Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Silicon Valley's best kept secret: Founder liquidity

stefantheard.com

Post reply on HN
Print view View original

101–110 of 943 posts

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

#101

Post by chermanowicz »

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…

I can also guarantee you points 2 & 3 are pretty wrong as well. Funny (and also sad) how different peoples realities can be. I have been worn out sitting on both sides of the table to tell you the truth. (One thing I will say is that within VC, the vast majority of the folks actually doing the work are sympathetic and helpful to companies, working with early/senior employees, but it gets lost up the food chain so to speak and there's usually just one or two people making decisions at the end of the day about a particular deal or a whole portfolio- and these people are generally very self-interested.)

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

#102

Post by mtremsal »

adastra22 wrote: post #83
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?

A significant portion of startups that raise a Seed round (or equivalent) never get to a Series A. Maybe 30 to 50% fail at this stage.

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

#103

Post by damezumari »

throwaway-blaze wrote: post #61

I must be an idiot, I've been a cofounder or first hire in 6 startups (2 successful) over the last 25 years and have literally never been offered secondary during a Seed or Series A or B.

It depends a lot on the startup. I have similar number of startup experiences, and only one had early stage secondary sales ( but those were even for non founders ). Mainly money comes from IPO or other exit.

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

#104

Post by cbsmith »

atomicnumber3 wrote: post #67
parentheses wrote: post #32

Earlier quoted context omitted.

I can share some details. Employee 1: ~1% Employee 10: ~0.1% Employee 1000: 0.01% I'm extrapolating from past experiences in SaaS companies where I was employee number X and X has varied fairly widely.

This always seems like a huge scam to me. Employee 1 gets 1%? It seems unfair from multiple perspectives. One is just a straight up naive sense of fairness. If I'm going to be in the trenches with you, I had better be able to see my ownership % in a pie chart with my glasses off. If we're out here both making chairs and when we sell a chair for $100, you get $85 (assuming someone took one of the standard-ish seed rou…

It's not even remotely fair, but it does follow the golden rule: he who has the gold makes the rules. The founders were the ones who investors were willing to trust their money with. Employee #1 was not.

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

#105

Post by inhumantsar »

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…

the lottery ticket analogy doesn't quite hit the mark imho.

I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people.

even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that.

with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket.

I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you'll walk out worse off than you were when you walked in.

if a startup or VC truly gave a shit about anyone outside the c-suite, they'd have an employee ownership program of some form and assign actual equity, not just options. I've yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.

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

#106

Post by knappe »

Look, I've worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn't going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively.

My first startup I walked with a paltry sum and the owners suddenly went from being doctors with a side hustle to private investors. That was my first warning sign and really drove home the need to invest in myself because it certainly wasn't going to be someone else doing it, despite the talk of changing the world. It was really, really obvious that the payouts were stacked in one direction and it certainly wasn't on the side of employees, early or not. I still enjoy working for small companies, but the hype and bullshit are really tiring and so very cultish. I'd really suggest treating the startup life like a scratch lottery ticket, because that is all it is. If you win, you're gonna get paid but it won't be life altering money, just like a scratch lottery ticket. Plan around it being worth zero and go in eyes wide open.

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

#107

Post by adastra22 »

mtremsal wrote: post #102
adastra22 wrote: post #83

Earlier quoted context omitted.

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?

A significant portion of startups that raise a Seed round (or equivalent) never get to a Series A. Maybe 30 to 50% fail at this stage.

Are we talking about just YC-style internet/app startups? Two of my startups have been deep tech where you can't do shit without a Series A, and the third was crypto in the start of that boom where VCs were begging to lead your Series A. So maybe I just work in a vastly different field.

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

#108

Post by quartesixte »

adastra22 wrote: post #77
rKarpinski wrote: post #71

Earlier quoted context omitted.

> 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). Have seen companies offer this to employee's And companies that let employee's take money off the table at series A are also likely to be generous with meaningless titles; that is they will let early employee's call themselves founders.

At a Series A?!? That's insane to me. We're talking about the first priced funding round for the company, right?

I have witnessed small liquidity events at Series A and Series B that allowed for some small percentage of all total equity vested (around 3-5% ish, depending on the terms of your specific options grant) to be cashed out at some multiple of the FMV price. AFAIK the founders held themselves to the same restrictions (5% total, I believe?) to keep it relatively "fair".

Pre-Seed, Seed, and some really really early Series A employees got to cash out fairly significant chunks of equity. Not as much as a founders' 1-2 million, enough for downpayments on homes or slick new cars all cash. The founders apparently were incredibly generous to Seed stage employees.

Still doesn't compare to a Founders' equity, as this article implies.

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

#109

Post by jjav »

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…

> Getting out for an early employee after funding rounds is expensive

Early exercise and 83(b) is a must, or forget about it.

When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it'll be after board approval but as soon as that happens).

If they don't allow that or if the price is too high for your comfort level, don't join that startup.

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

#110

Post by paulddraper »

IDK how secret this is.

But the reason for founder equity -- as with anything in a free market system -- has nothing to do with deserve and everything to do with demand/supply.

There are many more we early employees willing to take 1% equity than founders willing to offer it.

Post reply on HN