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If founders treated their investors the same way they treated their employees

software.rajivprab.com

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Re: If founders treated their investors the same way they treated their employees

#131

Post by giantg2 »

thinkingkong wrote: post #24
seibelj wrote: post #3

Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach…

The invalid reasons are all accurate. The only challenge is (almost?) everyone has a friend or colleague that worked at Slack or Uber and made stupendous amounts of money; far in advance of what they would get at a FAANG. It doesn't take into account luck & risk, but this kind of casual relationship with successful startups colours peoples expectations in a different light.

I don't know anyone making stupendous amounts of money. I know of only one guy making a FAANG salary. I suck at life and I suppose the high performers socialize with their own kind.

Re: If founders treated their investors the same way they treated their employees

#132

Post by kentonv »

ipnon wrote: post #103
kentonv wrote: post #76

Earlier quoted context omitted.

FWIW it's rooted in US tax law. Unexercised Incentive Stock Options (ISOs) are required to expire 90 days after an employee leaves. The way some companies get around it is that, after 90 days, they replace the expired ISOs with nonstatutory stock options which, as their name implies, are not recognized by the tax code. Tax code is complicated but NSOs are ultimately worth maybe 10%-20% less than "equivalent" ISOs. Bu…

Is there a website that contains all of this information in one place? Could any founder be expected to know about the 409(a) and 83(b) without a lawyer?

Not sure about the first question, but as to the second: If you are starting a startup, especially for the first time, you absolutely need to get a good startup lawyer. Ours* charged $500/hr and was worth every penny. Saved our asses many times.

* https://www.bierlegal.com/

Re: If founders treated their investors the same way they treated their employees

#133

Post by chris11 »

kentonv wrote: post #76
shehryarrr wrote: post #5

That 90-day expiry window is the most archaic bullshit. Can't come up with 200K cash? Too bad, and thanks for all that hard work and long hours you put in.

FWIW it's rooted in US tax law. Unexercised Incentive Stock Options (ISOs) are required to expire 90 days after an employee leaves. The way some companies get around it is that, after 90 days, they replace the expired ISOs with nonstatutory stock options which, as their name implies, are not recognized by the tax code. Tax code is complicated but NSOs are ultimately worth maybe 10%-20% less than "equivalent" ISOs. Bu…

> NSOs are ultimately worth maybe 10%-20% less than "equivalent" ISOs

I'm at a company that gives NSOs. Can you explain what you mean when you say that NSOs are worth less than ISOs?

Re: If founders treated their investors the same way they treated their employees

#134

Post by lumost »

smattiso wrote: post #90
nostrademons wrote: post #86

So founders do treat some of their investors like this - look at every ICO, and a lot of dumb overseas money, and a good number of friends/family/fools rounds. And conversely, there are some employees that they treat with kid gloves, who basically get the investor treatment. Look at executive hires. The difference is basically two letters: "No". Most institutional investors have the ability and inclination to say no…

The problem is that some people need money and can't say no. That's why anybody works for minimum wage... The executives and investors and FAANG engineers have all made good money and seen decent RSU terms, you can't pull the wool over their eyes. Someone who is just getting into tech may be allured by a 50k salary and "1 MILLION OPTIONS!!!!" (There are ten trillion in the option pool). I think engineers would do wel…

I've seen startups willingly train their new employees to think about equity in broken or meaningless terms. Early in my career I sat through a discussion of equity with a VP of engineering where they explained that our options would always be priced ~$4 on acquisition and $12 on IPO. The finance people would always just make it work that way regardless of the number of options in the pool and the total valuation.

I also once joined a company to be told 3 months in that the board was not approving any new-hire grants as the valuation/appraisal work had expired - and that it wasn't reasonable for me to ask them to pay 90k just to approve the options they had granted.

At this point in my career having worked in FAANG, I wouldn't value private equity at all unless I could take 20-50% of the company. It's not even a lottery ticket anymore, and has just become a way for executives to exploit information asymmetry.

I'd be curious if any startups have explored venture debt arrangements with employees to guarantee that they receive meaningful deferred compensation. Or if there are other mechanisms to publicly show that the equity is meaningful in most successful outcomes.

Re: If founders treated their investors the same way they treated their employees

#135

Post by giantg2 »

dannykwells wrote: post #35
kristopolous wrote: post #15

Earlier quoted context omitted.

For me I'm far too naturally transgressive to work at a large company. I really wish I could, life would be easier, less work, less stress, pay better... None of them will take me so I keep help building and (sometimes) exiting startups. It's really exhausting. 20 years of this... I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently fol…

So I have a PhD, and do empathize with being "transgressive", but I'll say I think it's less about the PhD than it is about being right. If you are bull headed and drive really hard in a new area, you better be right because you are taking responsibility and accountability for that area (whether you think you are or not). High risk, high reward - sound familiar? This is true at Google, at startups, in academia. So it…

"...if you're ok being obedient, you also don't need to bear the stress of accountability."

I agree with most of what you're say, but I think this can be wrong. Management seems to push stress and blame down to the individuals, even if they are obedient. I see a lot of stress in my job and I'm only an intermediate developer.

Re: If founders treated their investors the same way they treated their employees

#136

Post by codingdave »

The last time I got hired into a startup with options, they didn't tell me what percentage of equity the options represented, they just said, "You get 50K." I didn't even ask for any more details because their choice to give numbers instead of a meaningful metric made me think to myself, "OK, so I'm deciding whether to take this based solely on salary, and anything else is just a future bonus, not a deciding factor." I did take the job, but never banked on the options.

To me, failing to give you all the information isn't a deal-killer on a potential job. But it should flavor your approach to the job, and help you decide exactly how committed you are to the work.

Re: If founders treated their investors the same way they treated their employees

#137

Post by cs-szazz »

sky_rw wrote: post #14
seibelj wrote: post #10

I missed over $1 million in options when one of my former companies was acquired. I still made good money but nowhere near the same. I was pretty sure it was going to sell, but I didn't know how long it would take (over 1 year for sure) and nothing in life is guaranteed. If I had exercised all the options I would have had over $300k in paper gains for a tax bill. Instead I exercised 10% of what I had the ability to e…

Depending on the size of the startup at the time you join, I found it fairly easy to negotiate an extension to the exercise window. Likely because so few people even bring it up.

I joined very early (~15 people total at the company) and have been unsuccessful negotiating an increase. I guess the lawyers have to get involved, board has to sign off, and that's tough. Or at least, that's what I've been told.

Re: If founders treated their investors the same way they treated their employees

#138

Post by giantg2 »

kristopolous wrote: post #15
seibelj wrote: post #3

Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach…

For me I'm far too naturally transgressive to work at a large company. I really wish I could, life would be easier, less work, less stress, pay better... None of them will take me so I keep help building and (sometimes) exiting startups. It's really exhausting. 20 years of this... I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently fol…

It's funny how management tells us to think outside the box and then admonishes us when we do and they don't like it.

Re: If founders treated their investors the same way they treated their employees

#139

Post by compiler-guy »

chii wrote: post #93
smattiso wrote: post #90

Earlier quoted context omitted.

The problem is that some people need money and can't say no. That's why anybody works for minimum wage... The executives and investors and FAANG engineers have all made good money and seen decent RSU terms, you can't pull the wool over their eyes. Someone who is just getting into tech may be allured by a 50k salary and "1 MILLION OPTIONS!!!!" (There are ten trillion in the option pool). I think engineers would do wel…

> The problem is that some people need money and can't say no. If they need money, and this is the best offer they got, then what's the problem with accepting it? They are still better off than not accepting it.

The problem is that evaluating whether or not this is the "best" offer depends in great measure on how one values the options one is getting. And many founders are all sunshine and roses about that--just as the article portrays.

Nothing wrong with taking your best offer. Everything wrong with misleading potential employees about what the offer means.

Re: If founders treated their investors the same way they treated their employees

#140

Post by steindavidb »

cs-szazz wrote: post #71

This hits home. I'm a fairly early employee at a unicorn, with no exit in sight. I've talked to the cofounders about extending my exercise window, and got the response of "We can probably do that when the time comes". Of course if that turns out to not be the case, well then I'm now stuck leaving behind a huge portion of my equity to cover the taxes, assuming I can sell to cover. Love that this seems to be getting mo…

Hi cs-szazz. I remember being in your situation; it's frustrating because you can't Google for answers. Here is advice I was given when in a similar situation.

- Find the other people at the company in your situation (size of grant, type of options). Share your learnings with each other. Consider getting professional advice, the Bay is full of attorneys and CPAs for whom this is a familiar situation.

- If you're at a unicorn, you probably have co-workers who are veterans of other unicorns and have been through this before. Ask them for advice (or an introduction to their source of professional advice)

- As a group, consider asking your board to arrange a limited second market sale to cover exercise costs and taxes. Many institutional investors are happy to buy a little extra stock, especially if it helps with keeping senior staff happy and focused on the right things.

- If you're going to be doing anything involving stock without board approval (like trying to build some kind off house-of-cards, pseudo-legal collateral package for a loan shark) you really need to hire an attorney.

- if you only have options, you might not be a shareholder. Your rights and access to information might be different once you've exercised a share.

- You can't extend the 90 day exercise window on ISOs, that's a federal law thing. The company can convert to NSOs to extend the window, but the setup for that conversion is complicated and expensive.

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