Facing a huge dilemma related to my career so i figured I reach out my fellow BBI brethren for some advice. Here is the scenario:
I've been working for a large bank on Wall Street. For the last 5 years I've been grossly underpaid (to Wall street standard) until about 2 months ago when my boss finally realized I was on my way out. They have promised me a 42% bonus increase at the end of the year. To me, that's enough to work until the end of the year and then leave. Overall, I have a fairly good work-life balance in this role and I leave by 5 PM every evening to spend time with my 2 year old son.
Last week, I was approached by a start up company that consists of 4 people. They want me to be the 5th person and are offering me matching base Salary along with some decent equity in the company. The whole idea of working for myself is highly attractive to me and I am only 36 years old so taking a risk is not out of the question. This morning, I rejected the start-up company's offer citing that I can't leave the 42% bonus cash that's in my HR file for the end of the year.
Does anyone have any opinion on equity? What happens if the endeavor fails? Does my equity get dissolved into nothing? The company is valued at $15 million right now but the CEO claims it should be about 5 times before the end of the year. They are also planning on doing Series A soon and have promised a bump in my base. Any advice?
Startup valuations are basically educated guesses prior a major funding round (and arguably still guesses after). Until you have the ability to cash out your equity, those numbers are basically BS. And in my experience, CEOs always tend to exaggerate how much more their company will be worth in the future. They have to be glass half full types. Its kinda in the job description.
If taking the job would not be a financial strain and you have some faith in the direction of the company, then taking a job with decent equity could be worth it. There is a good chance your equity could be worth nothing in the future, but it sounds like your risk is relatively low.
I left GE after 5 years (my first post-college job) and went to work for a startup in Cambridge but I was 27/28, engaged but not married, had no kids, and rented a place to live.
I viewed that as the time to take risks. My salary was equal to GE, but bonus was totally discretionary and I got a ton of equity.
The company was founded by 4 MIT grads and I was the first non-"techie" they hired.
our biggest competitor was a small company called Google. and no one heard of either of us really.
Anyway, it as great, long hours, but awesome culture, events, and other perks.
we got a couple investment rounds of funding, some bridge financing, and after a couple years were into the VC's for 70M or so. A year later writing was on the wall, we can't compete with the backing google had, our leadership was awful, and the head start was insurmountable, and eventually the company was acquired by IBM for 12M - and they owed the VC's and other investors by then well over 100M.
equity holders like me, the average employee, got the shaft and saw nothing. so all the equity from my initial offer and additional grants along the way were completely worthless. Zero.
anyway, lots more details but I worked for other start-ups before settling in at a bigger, old more established company with revenue.
Ironically, at one of the more established companies I received equity. They were private, but didn't always plan to be. and they were acquired by a huge company and I did very well financially on that transaction.
I think there are positives and negatives obviously, but personally that kind of risk-taking is over for me and i'm not much older than you.
LOL great analogy. I've been where I am now for 8 years, so I think I have more stability than the Mets. but hopefully they follow my lead here.
In comment 12335033 pjcas18 said:
I left GE after 5 years (my first post-college job) and went to work for a startup in Cambridge but I was 27/28, engaged but not married, had no kids, and rented a place to live.
I viewed that as the time to take risks. My salary was equal to GE, but bonus was totally discretionary and I got a ton of equity.
The company was founded by 4 MIT grads and I was the first non-"techie" they hired.
our biggest competitor was a small company called Google. and no one heard of either of us really.
Anyway, it as great, long hours, but awesome culture, events, and other perks.
we got a couple investment rounds of funding, some bridge financing, and after a couple years were into the VC's for 70M or so. A year later writing was on the wall, we can't compete with the backing google had, our leadership was awful, and the head start was insurmountable, and eventually the company was acquired by IBM for 12M - and they owed the VC's and other investors by then well over 100M.
equity holders like me, the average employee, got the shaft and saw nothing. so all the equity from my initial offer and additional grants along the way were completely worthless. Zero.
anyway, lots more details but I worked for other start-ups before settling in at a bigger, old more established company with revenue.
Ironically, at one of the more established companies I received equity. They were private, but didn't always plan to be. and they were acquired by a huge company and I did very well financially on that transaction.
I think there are positives and negatives obviously, but personally that kind of risk-taking is over for me and i'm not much older than you.
Tremendous experience for a young salesperson, as you can take on responsibilities (management, interviewing, meeting with the board) at a young age, things typically unheard of at larger public companies, and pump up your resume.
The money was good, but like any sales position, only when I was performing/market conditions were favorable.
To address your question, the equity portion never panned out in all 3 instances. There was one opportunity to turn a 10K profit (which is nothing to sneeze at) when they gave vested employees an opportunity to sell back their shares. I chose not to and the company has since gone under. I still have like 3,000 shares from one company, but their sales have dropped 20% each year for the past 3 years.
Granted, being the 5th person at a successful start-up...those are the guys in the early 2000's that were millionaires seemingly overnight. But in today's climate, you might be better off buying a lottery ticket.
If you're 36, my advice is go for quality of life over the cash grab.
or- if you know your stuff, you will know if it makes (will make) money or not.
Whatever you choose, good luck!
Our technology was by far the best among our peers (google, ask jeeves, alta vista, and some other companies less well known) - no shit we were better, but the commercialization of the technology, the sale of it (price points, competitive marketing, application of the technology, etc.) was awful and ultimately our downfall. I have some long and boring stories detailing some of this.
If you have read crossing the chasm it may all make sense; I wish I'd read it before entering that world and I might have decided things or spoken up differently before things were too late or at least viewed things in a different light.
a lot of people have prospered from start-ups and many more haven't, and everyone has different goals and standards for their lifestyle, and I think that drives our decision making.
good luck.
First, I think it is generally a mistake to make your decision on where to work based solely on compensation. It appears you did that here, as it seems you were more interested in the work environment at the startup than at your current job.
Second, you may have been snookered by your boss. Don't get me wrong, they may very well live up to the bonus they've promised. Yet promising a bonus instead of a salary increase to a person who is underpaid in their salary is a bit insulting, no? Doesn't it indicate that the boss is actually okay with underpaying you, as long as he doesn't lose you? In other words, can you not expect that he will continue to keep you by making promises instead of paying you what you are actually worth?
Further, you need to consider the form of the bonus payout. I know when I worked at a large bank my payouts were similar - large annual bonuses. Yet they came in the form of stock options which had a three-year vesting schedule. This means that really I'm only able to realize 1/3 of what was promised a year after the bonus was awarded. If this is how your bonuses work out you will see a 14% bonus if you stick around for 18 months, give or take. May even be 21 months, depending on the bonus schedule at your firm. Doesn't sound so worth it anymore, does it? After three years you would be receiving a regular 42% bonus, but it would also mean that you have 84%-106% of your salary sitting in unvested options in your company, which basically means if you are EVER going to walk away from your firm, walking now is a lot cheaper than walking later.
Finally, you need to consider risk. Obviously a lot depends on the type of bonus you receive, and a cash bonus would nullify much of this argument. But cash bonuses are becoming less and less common. So on to the risk. What is your return on options worth 42% of your salary? If the market is flat when you vest you will receive the 42%. If the market is up a little, you could get more. If the market is down a little, you could receive less. Take a look at your company's stock price. Don't know what bank you work for, but there is always volatility in the markets. Even in a banner year like the one C, BAC, JPM are currently enjoying there has been plenty of volatility.
Then there is the overall question of will the manager keep his word, or even be able to keep his word.
There is risk with the startup, to be sure. But there is risk with the large firm as well, and one of them is that you are left neglected, doing work you do not enjoy, that under-rewards you financially.
In the end, my advice to you would be to take the job you really want to do, as long as you can afford to do it. Take it and be happy you have it. Pour your heart into it. And don't worry about the money you could have made.
To me, the idea that you are underpaid at your current job, they know you are underpaid, and they are not willing to right that wrong speaks volumes about the company and how they value your contributions.