When a Unicorn Startup Stumbles, Its Employees Get Hurt • Hacker News Board

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#141

Post by antoinevg » Wed, Dec 23, 2015, 6:21 PM UTC

cubano wrote: post #119

nissimk wrote: post #78

Earlier quoted context omitted.

Information asymetry is the way people get screwed over in financial transactions. Most potential startup employees have no idea what common or preferred shares are. Let alone all of the other details like dilution, liquidation preference, tax implications of employee stock options and lack of liquidity in private securities. Potential startup employees should learn about these things and understand how to protect th…

Of course they should...on top of all the new tech stacks and modern dev paradigms because, of course, engineers have an infinite ability to learn. I'm not disagreeing with you, per se, but I do marvel at the sheer volume of information young engineers are expected to grok these days...

The beauty is that any engineer who masters this information will come to realise that they hold all the keys to the kingdom.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#142

Post by jameshart » Wed, Dec 23, 2015, 6:22 PM UTC

tvladeck wrote: post #26

jameshart wrote: post #17

Earlier quoted context omitted.

They're not separate. The valuation of a thing is dependent on how much money the owners of that thing are willing to accept for it. The common stock holders' interests were poorly represented in the price negotiation. The decision to structure stock ownership in that way is, again, entirely the company's, not the tax system's. Sure, employees share some responsibility for accepting compensation that includes stock w…

> The common stock holders' interests were poorly represented in the price negotiation. You're mistaken here. Your point rests on there being a possibility that Blackberry paid the same amount for the company (the valuation), but common stock holders got more (the waterfall). This was not possible.

But the people negotiating the deal with Blackberry knew how the waterfall would shake out. They elected to agree to a price where the share of the purchase price distributed across common stockholders left many employees in a bad place. That was a choice. As was structuring the ownership of the company, and the compensation offers to their employees, in that way in the first place.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#143

Post by arbitrage314 » Wed, Dec 23, 2015, 6:23 PM UTC

acconrad wrote: post #133

arbitrage314 wrote: post #111

I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself: If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and si…

I think I asked this from you in another thread - but this advice feels difficult to follow. Are you in SF? Do you work at a company like Netflix which is known for paying very high salaries? Or are you not fully a developer, but in management? Because national labor statistics show that even the top quartile of salaries is still much lower than this, so I'm not sure how realistic it is for even the HN crowd to just…

Ah, sorry I didn't respond before.

I live and work in SF at a large company (not Netflix, but something pretty similar). I'm 80% a coder, 10% a manager, and 10% a data scientist, and I love my job. $250k salaries are very common at large companies these days--you just need to stick around and work hard for a few years.

Even if you make $150k, my advice stands, but you should probably invest smaller amounts than $100k, obviously.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#144

Post by sarciszewski » Wed, Dec 23, 2015, 6:24 PM UTC

ryguytilidie wrote: post #138

sarciszewski wrote: post #21

Earlier quoted context omitted.

If you want risk, be an entrepreneur. If you want security, be an employee for a big company. And I suppose I should add, "If you want to get screwed over, be an employee at a unicorn startup," based on this new information.

I always find it funny when startup founders believe that they are taking on more "risk". So when the company isn't doing well, the founder lays themselves off first right? No? Hm, seems like the rank and file employee takes on the risk there... Not to mention that it's probably a lot easier for a founder to get another job than their employees. Oh and by the way, the founder has been paid more, has gotten more stock…

As someone whose best friend started a business that is being grown organically (no seed money, no investors, no venture capitalist, just an idea), my perspective is probably different than most of HN's.

The risk he endured was literally starving. If it wasn't for us, he very well might have.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#145

Post by nostrademons » Wed, Dec 23, 2015, 6:24 PM UTC

gkop wrote: post #120

nostrademons wrote: post #95

Earlier quoted context omitted.

Employees do have access to an investment to an investment nobody else does. It's just that they need to do due diligence on par with or better than an investor to avoid getting taken advantage of. I've turned down more startup jobs than I can count. When I interview at a startup, I thoroughly research their market, their competitors, their product, and their business model. I ask questions about how they came up wit…

In the context of parent and grandparent, what do you look for when doing your due diligence to evaluate the risk of the employees getting screwed on common shares when every other stakeholder makes money?

The first two things would be the amount of funding taken, and the preference overhang. If you know that a company has taken $300M in funding and that their last round of $150M had a 3x liquidation preference with a 1x preference on earlier rounds, then you can do the math to figure out that any exit under $600M is going to leave the common stock worthless. If you know your ownership percentage (and every startup employee should), you can then do the math to figure out how big an exit the company would need to have the desired financial outcome, eg. if you own 0.01% of the company, it would need to exit for $10.6B before you become a millionaire. Go judge the size of the market, growth rate, and profitability yourself to see if that's likely.

In Good Technology's case, just look at Crunchbase:

https://www.crunchbase.com/organization/good-technology#/ent...

There are red flags galore for startup employees there - the funding history started with a Series E in 2005, with the company supposedly founded in 1996. That's the time to ask about the company history, which the article says started as a startup that bought Motorola Mobility's business. Every funding round since then was either private equity or debt (!!), along with a secondary sale.

If I saw just the Crunchbase investment history and heard that it was a startup that purchased a spun-out portion of Motorola, my immediate reaction would be "This isn't a startup, this is a mature private company with a business model that requires large infusions of cash." (I've actually been burned in the public markets by a similar company - mature companies should not need regular cash infusions.) And I'd value the company accordingly - most likely, I wouldn't take the job there at all, but if I did, I'd assume that salary and experience is all I'm going to get.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#146

Post by DocSavage » Wed, Dec 23, 2015, 6:26 PM UTC

arbitrage314 wrote: post #121

askafriend wrote: post #113

Earlier quoted context omitted.

Can you explain how you were able to invest 100k into a startup without being an angel investor?

Most startups are more than happy to take your money. Just email or meet with the founders, explain your enthusiasm for the company, and you're usually good to go! For higher-profile deals, though--e.g., Uber--you wouldn't be able to invest such a small amount.

Doesn't this just apply to those with either sufficient net worth or earned income to qualify as an accredited investor? Or have you heard of startups taking the money of some new graduate making less than $200k/year with insufficient net worth?

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#147

Post by dragonwriter » Wed, Dec 23, 2015, 6:27 PM UTC

Balgair wrote: post #134

arbitrage314 wrote: post #111

I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself: If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and si…

Thanks for the comment, but 'investing' 100k, a sum FAR more than almost anyone reading the comment will ever see in their own bank accounts, is not 'investing' for most of us. Diversity and spreading the risk is bread and butter for almost all of us. Throwing 100k into a company you believe in' is a greater gamble than almost any reader could ever justify to their spouse and expect to stay married. You live in a ver…

> Thanks for the comment, but 'investing' 100k, a sum FAR more than almost anyone reading the comment will ever see in their own bank accounts, is not 'investing' for most of us.

To the extent that is true, neither is taking a salary hit on that order in exchange for equity from your employer.

The contention GP makes is that even ignoring the opportunity for diversified investing, from a financial standpoint, getting a job with an established company is strictly better than a startup in most cases, since you can exceed the pay and equity (and equity in the startup) of the startup job with the bigco job.

That the bigco job also gives you the option of diversifying your equity investments to manage risk, while the startup job does not, reinforces, rather than counters, that argument.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#148

Post by infecto » Wed, Dec 23, 2015, 6:28 PM UTC

ap22213 wrote: post #75

ditonal wrote: post #33

Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook. Tech employees need to wake up about common vs preferred shares, and that the former are w…

There is extremely good advice in the parent post. For those new to the game, please read it closely. I've been with 5 startups over the last 15 years. Each had developed good, commercially-viable, revenue-generating tech. But, in all cases, instead of going IPO, each was acquired. And, usually they were acquired by other investors' or board members' companies (sometimes at a loss). I would love to know the actual st…

"Compound interest is your friend; your employer's stock options? not so much. "

This x 10. I wish people realized this more often.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#149

Post by antoinevg » Wed, Dec 23, 2015, 6:29 PM UTC

jpollock wrote: post #105

ditonal wrote: post #33

Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook. Tech employees need to wake up about common vs preferred shares, and that the former are w…

The best articles of incorporation I saw had preferred stock for the founders, but any acquisition or liquidity change would convert all preferred shares to common 1:1 and instantly vested all options. It did cause some interesting tax issues for people when we were bought, but I don't think I'd sign any other set of terms now. But then, the founders were very classy.

Genius :-)

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#150

Post by tostitos1979 » Wed, Dec 23, 2015, 6:30 PM UTC

arbitrage314 wrote: post #140

Balgair wrote: post #134

Earlier quoted context omitted.

Thanks for the comment, but 'investing' 100k, a sum FAR more than almost anyone reading the comment will ever see in their own bank accounts, is not 'investing' for most of us. Diversity and spreading the risk is bread and butter for almost all of us. Throwing 100k into a company you believe in' is a greater gamble than almost any reader could ever justify to their spouse and expect to stay married. You live in a ver…

Yeah, good point--I'd recommend investing only $10k or $20k if possible. One of my points, though, is that you are effectively investing $100k in the company by taking a crap deal to work there (e.g., via a $25k pay cut over 4 years of work). For that $100k, you're getting much less than you would get by simply straight-up investing $100k.

Would you mind sharing a few things:

- age - Bay area/NYC or somewhere else? - how do u deal with taxes, 401K contributions and still have 100K leftover?

I am possibly overcontributing 401K (maxing the 18K allowed by the IRS) and certainly overpaying rent (bay area :[). How the heck does one manage to save/invest 100K even at that salary? As a soon to be father, I need to get my act together asap.