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News & Updates - Friday, May 27, 2005

Recruiting Start-up Employees Gets Tough

We keep hearing from entrepreneurs that it has become much harder to attract talent. We're also hearing from people on the job market that startup stock options are of little interest. Let's review how we got here.

In the bubble, it made sense to join start-ups as an employee. Liquidity events were popping, valuations were extreme, and everyone had stories about the receptionist at Excite or Global Crossing who was able to at least pay off the mortgage thanks to a few thousand options. After the bubble, nobody had the luxury of weighing job opportunities at big tech companies versus small tech companies - jobs were so scarce, you took whatever you could find.

Take the Bigger Paycheck

Today, it is generally smarter to take a job with a publicly-traded tech company than a venture-backed company. Or to found your own company (assuming you have the money in the first place). With the lousy IPO market and fairly tepid M&A environment, odds are low that your pay-cut, poor benefits, and high risk exposure will be compensated by an options windfall. When prospective startup employees do the math they see that after a 4-year vesting cycle, if their company was bought for $100M, they might get several thousand dollars from their options - call it $100K. That's fantastic, but there are currently so few such deals in tech that your odds are weak. Also, spread that out over 4 years and it's a $25K bonus each year - not bad, but remember that a junior rank-and-file investment banker expects at least that much to keep himself in nice shoes.

In a publicly-traded company, you might be guaranteed to earn part of that same $100K in better wages, better benefits, stock in the company, and perhaps most importantly, you get peace of mind. Then again, you'll be working for the MAN. We believe part of the reason a company like Yahoo is doing so well is that it has successfully lured many entrepreneurs in from the cold.

There's no right answer here. We all have our own threshold for pain - and varying concepts about what makes for a satisfying job. At the moment, though, it's our sense that security is winning out over start-ups. If we're wrong, we know you'll tell us.