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Silicon Valley's best kept secret: Founder liquidity

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Re: Silicon Valley's best kept secret: Founder liquidity

#41

Post by smallnamespace »

kneath wrote: post #16
josh2600 wrote: post #6

The best startups have a concept which is summed up thusly: “We all go to the pay window at the same time.” It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird. I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all…

I have seen a lot of companies, a lot of rounds. I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees). I love the idea of your universe, though.

VCs will go along with or sometimes even encourage founders to take a little bit out, but employees rarely don’t have the same level of bargaining power.

Re: Silicon Valley's best kept secret: Founder liquidity

#42

Post by toomuchtodo »

jmward01 wrote: post #22
iEchoic wrote: post #14

Making less money isn't really the risky part about founding a startup. The risky part is missing out on years of other life experiences, stressing (or losing) your closest personal relationships, failing and feeling personally responsible for disappointing everyone you convinced to believe in you, and developing an anxiety disorder (or worse) from chronic long-term stress. Author's suggestion that they could have ta…

Having been employee #10 a couple times now, there is a lot of that even when you aren't a founder. It would be nice if the 'de-risk your life' stuff this article describes for founders was also available for early employees.

Work a high salary job and buy lottery tickets or 0DTE options instead. Half joking. Look at the success rate of outlier comp through liquidity as an early startup employee. If professional stock pickers can’t pick better than index funds, what makes you think you can do better picking startups, spending non renewable time, working for years vesting common shares that you might get liquidity for eventually, assuming they have any positive value.

If you want to get wealthy, there are more efficient, less effort ways. If you want to suffer with low chances of success based on all available data, well, help yourself to the firehose of startup jobs.

Re: Silicon Valley's best kept secret: Founder liquidity

#43

Post by stanleydrew »

JumpCrisscross wrote: post #23
tdiggity wrote: post #18

Earlier quoted context omitted.

I think he means 83b early exercise: https://www.esofund.com/blog/early-exercise-options-83b-elec... Extremely beneficial when paired with QSBS and liquidity.

Does anyone restrict 83b elections? Is that even allowed?

What would this even look like? An 83b election is something I file with the IRS. Are you suggesting a company might have me sign a contract committing me to not file an 83b election?

How would they ever find out if I did file, and why would they care?

Re: Silicon Valley's best kept secret: Founder liquidity

#44

Post by Sytten »

keeptrying wrote: post #19

Founder liquidity doesn’t make up for much in the average situation. Making $400k after making $100k for 4 years doesn’t really change much. It gets you upto junior engineer level. The underestimated play is becoming a cofounder to a great CEO 2nd time founder.

Getting out of the SV bubble this is an insane amount of money. I boostrap my business and I make 40k a year. Most senior SWE around here make less than 100k.

Re: Silicon Valley's best kept secret: Founder liquidity

#45

Post by bigiain »

kortilla wrote: post #15
ajhit406 wrote: post #4

Love the movement and glad there are founders out there pushing the envelope for their team. (aside: 51 points but only 1 comment? It's a front-page worthy article, but sort of feels like there's some vote gaming happening. I've never seen 50 points w/ 1 comment.)

It’s a vote bait title. (Type of thing people upvote without reading the article)

I wonder if that's something the algorithm can detect?

Measure the time between when someone clicks a link to the article and when they upvote it, compare that to one of the "estimated reading time" metrics of the linked page...

(Which, of course won't work, because at least some people (ie me) open a bunch of tabs for everything that looks interesting on the homepage, then spend a few minutes at a time over the entire morning choosing a tab and reading/voting...)

Re: Silicon Valley's best kept secret: Founder liquidity

#46

Post by molsongolden »

JumpCrisscross wrote: post #23
tdiggity wrote: post #18

Earlier quoted context omitted.

I think he means 83b early exercise: https://www.esofund.com/blog/early-exercise-options-83b-elec... Extremely beneficial when paired with QSBS and liquidity.

Does anyone restrict 83b elections? Is that even allowed?

Not a restriction of the 83b election but a restriction of when you can exercise. Without early exercise you are stuck exercising as you vest so there’s more likely to be a taxable spread between your option strike price and the value of the stock. With early exercise you are exercising and making the 83b election when there’s no taxable spread.

Re: Silicon Valley's best kept secret: Founder liquidity

#47

Post by keeptrying »

parentheses wrote: post #29
keeptrying wrote: post #19

Founder liquidity doesn’t make up for much in the average situation. Making $400k after making $100k for 4 years doesn’t really change much. It gets you upto junior engineer level. The underestimated play is becoming a cofounder to a great CEO 2nd time founder.

This assumes how much of the founders' shares they sell and the size of the raise. The $400k figure is just arbitrary here. I imagine when companies are raising Series B or later, founders are walking away with millions.

$1-$2M after 6 years of working at $100k isn’t really much either in the Bay. (Which is the only place you’d get that.)

Even that averages to a senior Eng salary for the very very few founders who get there.

This has to be tempered by other realities - no social life - working 80 hours a week easily - risking personal finances - health problems - good chance of divorce / no deep relationships

Starting a company is no joke.

Very few get to series B/C.

Re: Silicon Valley's best kept secret: Founder liquidity

#48

Post by Joel_Mckay »

"Silicon Valley's [worst] kept secret: [Loyalty will not be rewarded]"

The fact remains that sweat-equity deals rarely work out in a founding employees favor.

i. IP selloff to umbrella firm for $10

ii. contract restructuring or share dilution

iii. jettisoned from a company months before an IPO

Most techs have seen all of these events unfold... if you are around long enough.

People always have their own strategic truths once significant money is on the table. Even moderate success can destroy peoples memory, and anything not legally watertight is just hot air.

Best of luck, =3

Re: Silicon Valley's best kept secret: Founder liquidity

#49

Post by hackitup7 »

darth_avocado wrote: post #35
josh2600 wrote: post #6

The best startups have a concept which is summed up thusly: “We all go to the pay window at the same time.” It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird. I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all…

It’s like trading windows and blackout periods for employee RSUs, but equity selloff on a schedule for the c suite.

That's not quite how it works. Certain people are required (or strongly encouraged) to sell on a 10b5-1 plan. These plans can trade outside of open trading windows, but they have a meaningful cooldown period before they go into effect and can only be entered into during open trading windows. So it's not necessarily "better."

Re: Silicon Valley's best kept secret: Founder liquidity

#50

Post by bjt »

toomuchtodo wrote: post #42
jmward01 wrote: post #22

Earlier quoted context omitted.

Having been employee #10 a couple times now, there is a lot of that even when you aren't a founder. It would be nice if the 'de-risk your life' stuff this article describes for founders was also available for early employees.

Work a high salary job and buy lottery tickets or 0DTE options instead. Half joking. Look at the success rate of outlier comp through liquidity as an early startup employee. If professional stock pickers can’t pick better than index funds, what makes you think you can do better picking startups, spending non renewable time, working for years vesting common shares that you might get liquidity for eventually, assuming…

You're not just "picking a startup". That early, you're also a big factor in whether it succeeds. Betting on yourself is different than buying a lottery ticket. (Maybe just as irrational for a lot of people, but still.)
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