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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

#151

Post by joeblubaugh »

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…

After the Series B for my last company the three founders owned something like 45% of the outstanding shares, and when they sold took out something like 40% of the price. What were the rounds like that led to less than 10% after 3ish rounds?

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

#152

Post by benjaminwootton »

I think it’s entirely reasonable for a founder to take money off the table.

The founder possibly walks away from a 6-7 figure opportunity cost working for a big corporate or FAANG. In return they take zero salary.

All of the money that begins to come in is then used to pay employees.

Maybe they raise some funds and pay themselves a below market salary for years.

A few years later they are over $1 million in opportunity cost and still owning a lottery ticket.

By this time they are a bit older, have a family, want to buy a house etc.

They are also massively wedded to the project for as long as it takes, so strapped in for the long haul.

The founder should be able de-risk at the next funding round and not continuing to roll it all for the benefit of VCs.

The same is probably true of early employees, but a lot of the factors above are dialled down. They didn’t work for zero, salary wasn’t under market by such a degree and they haven’t had such a high opportunity cost.

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

#153

Post by dchftcs »

halgir wrote: post #136
xandrius wrote: post #126

Earlier quoted context omitted.

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

If the salary is market rate for that person, I suppose it's by definition a fair deal. I've seen startups hire "founding xyz" two years after they started. Looks to be a vanity title in many cases.

Total comp needs to be market rate, not just salary. And non-preferred shares should be valued lower than preferred stock. Lumping non-preferred shares with prefereed shares is one of the bigger lies startups tell employees.

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

#154

Post by extr »

lumost wrote: post #90
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.

I recently applied to a seed stage YC company that was offering me 1.5% equity for a founding eng role which they felt was generous. So basically I get to do all the work for like 1/50th of what the founder has? Get real lol. I even pointed this out to them and they said "it's totally normal, that's the way it's done". Like oh okay, as long as everyone else is getting ripped off too.

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

#155

Post by xandrius »

nevir wrote: post #145
xandrius wrote: post #126

Earlier quoted context omitted.

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…

Yeah but I don't think it's fair to compare salaries to FAANG firms, as they are extreme outliers (and not really good companies).

So you would get paid like at another company but get equity on top and it's not a good deal? How comes?

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

#156

Post by xandrius »

petesergeant wrote: post #146
xandrius wrote: post #126

Earlier quoted context omitted.

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

Yeah, that's my thought too. Many companies give ~$200/y for way less upward mobility, impact and voice, and without any equity.

Maybe you'd lose our on some tiny perk/benefit but that's not always the case.

So I'm not seeing what's wrong with this deal with the only caveat that the engineer has the experience not to overwork/burn out.

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

#157

Post by extr »

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?

I was recently faced with this exact offer at seed stage vs a series B with a similar salary. YMMV but what I found when I ran the numbers is the series B offer had a lottery ticket with a similar risk/reward profile to the seed stage. Of course I got less total equity, but it was way more likely to ever actually materialize. Plus being employee 80 at a Series B is a lot easier.

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

#158

Post by xandrius »

inhumantsar wrote: post #105
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 acquis…

What would you suggest to someone who wants to work at interesting (non-evil) companies, wants a decent comp ($200k+) and doesn't mind being one of the first to lay the foundation with the possibility of upward mobility in the future?

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

#159

Post by jjav »

xandrius wrote: post #155
nevir wrote: post #145

Earlier quoted context omitted.

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…

Yeah but I don't think it's fair to compare salaries to FAANG firms, as they are extreme outliers (and not really good companies). So you would get paid like at another company but get equity on top and it's not a good deal? How comes?

> So you would get paid like at another company but get equity on top and it's not a good deal? How comes?

If it were truly market rate (total comp not just base salary) then sure, it's a good deal. How likely are you to find that in an early startup? It must be pretty close to zero percent chance. But if you find it, sure, it's good.

You'll still work harder and be more stressed but it'll be a different learning experience which is always nice.

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

#160

Post by xandrius »

jonathankoren wrote: post #140
xandrius wrote: post #126

Earlier quoted context omitted.

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

Yes. Because you’re literally the same as the founder, but getting waaaay less equity. First employee is always a sucker

But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that.

So I am not sure it's that easy.

Of course, the idea is to keep the same work/life balance one would have at a more established company.

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