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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

#141

Post by novok »

yieldcrv wrote: post #96
CalChris wrote: post #86

Earlier quoted context omitted.

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

requires having cash to tie up indefinitely, privilege alert we did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS th…

If your early enough (like seed stage), it's like $300 for %5.

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

#142

Post by repomies69 »

onion2k wrote: post #127
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 irony of being an early engineering employee (and any engineer really) is that the better job you do the easier it is to replace you with someone who can maintain what you built. Accepting a below market salary and then doing a great job is a huge risk.

> Accepting a below market salary and then doing a great job is a huge risk.

By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.

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

#143

Post by ZhadruOmjar »

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…

In my experience there has never been a good time to be a founding engineer even in companies that have later made it. It's much better to join the company 1-3 years prior to IPO/Sale where you get many of the benefits but significantly less stress. If I had worked at startups I would have been taking a 30-40% pay cut compared to the roles I did work and none of those startups have gone anywhere with most crashing and burning.

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

#144

Post by ivalm »

adastra22 wrote: post #94
tompetry wrote: post #85

Earlier quoted context omitted.

> 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.

I straight up don't believe the article. (Edit: not saying author is lying, but that they're extrapolating from bad data.) I've worked as employee #3 at one startup, co-founded another which achieved >$3bn valuation, and am now solo-founding a third. I've networked with lots of other founders. I've never, ever heard of a secondary liquidity offer in a Series A. I think the paragraph above that quote explains it. They…

This so much. So many folks in this thread are talking about series B+ and only paying themselves under 100k/yr and that’s just a scam. Once you have institutional money you can just start paying yourself enough to live ~comfortably.

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

#145

Post by nevir »

xandrius wrote: post #126
lumost wrote: post #90

Earlier quoted context omitted.

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.

What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?

Having been in this exact position multiple times now (once quite successful, others not), you should probably consider it a wash.

Unless the company hits unicorn AND your shares become liquid (secondaries don't count—you generally won't be able to sell enough shares to make a meaningful dent), you'd make just as much or more at a FAANG firm with way less risk.

Of course, I say this while not at a FAANG firm, because I prefer startup type work.

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

#146

Post by petesergeant »

xandrius wrote: post #126
lumost wrote: post #90

Earlier quoted context omitted.

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.

What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?

Market salary with stock upside plus the chance to level up a job title has potential to be a great deal

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

#147

Post by rKarpinski »

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?

> At a Series A?!?

Yeah, at Series A.

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

#148

Post by ZhadruOmjar »

ivalm wrote: post #133
carliton wrote: post #89

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 so…

> 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 If you are taking less than $100k/year salary for 7 to 10 years while also absolutely no-lifing then that’s on you. It’s true that early on you prob take ramen salary, but that’s for one or two years. You can prob scale to 200k by year 3 if your thing is viable. No-lifing…

If the product isn't making enough money to pay people by year 5 you're not a startup founder you're just unemployed with a side project.

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

#149

Post by ivalm »

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…

When you work for a startup you have a ton of insider information not available to outsiders, even investors. If you think your startup won’t be successful then obviously just find a different job.

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

#150

Post by Finbarr »

Finbarr wrote: post #66

Secondary at Series A is very rare. Part of the reason more early employees don't get included in secondary sales is because of the Securities Exchange Act of 1934 14e-2. If you have more than 10 sellers involved, the transaction can be considered a tender offer, which triggers additional regulatory requirements and disclosures. > As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR i…

The bigger secret is that stock sold in secondary sales by founders and employees is usually common stock, and the purchasers will often get the right to convert this to preferred stock. This means that the company is instantly encumbered with a greater liquidation preference, without the increase in balance sheet to offset it.
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