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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

#291

Post by throwaway98797 »

titanomachy wrote: post #171
extr wrote: post #154

Earlier quoted context omitted.

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 eve…

you should work at google

startups are about the work

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

#292

Post by MobileVet »

This is a great post and I am glad it is getting high visibility. Everyone involved in a startup should understand this and consider it as part of their 'do I join' calculation. Additionally, founders shouldn't try to hide it nor should they horde the returns.

Clearly founders are the reason the business exists, but the whole team is the reason it succeeds, everyone deserves a piece of the reward. Mark Cuban is a famous founder that understands this and distributing gains well before his big win. [1]

One piece of feedback on the terms, 3 month w/ 10 yr window is pretty rough for the company. You will end up with a bunch of random people on the cap table... people that didn't really contribute much in the overall picture. That is annoying as you raise and downright frustrating when you exit. I would suggest you go back to a 12 month cliff w quarterly going forward and maybe set the window at years served, rounding down. My 2 cents.

[1] https://www.businessinsider.com/mark-cuban-employees-million...

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

#293

Post by palata »

koalaman wrote: post #266

I recently left a long career in FANG to roll the dice on an early startup. I was pretty surprised by the uneven terms between founders and early employees. From what I could tell the early employees takes more risk than the founders because they don't get that magic token dollar turning into their share of the founding equity event and have to pay the fictional valuation of the seed to convert their options. Dependi…

I have been working in multiple startups, I've come to think that it's a Ponzi scheme for the founders.

Generally underpaid and quickly toxic. It is an experience, but it's important to know it.

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

#295

Post by palata »

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…

> I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.

Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.

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

#296

Post by matthewsinclair »

throwAGIway wrote: post #229
matthewsinclair wrote: post #228

Earlier quoted context omitted.

This is true, but it also depends. There are a lot of "tech businesses" that are actually using pretty pedestrian tech. What they are _actually_ doing is business model innovation with an underlying tech platform. Often, that tech platform can be commodity or relatively simple tech. There are other startup propositions, though, where the tech _is_ the thing, and if you get the tech right, then some of those other thi…

I don't think we disagree. There are definitely deep tech businesses that are very hard to pull off. My point is - asking "how did they do it without a CTO" is weird, they are hiring a CTO to do it, and they're bringing their business experience and funding - valuable stuff that a tech guy probably finds annoying. The number one suggestion on this forum is to sell before building and when somebody does it, users get…

I guess it comes down to what "it" is. My sense (and this is just a personal orientation) is that if a CEO came to me and said, "Hey, I need a CTO for this new business I'm building", the very _next_ thing they say is really important.

If it is a) "Right, I've had this braingasm, and you need to build it, and for the privilege, you get 5% of the company!" versus b) "Right, I've had this idea, done some market validation, lined up our first 3 customers, and now we need to do some technical feasibility and put a team together to build this, and as CTO, I need a 50/50 founder, what do you say?" then I will pick b) over a) every time.

To be fair, those scenarios are cartoons on purpose, but I just wanted to make the point by highlighting the extreme cases.

As far as "sell before you build" goes, I think that really does depend on the problem you're solving. If it's a tech-powered business model innovation (where the tech is a commodity), then we are in 100% agreement. If the tech is a bit trickier and you need to show something special before funding (let alone clients), then I take a slightly different tack.

I'm not sure I get the last point about wide eyes, but I suspect it's immaterial to the bigger point.

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

#297

Post by throwailearner »

Posting from throwaway so I can be very open.

I joined a YC startup as engineer #1 with close to $200k salary and 2% options vesting at the usual 4 years, with a 10 year window.

I feel like this was bettern than usual, and for a while felt like I struck an awesome deal, but as time went on I realised I was building everything single-handedly, while getting (at best) 2%, which started to annoy me deep down.

Over two years in I'm considering quitting, for multiple reasons. I still believe there is a good chance of getting to an exit at some point, but I don't like the vibe and culture here, and honestly between cashing out 1.X% and cashing out 2% I don't see the point.

If I had been given a much higher chunk (>5%) there is a good chance I would've stayed, so we'll see if they value me enough with a counteroffer when I give my notice.

All in all, and reading through all of this I would never join a startup under these terms again, if I'm engineer #1 then I'm getting at least 10% and essentially being a cofounder. Otherwise I want a salary that's on par to a bigger company.

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

#298

Post by p1esk »

matthewsinclair wrote: post #227
dcow wrote: post #183

Earlier quoted context omitted.

It’s not necessarily a red flag. Sometimes the founder/CEO is technical and decides to solo it with hired engineers until not having a real CTO is a flight risk, or until they’re too busy to be contributing code anymore, or both.

That is fair, assuming the CEO is technical, or technical _enough_. However, I see a lot of non-tech CEOs trying this on and in those cases, it is a red flag for me.

With cofounders it’s fairly typical for one to be technical and the other business savvy.

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

#300

Post by burutthrow1234 »

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…

> Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!

Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs.

If you start a real business you can expect to take on debt, and you'll be personally guaranteeing it because nobody cares about equity in your boutique ice cream parlour. Plus a 5-year lease (which you will also personally guarantee).

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