3 of them. Maybe even too generous. Equity + salary. Non of them appreciated this, they all (!) of them were working their 9 to 5 job without expected dedication.
I am confused. Are you saying they did a terrible job and didn’t appreciate your offers? Or that they excelled in their work not expecting special treatment?
You're describing a co-founder, not an employee. They should get the same equity and salary you get, with a one year cliff and a four year vesting period, the cliff meaning they dont get any equity if they leave or get pushed out within one year.
Y Combinator is doing amazing work by releasing all this free content and democratizing entrepreneurship education. Bravo!
This piece is golden: "Just remember, the vast majority of startups fail and only a very very small percentage become big financial successes. So I encourage you when thinking about equity is ...don't think of it as a fixed pie which is meant to be divided but rather as a tool that's going to increase your chances or your likelihood of being one of those few big financial successes"
"I have yet to hear someone say they were too generous with their early employees" 10/10 talk
Steve Jobs, Bill Gates, Mark Zuckerburg?
@@wronggg Why would you say that? Because early Microsoft/apple/fb employees got (what later turned out to be) a ton of equity value? - how do you think those companies survived and got big? Those early employees took a big bet and worked hard, and they got very lucky.
I have an interesting question for debate. To be clear, I obviously think that generosity to first employees is by far the best way to approach building a company for a number of reasons... BUT the question stands: When you say that you haven't met a successful founder that was "too generous" with early employees(4:22), is this because of "survivorship bias"? Wherein the successful founders weren't generous enough and that may have actually been a contributing factor to their success?
Would love to hear some perspectives here.
This the gem you have to wait an hour for to learn on clubhouse... after “30 second introductions”
This is so insightful. I mean hours of research wrapped in less than 5minutes.
Brilliant, short, valuable, thanks guys!
I am considering giving some of my equity to my early employees but weren't sure how much to give. Your video was informative, thanks a lot.
So how did you end up distributing the equity? If you don’t mind me asking 😅
@@dboyagod The figures mentioned in the video appear to be quite accurate. Speaking from my own experience, I was an early employee (#11) and held the position of the first generalist Designer-Engineer. They granted me 0.25% equity, which I consider to be a favorable arrangement. While I cannot speak for other employees and whether they were granted more or less than myself, I am quite happy with the deal I received! I wouldn’t be surprised if OP gave a similar range.
As an early employee for a startup here is a simple equation I wish someone told me with balancing opportunity costs with pay:
risk of success * equity + income at startup > income you can earn elsewhere
eg. if you can earn $150k elsewhere, and the start up offers $200k equity a year, and an income of $100k. The success rate of a start up is about 1/9, or it could have already found a market.
1/9 * $200k + $100k > $150k income at some company
equals $122k > $150k don't work for the startup.
You also need to consider it's painful working on a reduced wage. You might not be able to cash out your equity. The failed startup would look worst on your CV.
There is a much bigger lifestyle difference between a salary of $60k and $70k, than $120k and $150k.
wow, it's very useful and truthful since Tim's background. also, Can you give us some advice on how to deal with the equity of employees after they leave? Thanks.
He has scar tissues and it is clearly visible. Thank you for these golden pieces of advice.
What happens to employ 5% when we go to seed round and sell 10% of the company? Do they still have 5% or their equity gets reduced to 4.5%?
Read about stock dilution
Usually, yes they get diluted.
Thanks Tim Brady 🙏
What I don't really get yet is when they talk about employee before giving shares, it means they're already getting paid?
By YouSum Live
00:00:32 Early employees deserve more equity for risk & effort.
00:01:18 Startups allocate 10-20% equity for employee incentives.
00:02:43 Consider cash availability & employee's equity value.
00:04:00 Equity is a tool to enhance startup success.
00:04:05 Early employees need strong ownership for startup success.
By YouSum Live
Great video Tim, helped me a lot
Thanks
Not to mention people get crappy salaries at early stage startups, so they better cough up equity
Tom Brady! GOAT
Thanks!
This is only a theory. Maybe in Silicon Valley it works better. It does not work in Eastern Europe at all.
I was very generous with the first employees in my startups, 3 of them. Maybe even too generous. Equity + salary. Non of them appreciated this, they all (!) of them were working their 9 to 5 job without expected dedication.
I am confused. Are you saying they did a terrible job and didn’t appreciate your offers? Or that they excelled in their work not expecting special treatment?
How much equity should I give to someone building my product from scratch for free?
Thanks.
50%
You're describing a co-founder, not an employee. They should get the same equity and salary you get, with a one year cliff and a four year vesting period, the cliff meaning they dont get any equity if they leave or get pushed out within one year.
@@stephanbranczyk8306
Thank you
Program your own stuff. I'll take 110% for myself. VC model is a scam.
how much do you have on hand (giggle) . i just had to laugh but this is good information
4:25 er, Steve Jobs.
Tb12%
Free content? This is what school and ethics used to do.
Lol. How about 0?
It would be very hard or impossible to hire world-class talent without offering equity in your comp packages for early employees.
Ahaha, good luck finding talented people to work for your early start-up with the approximate failure rate of 90 %
@Jul Ia higher wages are necessary of that's the case.
What is too generous?