Scientists Should Care More About Equity


One of the biggest differences between the software startup world (where I used to spend most of my time) and the science startup world is how little most scientists seem to value company equity. I think it’d be a really great thing for scientists and startups if this would culturally change. 

For many earlier career scientists that have recently finished a PhD program or completed a postdoc, they have had to live on ridiculously low salaries for many years – the average postdoc salary is below $60,000. Getting a much larger sum of cash understandably feels really nice after a very lengthy period of borderline financial exploitation. 

Almost every recruitment offer discussion I have with scientists ends up revolving around negotiating a higher salary, and hardly anyone asks for more equity instead. As a company founder, I used to not mind this as much – I figured it was easy enough to take said equity that would have been granted, sell it to investors for funding, and pass it onto the scientists in the form of cash compensation. As I’ve started thinking about it more though, I think it’s a real shame, because the biggest losers in this equation are the scientists themselves, and it hurts the company too.

Equity in a company is a very powerful alignment tool. Unlike a lot of software companies where the primary driver of building the business is to make money, science companies generally tend to have the benefit of getting to work on a very exciting mission that can truly impact the world by building new technologies or saving lives. And it's true too that most scientists don’t go into science for the sake of caring about making a lot of money – overall I think that is a great thing. But honestly, even for many of those types of people, the idea of having the ability to make a lot of money can be a powerful motivating tool too.

If a company succeeds, employees should have the opportunity to get rich, and founders should want to make sure that all of their team members strongly have this chance too. It’s way more fun if everyone gets to succeed together, and it moves the team into the focus rather than the individual.

The more the whole team is invested in the success of their company and feels literal ownership of its entity and its future, the more likely team members will care deeply about making sure it succeeds, strive to work harder, and go beyond the quality bar that is set by their peers. A big part of the reason founders care so much about their companies is because it is *theirs*. As much as possible, scientists should want to feel like the company is theirs too. 

In order to make this change more of the norm, I think scientists need to understand the value and mechanics of ownership further. I find it very rare to speak to a scientist working at a startup who has thought deeply about how their shares could be worth 100x or even 1000x what they were granted at if things go really, really well. 

Most scientists have not been operating in a world where they get to see that successful fledgling companies really can get to the point where they are worth billions of dollars. [1] They do not understand that if things go well, they themselves can experience a life-changing financial event, even if they don’t have as much ownership as a co-founder.

I think it’s really important for this education gap to change across the hard technology ecosystem– not just so individual companies can perform better, but so scientists as a very valuable group of people can appreciate the benefits of working at startups vs. working in larger more established companies, or, perhaps even more importantly, slogging slowly through the mud in academia.

I believe company founders need to do more here to educate their team members on the benefits of ownership and drive this culture change. I’ve seen some science companies with multi-billion dollar valuations give almost zero equity to their collective team, and their team members don’t seem to care. This sucks and feels outright wrong. [2]

I think scientists need to do more here for themselves too. If you’re working at a startup and reading this, great -- you have the tools now to understand this dynamic better. Encourage your company peers to think more about equity, and request it for yourself. Educate friends at other companies about how valuable equity can be, and explain the concept to friends in academia that it really is possible to be part of breakthrough, world-transformative research and also have the possibility of a major life-changing windfall if things really work out.

Ask and advocate for ownership – this will ultimately be the way to create this change.


Thanks to Dylan Field, Alexander Schubert, Bianka Seres, and Pablo Hurtado for reading drafts of this post.




[1] One example of a scientist-led company that has become so valuable - the mRNA covid vaccine company BioNTech, which at present time is worth 39 billion dollars. That is worth more than Twitter, and its two years younger than Twitter too.

[2] Founders of companies: Be generous, help new and existing team members understand how big of an impact equity could mean under various circumstances. Actively encourage team members to ask for equity. Press other founders to do so too.


​​Scientists Should Start Companies


It seems amongst many scientists that the idea of starting a company is still looked down upon. Many seem to imagine companies as entities for which one must give up their principles and the possibility to pursue the most interesting work.

But done right, that doesn’t need to be the case at all. A good company can actually be a superior vector for pursuing the most impactful research.

If more scientists adopted the model of starting research companies, I think we would see many more transformational technologies come to exist than we currently do. I believe many kinds of basic research questions would be explored at a faster rate too.

A Better Way to Coordinate Teamwork

I like to think of companies as social organization tools first and foremost, where people can be optimally aligned towards working on a hard problem.

In academia, most scientists are incentivized to work on their own research in a relatively siloed fashion – publications are an all-important currency that is hard to be shared. 

The culture seems to end up revolving more around the individual, heavily discouraging teams of multiple people from devoting all their attention towards working together on the same problem. [1]

On the other hand, with a company, it's much easier to collectively coordinate people towards the same goal. With a general de-emphasis on the individual, collective milestones can be set for everyone as all-important north stars.

This type of environment makes it much simpler for people to work together on different approaches to the same question, or even double up on the same sets of experiments to brute force more possibilities and get past bottlenecks.

With companies too, you’re much more likely to have support team members assisting with experiment setup and downstream analysis to free up other members of the team to focus on other parts of the problem. This makes work much more efficient.

 A Greater Path for Funding

The other big advantage companies have is their ability to unlock resources.

The present period of where we are in the world is one awash with investment capital unlike a time that has ever existed. It is easier than ever for ambitious scientists with a plan to approach investors and ask for private funding to support a startup. 

Good companies can mobilize a lot more capital in a much shorter time frame than what is possible through traditional research grants. Private capital is often less restrictive, and can be spent on large experiments that would otherwise not be feasible. And as a smaller company that is just getting started, private capital can still be complemented with grant funding – there are many non-dilutive grants (like SBIR and STTR US government grants, as well as private foundation grants) that private companies can obtain.

The idea of pitching to investors for funding might be scary, but it is becoming common for graduate students and postdocs to get hundreds of thousands to millions of dollars from investors to start their own companies. Often, they don’t have anything more than just an idea, a rough plan, and a commitment to pursue their work full time.

And as progress is made and momentum grows, it’s common for company founders to raise the tens of millions to hundreds of millions that become necessary to translate research – a much harder feat to accomplish from the academic side.

With fewer and fewer professorship tracks in academia, granted tenure positions, and conventional opportunities for ambitious early career scientists, it’s seriously worth considering this alternate path.

 What it Takes

As much as I espouse that scientists should start companies, that doesn't mean it makes sense for everyone. For those that are interested in starting a company, there are important criteria to be met – In general, you want to be the right kind of person and have the right kind of idea.

On the idea side, you want to be working on something that has the potential to have a massive long-term impact – this is the type of realm that private investors will be eager to fund. This could be a cure or treatment to some disease, or some type of novel technology that can improve people's lives. It's actually very OK for this to be just an idea at the beginning and for a lot of discovery work to still have to be done. The main point is that there should be some type of discernible endpoint, which, even if it is challenging to reach, will make a big difference in people’s lives.

If you want to do something purely for basic research / mechanistic understanding, academia is still probably the better place for that. [2] 

To be a successful company founder also requires a certain type of character and it's a realistic truth that not every scientist is cut out to start a company. Company creation can often be a lonely, uncertain process where it can be difficult to keep up motivation, it can be hard to know what to focus on, it can be hard to convince people to work with you, and it can be hard to convince investors to fund you.

It's important to have the right personality to do this type of work – ascribing to the theory that companies are good vectors for people and resource coordination, you or someone else on your team should have the aptitude to grow into being a leader.

If you don’t think you can do this yourself, that's fine—try to find someone to join you in getting started who you think can. Companies often do best when it’s two or three people of complementary skills coming together as co-founders to get started (and they don’t have to be business people either – often ‘business skills’ are of secondary importance at the start to getting the technology development plan right).

If you don’t know the right people to start a company with, consider joining a startup you think is ambitious and promising as an alternative – you’re likely to meet other like-minded people who you might be able to work with, and you can contribute to important and interesting work in the meantime. 

-- 

If you indeed start a company, it will be challenging, but people will want to help you – people love to support those who have the courage to go after very hard but important things. Over time you will be able to assemble advisors, coaches, and investors that will assist with your growth. 

I’m happy to be one to help if you want to reach out – I firmly believe more scientists pursuing companies will be an incredibly impactful shift over time, and one that will make the research world wider.


Thanks Alex Schubert and Lucas Harrington for reading drafts of this post.

[1] I find it odd how most academic labs tend to be named after the Professor – I think it's harder for people to feel like a super connected team when everything seems to revolve around the importance of the leader.

[2] Academia has an incredibly important place – beyond just the fact that starting companies isn't for everyone, there are many basic research topics that companies would be bad mechanisms to pursue – it's wonderful we have a system where many other kinds of research can be optimally supported. We should be doing more to help academic research flourish.


Equity for Scientists Starting Companies


Earlier this year, my teammates and I interviewed over 100 teams for the first cohort of SciFounder Fellowship, and by far the most frequent issues we noticed were problematic equity splits amongst teammates. Some teams knew that their equity splits were in less than ideal shape, but most groups did not. Most of the teams we interviewed were led by early career scientists (usually graduate students or postdocs or people with a couple years in industry); these thoughts are meant most heavily for them.

 I think it's the case that equity splits for scientific companies can be more complicated. In the software world, it's pretty easy for e.g. two founders to just split things 50/50 and get going. More often than not, there aren't other stakeholders involved, and things are pretty simple.

 With science companies though, there are often other groups that must be considered from the start – principal investigators / professors whose lab the scientist may have been in, or other part time people that may have been involved in some way in helping with the technological development prior to starting the company (let alone universities/institutions that may have claims on IP, which is a topic for another time). 

 It’s important to get your equity split right – equity is a very precious resource that you will need for yourself, your employees, and your investors. You want to have ample equity to be able to entice outsiders to join and support your company and you don’t want to lock up too much equity with early team members that will not contribute proportionate value over the years to come. You don’t want to feel resentful – as if you are letting others free-ride on your hard work over the coming 5-10 years. You also want to be smart about your starting equity as a signal to investors that you are taking this seriously and are not going to get pushed around.

 We repeatedly encountered a problem where scientists would give way too much equity to their PIs. Often, this was simply out of ignorance as to what was right. However, it was also commonly the case that this occurred due to the uncomfortable awkwardness that grad students and postdocs were negotiating starting their companies with their PIs while they were still their academic bosses.

If a PI is going to leave their post and be full time on a company, they deserve an equal (and potentially greater) share of the company. But it's a different story if they are going to be part time, and likely prioritize their academic lab over the company.

There were a couple particularly bad cases where we spoke with PIs that felt it was fair that they should own a majority stake of their companies while they continued to run their academic labs. They expected their (soon-to-be) former students to work on the company full-time essentially as their proxy employees.

This type of situation is highly unfair in the long-run, as in most instances the hard work is still very much ahead of the company compared to where it is now. What has already been done in the lab thus far is likely a very small piece of what remains to be done, and the equity should be balanced accordingly.

I think it’s a fairer rule of thumb for professors (or other part-time figures) to have 10% or less of the founding equity of the company – if your professor is only going to be nominally involved, it’s pretty common to see them having 1-3% of the founding equity.

Remember too it’s possible to grant additional shares in the future – if a team finds that a part time co-founder is contributing more than their equity stakes seem worth, you can always make a grant of additional shares. Likewise the reverse may be possible too – if you’ve already accepted a poor equity split, you can try to fix it in the future. The sooner you do this though, I would guess likely the better, as it may be an even less comfortable conversation to have as time goes on.

 In terms of full time scientist co-founders, if you all are just starting out green from school or a job, it probably makes sense to split things evenly amongst yourselves. If one of you has already been working on the company for a while beforehand, or has done something significant like raise funding for the company already, it can make sense to have an uneven split. Even still though, remember to take into account the very long trajectory ahead – if all goes well, you will be working together for many years to come. [1]


Thanks to Lucas Harrington and Alex Schubert for reading drafts of this post.

[1]  All founders (and employees) should be on a vesting schedule, where equity accrues over time rather than all upfront. It’s common for it to be four years for founders, but consider longer if your company has a long research trajectory. In my company that has a longer-term than usual path, my co-founders and I set it up to have six years of vesting.