Silicon Valley's best kept secret: Founder liquidity • Hacker News Board

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

#81

Post by adastra22 » Wed, Jun 12, 2024, 5:22 AM UTC

tompetry wrote: post #70

The single data point here is Adam Neuman, so I have a hard time taking this seriously. I have raised 6 equity rounds as a founder of 2 companies. Never took a dime off the table, was never offered it, never asked for it. We actually did have early employees ask about it, and we encouraged them to not sell. Why would you, especially at early stage valuations? You're either bad at math, or you know you're about to fai…

> Never took a dime off the table, was never offered it, never asked for it

Well they certainly wouldn't volunteer the offer without you asking for it.

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

#82

Post by xbmcuser » Wed, Jun 12, 2024, 5:23 AM UTC

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 not in the interest of the VC that the founders have financial security. Well at least the type of VC's that have come up in since the dot com boom where it was not about building viable businesses but getting sold to the highest bidder when the founder is under financial pressure to sell they can strong arm him into easily compared to a founder that is financially secure and interested in building and running a business

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

#83

Post by adastra22 » Wed, Jun 12, 2024, 5:24 AM UTC

rytill wrote: post #8

Only a small percentage of tech companies raise a series A or beyond. To me, this just seems like a capital-efficient alternative to the founder increasing their salary that could be negotiated. I had no such perception that this was some “secret” thing, I assumed it happened since you can do whatever you want if the investors and founders agree that it makes sense.

This whole thread is leaving me very confused. Series A is the first priced round. You're saying only a small percentage of tech companies raise a priced round?

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

#84

Post by varenc » Wed, Jun 12, 2024, 5:24 AM UTC

I always thought there was another reason for VCs encouraging founders to sell shares: giving them a taste of wealth. If you're a founder that sold 2M in stock a year ago and a 200M acquisition offer comes along, you'd be less tempted now that you appreciate the difference between small millions and big millions.

If you thought you had a real chance of going much bigger, having cash already makes you more willing to take that risk. And since VCs tend to make most of their money off a couple very big wins, it's worth it to have founders that won't settle for less than billions.

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

#85

Post by tompetry » Wed, Jun 12, 2024, 5:26 AM UTC

adastra22 wrote: post #81

tompetry wrote: post #70

The single data point here is Adam Neuman, so I have a hard time taking this seriously. I have raised 6 equity rounds as a founder of 2 companies. Never took a dime off the table, was never offered it, never asked for it. We actually did have early employees ask about it, and we encouraged them to not sell. Why would you, especially at early stage valuations? You're either bad at math, or you know you're about to fai…

> Never took a dime off the table, was never offered it, never asked for it Well they certainly wouldn't volunteer the offer without you asking for it.

> The founder in this scenario was offered $400,000 of liquidity at Series A and $750,000 at Series B and encouraged to do so by their board of investors to de-risk their own life.

This is from the article. I would tend to agree with you.

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

#86

Post by CalChris » Wed, Jun 12, 2024, 5:27 AM UTC

jmward01 wrote: post #68

I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be part of what my friends and I were building. Had I had the chance to 'de-risk my life' with some equity to replenish my empty bank account, which was empty from taking an early employee salary, I may have been able to stay but in the end I had to get out. Getti…

If you were early, why didn't you purchase your options and file an 83b?

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

#87

Post by aaronbrethorst » Wed, Jun 12, 2024, 5:30 AM UTC

If employees realize they are taking more risk than the founders, maybe they'll ask for more compensation, maybe they'll congratulate the founders and move on with their day, maybe they'll start yelling: "I'M TAKING SO MUCH RISK, IT'S SO HARD TO BUILD A COMPANY, I DON'T EVEN HAVE ACCESS TO LIQUIDITY!!!". And maybe they're right.

This is why I think the term "Founding Engineer" is often just a fancy way of saying 'sucker.'

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

#88

Post by wrs » Wed, Jun 12, 2024, 5:32 AM UTC

xbmcuser wrote: post #82

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 not in the interest of the VC that the founders have financial security. Well at least the type of VC's that have come up in since the dot com boom where it was not about building viable businesses but getting sold to the highest bidder when the founder is under financial pressure to sell they can strong arm him into easily compared to a founder that is financially secure and interested in building and running a…

It’s not binary. Enough financial security that they don’t care what their investors think, no. Enough that they’re thinking of how to grow the company rather than how they’re going to pay their mortgage, yes.

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

#89

Post by carliton » Wed, Jun 12, 2024, 5:36 AM UTC

Many companies don’t get to Series A and very few companies get to Series B. Even if they do get to Series A or B, they won’t be able to raise the amounts you see in the news and have heavy dilution.

Very few founders have double digits percent ownership by Series B and Series C.

Liquidity of $400k or more is a lot and isn’t available for many founders.

All of this after 7 to 10 years of working 80+ hours week, no social life, loosing family, sacrificing health, taking less than $100k/year salary, constant worry of failure, dealing with ups and downs of employees, being a support system of everyone in the company while not being one for their own families, and no guarantee of success. All of this for seeing their dream come true because failure would be worse.

I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.

Also 20% option pool and exercising options up to 10 years are not uncommon.

Source: 2nd time founder.

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

#90

Post by lumost » Wed, Jun 12, 2024, 5:36 AM UTC

jmward01 wrote: post #68

I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be part of what my friends and I were building. Had I had the chance to 'de-risk my life' with some equity to replenish my empty bank account, which was empty from taking an early employee salary, I may have been able to stay but in the end I had to get out. Getti…

This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.