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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

#171

Post by titanomachy »

extr wrote: post #154
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.

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.

I went through exactly the same discussion in my last job search, and was assured that the offer was in line with industry standards. Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever. I liked the team and I think it would have been a fun job, but not quite fun enough to work nearly for free. I don’t think I’ll ever work for an early startup as an employee.

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

#172

Post by zaptheimpaler »

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?

Depends on the options available to the candidate. Typically someone joining a startup very early probably has the skill to get FAANG salaries with less stress and more free time. There are also hundreds or thousands of mid size companies that pay very well nowadays, its not just FAANG.

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

#173

Post by rimeice »

matthewsinclair wrote: post #128
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.

This reminds me of how I have seen a few asks lately for roles where a company is looking for a CTO for their “AI startup”. How an “AI startup” (whatever that might actually mean) can _start up_ without a CTO is beyond me, and raises some very big red flags about what that company might be up to.

Founding “CTO” might be more suited to a “Head of Research” role as the company grows beyond a few engineers.

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

#174

Post by aorloff »

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.

Sure, in startups that don't grow.

In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren't so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales.

And if the startup is not growing, you can stop worrying about the equity package

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

#175

Post by lumost »

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?

Most early stage companies turn out to be poor companies for employees. Long hours, toxic leadership, unclear roadmaps etc. Working at a small firm doesn't guarantee high quality.

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

#176

Post by erremerre »

jensneuse wrote: post #162

As a founder with multiple years of experience I can say that this post and a lot of other comments are coming from people who don't understand the life of a founder. It's not so much about risk. My peers earn 5-10x my salary. I'm paying my employees more than myself. I have to provide for 3 kids and we have a lot of debt on the house. I'm working day and night, 24/7. I don't like the phrase "taking money off the tab…

So you either you are neglecting your kids, or you are calling work at building legos with your kids?

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

#177

Post by lumost »

xandrius wrote: post #156
petesergeant wrote: post #146

Earlier quoted context omitted.

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.

It depends on the role and company, if you want to get paid 200k per year for the opportunity to do X - then sure. In practice, you may end up doing basic work at a lower quality than a large firm. Such experience doesn't translate the up-leveled title to a more standard position.

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

#178

Post by lmeyerov »

quartesixte wrote: post #108
adastra22 wrote: post #77

Earlier quoted context omitted.

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…

is this zero-interest rate phenomena in action?

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

#179

Post by defrost »

erremerre wrote: post #176
jensneuse wrote: post #162

As a founder with multiple years of experience I can say that this post and a lot of other comments are coming from people who don't understand the life of a founder. It's not so much about risk. My peers earn 5-10x my salary. I'm paying my employees more than myself. I have to provide for 3 kids and we have a lot of debt on the house. I'm working day and night, 24/7. I don't like the phrase "taking money off the tab…

So you either you are neglecting your kids, or you are calling work at building legos with your kids?

Be kind. Don't be snarky. https://news.ycombinator.com/newsguidelines.html

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

#180

Post by sokoloff »

joeblubaugh wrote: post #151
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?

I read GP as very few founders individually have double-digit ownership, not collectively.
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