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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

#181

Post by rrrrrrrrrrrryan »

mooreds wrote: post #148
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…

> I think engineers would do well to know that you are a COST CENTER to the business and the people who run it. They need you to make their product so they can make money but they hire you begrudgingly. I don't agree. Engineers are sometimes a cost center, but they can also be a profit center. You can help revenue by decreasing expenses by automating something or noticing how the business is wasting money w/r/t tech…

> You can help revenue by decreasing expenses by automating something or noticing how the business is wasting money w/r/t tech and taking steps to help fix that

I once worked with a process engineer who, a few months after being hired, had identified a number of manual processes as low hanging fruit that could be easily automated. He presented his findings to upper management, argued that they should let him build out a team to automate these processes, and that they could fund it with the headcount he's able to reduce. Management gave him the green light, adjusted his budget each quarter based on how much money he had saved the company over the previous quarter, and over a few years he was immensely successful.

You'll be treated as a cost center so long as you let other people think of you as a cost center, but if you can frame your contributions in a way that makes your value proposition obvious, it's possible to be treated differently while doing largely the same work.

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

#182

Post by PeterisP »

sambroner wrote: post #4

Good read. I like the new story format to rehash the lively startup vs big tech employment debate on HN. It could almost use a part 2 to explain aspects of the conversation (how is the employee making a $300k investment, preferred stock, etc), but I don't think anyone is missing the joke. The story format makes it clear how employees are getting a worse deal than investors. Still, employees receive cash dividends eve…

Quoting the original article, "If you’re taking a $X pay cut to join a startup, you’re really investing $X in them. Far be it from me to tell you how to spend your money, but make sure you’re happy with what you’re getting in return."

The appropriate consideration when working for most startups is not that you're getting a cash dividend, quite the opposite - it's equivalent to the startup withholding a significant amount from each paycheck, and "buying" options/stock/whatever with that withheld money - you honestly earned that money, but you're not getting cash but something else instead. Is that something else a good value for that money?

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

#183

Post by actuator »

a13n wrote: post #173
actuator wrote: post #168

Earlier quoted context omitted.

Can't you postpone the tax to be paid to when actual tradable equity will be delivered?

That's the exact purpose of stock options. From the IRS's perspective, when you receive shares in a private company, that's still income, because those shares have a specific value (determined by 409a valuation), despite them being illiquid.

Why the need for an exercise price(you can always keep it at a nominal amount like 1 cent) and short windows of redemption once you leave then? From most terms of options I have seen or heard of they have been quite restrictive compared to how flexible RSUs are.

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

#184

Post by wskinner »

actuator wrote: post #168
a13n wrote: post #161

Earlier quoted context omitted.

You can do this at a public company because the RSUs are liquid. They can be sold at market rate on the stock market, for cash, which is what's given to the government. The government doesn't want your illiquid startup shares.

Can't you postpone the tax to be paid to when actual tradable equity will be delivered?

Yes, kind of - what you're thinking of is known as an 83b election. But you still owe tax in the year you are granted the stock, at the current fair market value. If your startup is pre-funding, that's fine, it will be 10s of dollars. If your startup is funded, it will be 10s of thousands to hundreds of thousands of dollars.

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

#185

Post by wskinner »

For those in the comments who are confused about how various equity compensation schemes work, the best guide I'm aware of is https://www.holloway.com/g/equity-compensation/about. It covers all the common types - RSUs, NSOs, ISOs, 83b elections, and more.

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

#186

Post by wskinner »

actuator wrote: post #160
a13n wrote: post #147

Earlier quoted context omitted.

Options aren't a game. They're preferable to employees, for tax reasons. If startups gave employees shares, then employees would have to pay taxes on those shares, even though they're illiquid - so you're paying taxes on something you can't even sell! Options solve this problem well, by delaying the tax burden until the equity is actually worth something. If it ends up worth nothing, you don't exercise your options a…

I doubt that's the reason. Like some FAANGs do with stocks, can't you always deduct a part of RSUs as tax liability and add the remaining into the employee's account?

You're probably getting downvoted because you're making confident-sounding but wrong claims. I posted a top level comment that should resolve all your confusion: https://news.ycombinator.com/item?id=24202814

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

#187

Post by GauntletWizard »

Analemma_ wrote: post #180
xur17 wrote: post #129

Earlier quoted context omitted.

> Someone who is just getting into tech may be allured by a 50k salary and "1 MILLION OPTIONS!!!!" This reminds me of a job offer from a startup I interviewed with that offered me a specific number of options, but wouldn't tell me anything that I could use to value them, effectively forcing me to value them at $0.

You should always value options at $0 even if they do give you information. Take the probability that the company won't go under, multiplied by how much you'll lose in further dilution rounds, multiplied by the likelihood that you'll get screwed by some other kind of dirty-dealing, and startup equity almost always comes out to be worthless. Work at one anyway if you want the experience, but never kid yourself that yo…

The real way to get rich by working at a startup is to advance your career while there - Gain experience and title increases at a startup, where such experience and title increases are easy to get because of the relative lack of competition. Iff you startup makes it big, ask for commensurate raises. Otherwise, leverage that experience into working for a larger company that will pay more.

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

#188

Post by svachalek »

justinclift wrote: post #145
brogrammernot wrote: post #72

Earlier quoted context omitted.

How much money do you actually need though? I’ve worked for 5 startups now and my equity payout has been 0, 0, 0, 0, and now I stand I make low 7 figures from the equity on this last company (publicly traded now). During those startups the following happened: - I saw my nieces and nephews so little they forgot my name. They were young, sure, but it still stung when they look at you like a stranger - Messed up a 8+ ye…

> ... now I stand I make low 7 figures from the equity on this last company (publicly traded now). Isn't that a "never need to work again" situation though? eg, you've effectively freed up your future to put time into whatever you want?

3% is a pretty good rule of thumb for perpetual withdrawal rate. If it's say $1M after taxes, that means $30k/yr. This is enough to retire on but only if you're willing to make lifestyle changes. Probably not that hard to do if you're 30 and single and renting, but married with kids and a mortgage it's a tough sell.

(Obviously as your raise the definition of "low 7 figures" this can change dramatically)

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

#189

Post by actuator »

wskinner wrote: post #186
actuator wrote: post #160

Earlier quoted context omitted.

I doubt that's the reason. Like some FAANGs do with stocks, can't you always deduct a part of RSUs as tax liability and add the remaining into the employee's account?

You're probably getting downvoted because you're making confident-sounding but wrong claims. I posted a top level comment that should resolve all your confusion: https://news.ycombinator.com/item?id=24202814

I think my phrasing was wrong, it was more of a question. Edited it. Thanks.

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

#190

Post by phone8675309 »

justinclift wrote: post #145
brogrammernot wrote: post #72

Earlier quoted context omitted.

How much money do you actually need though? I’ve worked for 5 startups now and my equity payout has been 0, 0, 0, 0, and now I stand I make low 7 figures from the equity on this last company (publicly traded now). During those startups the following happened: - I saw my nieces and nephews so little they forgot my name. They were young, sure, but it still stung when they look at you like a stranger - Messed up a 8+ ye…

> ... now I stand I make low 7 figures from the equity on this last company (publicly traded now). Isn't that a "never need to work again" situation though? eg, you've effectively freed up your future to put time into whatever you want?

Low 7 figures to me would be between $1,000,000 and $3,000,000.

I don't think that I would call that "never need to work again" money. It's between 10 and 30 years of my salary.

A good lump sum to stash in the retirement fund. Maybe retire at 55 instead of 65, but definitely not "never need to work again" money.

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