Where would the stress come from? You get a paycheck and there is no personal downside except opportunity cost (and perhaps reputation). You don’t lose any money if your startup fails.
I tend to have large stress in startups, more than in established companies. I won't get into some of the occasional toxic-element sources that can happen anywhere, but some reasons that happen more in startups:
1. Caring about the mission -- the real-world positive impact -- and potentially able to make or break that. Not just taking a shot at making money, for some opportunity cost that I could evaluate quantitatively on a napkin, and walk away from as soon as an option with a higher expected dollars number came along.
2. Livelihoods and investments of time&effort by colleagues hinge to a large degree on decisions I make, ideas I have, and things I have to pull off, and not wanting to let them down. (A bit similar with money investors, but I care more about personal connections, and involvements where it's not just someone buying lots of lottery tickets.)
3. Low "paychecks" for my HCOLA, at that startup and earlier, so personally needing a big win financial exit, and the startup is what I decided to invest my time&energy into. If that fails, it's starting over, and a lot of wading through various startup ickiness to get another good opportunity (or doing FAANG interview BS, and then their promotion-chasing BS).
Hiring, firing, layoffs, making the wrong decisions with limited information and not finding out they were wrong until years later, huge shifts in the tech market around you undermining your business, competitor actions wrecking your business, pressure from investors, pressure from your family to earn more money, uncertainty about whether the business will ever succeed, and an endless list of other things.
> You don’t lose any money if your startup fails.
Except all the money you lost by not having a proper job along the way. Also it’s not uncommon for founders to float the company at early stage until investment is raised, and they don’t always get a refund for this.
Exactly. I quit Google in 2017 to work on a promising start-up idea (generative AI chatbot for coding, a tad early on that one) and ended up raising barely any money, running up massive CC debt to finance cost of living and GPUs, and taking a huge compounding opportunity cost to not continue growing as a FAANG SWE (not to mention missing out on the stock market run with the extra money I didn't have). I spent the last several years paying off that debt instead of buying a house or investing, etc. I'm massively behind in earnings and net worth compared to my colleagues who talk about their future startup idea but never struck out on their own.
But I'm finally debt free and ready to risk my future yet again on another startup.
Starting a company myself, I took 6 months with no salary. After we raised, my salary was massively cut from where it was (30-40% of what I made the year prior). Then you have the fact I gave up guaranteed raises & promotions (to the tune of hundreds of thousands in RSUs).
There’s a pretty large risk to family security. By year two of the startup I have made 15-20% the cash I could have made elsewhere. I have stock that I trust will be worth more in the future (so imo worth it). However, I can see liquidity events being useful if you’re tight on cash after that run
Investors do it so that the founder can better focus on increasing the value of the company. Having financial stress on top of everything else reduces the probability of liquidity events.
A lot of people (esp people that performed extremely well in school and in corporate environment) find "failing" and "losing reputation" very stressful.
I am sure enough that I would crumble under that specific kind of pressure that I don't put myself in situations where I would experience that specific kind of pressure. Works great!
Thank God someone said this. Of course it is stressfull, there is no free lunch. If you can't take the heat just dont enter into a such top-heavy game.
Landlords and supermarkets dgaf. There is no real risk, and if they stress over it, that’s more a founder’s own psychological failing than anything else.
If you care what other people think that much, you probably don’t have sufficient quantities of the oft-cited “grit” that founders supposedly require.
This isn't the founder's risk. It's the employee's risk. And it has the added bonus of, if there is a liquidity event, the employee's don't get the upside.
I was like engineer #3 at a company that eventually was acquired for ~$250MM. My payout was $60,000, after 5 years of employment there. I could have made more by going and contracting at megacorp for a single year. There was never any upside for me.
That was because you negotiated and accepted a shitty deal. Unless someone scammed you into believing something that isnt' true, which I doubt. Founders can be overly optimistic, but it isn't same as scamming.
Startups are a difficult game. Everyone gotta watch for themselves. Don't blame on others if you accepted a suckers deal.
This is not a real risk you're talking about, but small inconveniences. A risk is losing your house for example, or losing the ability to rent.
Inconveniences are part of life anyway. Being the first engineer means you get all these inconveniences (tell your wife and your kids) plus real risks as above (taking a loan to buy the options and losing it)
“Letting people go” is taking on the risk of all of those people being let go losing the ability to rent or pay their mortgages. That seems like more than an inconvenience to me if you take one of the responsibilities of being an employer at all seriously.
If you are working a tech job and know how to program computers and have no savings slash the loss of a job costs you your house, you have deep and fundamental problems far beyond the loss of one job and it isn’t your former employer’s fault that your life is mismanaged.
No employee should join a startup with the expectation that the company will be around forever.
Compare startups to restaurants- their failure rate is absolutely massive. Working for a new company is simply always a risk for everyone involved, there's no getting around that.
My primary motivation as an employee of a startup is fear of personal financial ruin. That the company won't be able to make payroll and I won't be able to pay my rent, that I'll be evicted eventually or that if the company goes under I won't be able to find a new job. There is no mission or any other soft carrot that I care about. I also don't have any faith in stock options.
I can't imagine caring about reputational damage with rich people unless that reputation is in service of not starving in the streets.
Perhaps you shouldn’t be working in a startup because your lifestyle is unaffordable, or your company is paying you peanuts.
I have worked in startups in Silicon Valley and have had many friends working for them. Most startups pay a base salary of around 200k$ I reckon (for new grads, perhaps 150k). This might come down to 9-10k after taxes per month. A good 2 bedroom house to rent in a ___location like San Jose would be 3k$ per month, which leaves you 6k for other expenses. Assuming 1k for car, you should still have 5k in savings per month, in a year of working you will have saved up 20 months of rent, maybe 12 months of living without a job. I find it hard to believe anyone in SV startups, is in risk of “personal financial ruin”, or “starving in the streets” just because they lost a few months of paychecks while searching for another job. That may be true in another country, in another market, but all tech workers in the Bay Area are living well above subsistence and acting like they are living paycheck to paycheck is a fantasy. There is a cost to working in startups, and it is an opportunity cost of not working in a big tech company and cashing out your 200k+ RSU over 4 years and instead receiving paper money stock options that can be worth 0.
I don't live in California, the startup I work for is remote. I don't fear financial ruin because I don't have money, I fear it because I catastrophize everything. There's no evidence to suggest I would be homeless if I lost my job, but that's just where my brain goes.
But I'd like to point out that in your math, you calculated the cost of a car and a rent, but no other living expenses. Also in what universe does a car cost $1000/month??
I mean if you don't care about the company mission (if it's mission based), you don't compare about your employees, your word, you don't care about your time or care that you sold people that you were going to take their money to build something... then yes there might be no "personal" downside.
Though if you don't care about anything in the first place what are you doing trying to build a company?
