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

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

#211

Post by throwaway2037 » Wed, Jun 12, 2024, 9:06 AM UTC

knappe wrote: post #106

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 t…

    > Plan around it being worth zero and go in eyes wide open.

This is the best advice I have seen on HN about start-ups. Note: I have seen it repeated multiple times.

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

#212

Post by bux93 » Wed, Jun 12, 2024, 9:07 AM UTC

saulrh wrote: post #124

The founders I've known were already wealthy when they decided to do a startup. They aren't at risk because even if the startup falls through without making a cent they have enough money in their bank account to withdraw $200k/year for thirty years. There's no risk there.

Most can even file for personal bankruptcy and then lounge around in their parent's home for a bit. (Or a house in the name of their spouse-with-a-prenup.) My parents didn't have a garage for me to found a business in.

When people helpfully suggest, why don't you start your own business, they usually have a substantially bigger than average support network and liquidity to begin with. I never get those suggestions from people who've actually experienced hardship due to job loss or financial stress.

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

#213

Post by moss2 » Wed, Jun 12, 2024, 9:12 AM UTC

It is too bad it is up to the founders themselves to offer liquidity to employees. Founders are financially incentivized to not offer anything, so you're counting on their sense of justice and morals to overcome their sense of personal gain. This should be regulated.

(Yes, this is a political opinion. No, I am not American.)

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

#214

Post by throwAGIway » Wed, Jun 12, 2024, 9:12 AM UTC

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.

That's simple - they find a CTO.

The really hard thing is marketing and closing big clients.

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

#215

Post by bux93 » Wed, Jun 12, 2024, 9:12 AM UTC

I thought "founder liquidity" would refer to the supply and fungibility of founders. I've heard that, although ZIRP is over, there is still a large supply of capital, which implies that there's not enough good idead / founders to go around?

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

#216

Post by Tepix » Wed, Jun 12, 2024, 9:15 AM UTC

throwbigdata wrote: post #206

mapt wrote: post #75

Earlier quoted context omitted.

If you have 200 million "of your own money" to spare, you are no longer just a person for the purposes of this conversation, you're a walking VC fund, and you're not really risking a substantial change to your quality of life going from 250M to 50M net worth. Your living expenses are already generously compensated for by the large salary that you, the VC fund pays you, the person, out of your personal bank account, a…

Life is very different at $50M v $250M

Is it?

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

#217

Post by nikisweeting » Wed, Jun 12, 2024, 9:20 AM UTC

Wait wtf founders are taking liquidity in second rounds?!

Had I known this was possible I would have totally changed my strategy years ago.

I've founded 3 startups and always thought I could only take out whatever ramen salary I could defend to the most scrutinizing investors. I've given a heck of a lot more in employee bonuses than I've ever taken directly out of the investor pot, where was this "de-risk your own life" essay all those years ago!

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

#218

Post by tempusalaria » Wed, Jun 12, 2024, 9:20 AM UTC

One under appreciated dynamic that has changed is that companies with limited revenue/PMF are raising more money at higher valuations. This mean that more early employees are being hired into less certain, less profitable situations, and the equity they are getting is a smaller percentage behind more liquidity preferences.

E.g. There are numerous AI startups I’ve spoken to in the past year with negative gross margins, 8 figure raises, and >100x ARR multiples. $1mln in paper equity in such a company is probably intrinsically worth Being an early employee at a startup right now is a really bad financial decision imo

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

#219

Post by not_a_dane » Wed, Jun 12, 2024, 9:20 AM UTC

The entire system seems like a scam. Thankfully, the COVID-19 pandemic and the Ukraine war have deflated startup valuations a bit. I believe another crisis is looming in the near future, and once it passes, we should be in a better place for the next 5-10 years.

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

#220

Post by KennyBlanken » Wed, Jun 12, 2024, 9:21 AM UTC

sashank_1509 wrote: post #39

kneath wrote: post #16

Earlier quoted context omitted.

I have seen a lot of companies, a lot of rounds. 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). I love the idea of your universe, though.

The very first startup I joined after grad school allowed all employees to cash out significant chunks of their stock in the Series A round. Also Elon famously put 200 million of his own money into Tesla and SpaceX to keep it afloat, which is the opposite of cashing out early.

...while he was getting loaned $200,000 a month for personal expenses by his billionaire buddies.

https://www.cnbc.com/2017/04/27/the-crucial-decision-teslas-...

Also, that may have kept tesla and spacex 'afloat' but what really saved both companies was billions upon billions of dollars in government contracts, subsidies, preferential loans, and tax breaks. Nevada alone gave nearly two billion dollars to Tesla.