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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

#361

Post by hmottestad »

segfaltnh wrote: post #232
surfingdino wrote: post #139

This and my own experience with employee stock options led me to reject any work for startups that offer stock options. It is a way to make you work hard and allow to be treated like dirt for less money. The lowest point was having to walk across town to the office to eat energy bars from the office kitchenette, because I could not afford a bus fare or food as my pay was delayed by a week over Christmas. Meanwhile, t…

I don't believe a private sale entitles one to ignore a stock options legal rights. What are the relevant details here I'm missing?

Maybe if the founder has a majority they can sell their shares to someone and the company keeps on running. If the new owners don't intend to ever do an IPO I guess the existing employees end up with options to buy stock in a company that they will never be able to sell. Only upside would be if new owners take out a dividend, since that would assumably be a fixed amount per stock regardless of who owns the stock, unless of course the new owners are able to circumvent that by doing an unequal dividend payout that only goes to certain owners.

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

#362

Post by xandrius »

cherryteastain wrote: post #246
xandrius wrote: post #184

Earlier quoted context omitted.

Yeah but smaller startups might be more open to non-US applicants, FAANG and other more established companies don't seem to be interested in hiring abroad. That's what makes the early startup scene the only thing available for some.

How come? Most large companies have big legal/HR departments that are very efficient at the whole visa application process. A small company won't have that expertise/staff. I mostly see startups being more concerned about the visa status of applicants.

Remote + non-US is not as welcoming, so the hurdles are way higher as it's not fitting the usual way. While startups have no prior experience anyway, so it's easier to convince 1-2 people instead of changing a whole system (I believe).

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

#363

Post by zdragnar »

naravara wrote: post #344
yard2010 wrote: post #337

Earlier quoted context omitted.

This is not a real risk you're talking about, but small inconveniences. A risk is losing your house for example, or losing the ability to rent. Inconveniences are part of life anyway. Being the first engineer means you get all these inconveniences (tell your wife and your kids) plus real risks as above (taking a loan to buy the options and losing it)

“Letting people go” is taking on the risk of all of those people being let go losing the ability to rent or pay their mortgages. That seems like more than an inconvenience to me if you take one of the responsibilities of being an employer at all seriously.

No employee should join a startup with the expectation that the company will be around forever.

Compare startups to restaurants- their failure rate is absolutely massive. Working for a new company is simply always a risk for everyone involved, there's no getting around that.

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

#364

Post by xandrius »

geepeeyoudata wrote: post #328
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?

>> What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal? OR....you could just become a founding engineer by actually founding and keep 90% of the equity. You can get that salary with an equity raise, its worth not being the low-person on the totem pole.

That's forgetting what a founder actually has to do and worry about.

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

#365

Post by xandrius »

newshackr wrote: post #342
segfaltnh wrote: post #239

Earlier quoted context omitted.

Glad to see someone else say this. I feel like I'm crazy reading these replies about being ripped off. I've been working startups my whole career, earning salaries, working with good people and having fun at times. Sometimes the equity even pays out, but that's not my only financial "egg".

Startup founders often take salaries too

Only after they managed to raise any money, which is not as common as many people assume. And whatever you pay yourself as a founder initially eats into your runway, so that's always a tradeoff.

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

#366

Post by est31 »

bradleyjg wrote: post #277
ethagnawl wrote: post #275

Earlier quoted context omitted.

> All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. As a rule, it is and always has been. For every unicorn piñata stuffed with winning lottery tickets, there are hundreds/thousands? of others whose employees walk away with nothing or less (debt, strained relationships, mental health issues, etc.) at worst or a job at AcquiHireCo at best.

There was always very high risk, so it was only ever for certain people. But in earlier iterations of SV it was possible to become generationally rich as an early employee. The VCs and founders have fixed the glitch. To put it another way: early employee equity was always a lotto but now the payout is like some lame scratch off instead of the powerball jackpot.

The startups where employees get really rich still exist. I'm pretty sure the early employees of OpenAI are generationally rich for example.

It's just that these companies very often are the darlings since their inception, get constantly talked about. Everyone wants to to invest in them and everyone wants to join them. So they have the ability to pick out the best talent, in other words, it's unlikely you'll be able to join that specific startup.

But even 20 years ago, try getting into early Google. From what I heard they had extremely high bars for hiring as well and only lowered them once they got so large that the pool was exhausted.

I'd argue that the total comp at the established companies for engineers has increased precisely because of competition from startups: to make the startup not be the better option.

Does that mean that VCs are not taking a bigger slice than they used to? Absolutely not, but I wouldn't put the blame solely on them.

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

#367

Post by whynotminot »

onlyrealcuzzo wrote: post #348
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…

Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away. Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really w…

It’s a shame you were forced to take on this burden and not allowed to be a regular engineer like your peers.

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

#368

Post by abpavel »

It's clear that the author is first time founder. The article is disingenuous in that it talks about secondary availability, but the solution is longer exercise and shorter vesting? That wouldn't solve WeWork situation at all. Also, the risk of founders and employees is not comparable. A good analogy of the relationship is Landlord vs. Tenant. Founder burdens statutory obligations, is responsible with their personal belongings, has to lay the groundworks, and get the investors. Employee has to pass a job interview. If company fails, both lose a job, so that part is shared. First employees are sometimes special, but they are not founders. Musk was not even an employee and he became founder of Tesla.

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

#369

Post by BiteCode_dev »

palata wrote: post #345
throwailearner wrote: post #297

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 y…

$200k? Do you live in a place where this is considered a bad salary?

It's not just a matter of place, but what you can have if you work for Google instead. I can make $200k as a freelancer in France, but much more as a Google employee.

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

#370

Post by sashank_1509 »

shortrounddev2 wrote: post #307
throwaway98797 wrote: post #288

Earlier quoted context omitted.

cause if you fail you have to let people go cause if you fail you have to tell your investors you lost money cause if you fail is a thought that’s always running through your head as you live it

My primary motivation as an employee of a startup is fear of personal financial ruin. That the company won't be able to make payroll and I won't be able to pay my rent, that I'll be evicted eventually or that if the company goes under I won't be able to find a new job. There is no mission or any other soft carrot that I care about. I also don't have any faith in stock options. I can't imagine caring about reputationa…

Perhaps you shouldn’t be working in a startup because your lifestyle is unaffordable, or your company is paying you peanuts.

I have worked in startups in Silicon Valley and have had many friends working for them. Most startups pay a base salary of around 200k$ I reckon (for new grads, perhaps 150k). This might come down to 9-10k after taxes per month. A good 2 bedroom house to rent in a location like San Jose would be 3k$ per month, which leaves you 6k for other expenses. Assuming 1k for car, you should still have 5k in savings per month, in a year of working you will have saved up 20 months of rent, maybe 12 months of living without a job. I find it hard to believe anyone in SV startups, is in risk of “personal financial ruin”, or “starving in the streets” just because they lost a few months of paychecks while searching for another job. That may be true in another country, in another market, but all tech workers in the Bay Area are living well above subsistence and acting like they are living paycheck to paycheck is a fantasy. There is a cost to working in startups, and it is an opportunity cost of not working in a big tech company and cashing out your 200k+ RSU over 4 years and instead receiving paper money stock options that can be worth 0.

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