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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

#391

Post by hn_throwaway_99 »

Sytten wrote: post #350
FactKnower69 wrote: post #240

Earlier quoted context omitted.

This is not speculation, it is what multiple Canadians I've tried to poach have told me: they don't want to move to a country where one medical emergency can put them in 6 figures of debt

Not that our health care system is going that well these days but true. Also being called a freaking non-resident "alien" is so demeaning, sorry I am human.

None of those reasons make any sense to me. The US health care system is truly fucked, but nearly all the companies paying well for SWEs also provide good health care plans. It sucks that things are so complicated (deductibles, copays, coinsurance, in-network, out-of-network, etc.), but people with good health insurance aren't getting bankrupted by health care costs. And I've seen plenty of colleagues with super-expensive conditions in my lifetime ("million-dollar babies", cancer, losing limbs in car accidents, etc.)

And bitching about bureaucratic terms like non-resident alien? All countries have silly bureaucratic language and words can have multiple meanings. Nobody thinks "alien" in this context means you're a little green man from Mars.

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

#392

Post by icedchai »

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…

Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.

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

#393

Post by HarHarVeryFunny »

I've read that Sam Altman's net worth has ballooned from hundreds of millions (mostly tied up in Helion) while at OpenAI to billions, and that despite all his protestations of not making a penny from OpenAI, he also has/had a $10M investment in the (~100x profit capped) for-profit part of OpenAI...

Given Altman's slippery relationship with the truth, I have to wonder if his sudden significant increase in wealth, if true, is due to having participated in an early "liquidity event" as the article describes. Did he sell part of his shares to Microsoft, perhaps ?

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

#394

Post by red-iron-pine »

laser wrote: post #188
Finbarr wrote: post #150

Earlier quoted context omitted.

The bigger secret is that stock sold in secondary sales by founders and employees is usually common stock, and the purchasers will often get the right to convert this to preferred stock. This means that the company is instantly encumbered with a greater liquidation preference, without the increase in balance sheet to offset it.

How is that legal and not considered self-dealing and unjust enrichment? If I was a minority common stock owner in a business I assume I would have standing to sue for damages if a majority owner or officer made my position materially worse while enriching themselves in such a manner? Are you sure such a right is typically granted? I mean even the gap between 409A valuations and preferred valuations, as well as a hug…

> How is that legal and not considered self-dealing and unjust enrichment?

because, ultimately, Capital writes the rules, and they chose to allow this

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

#396

Post by pragma_x »

geepeeyoudata wrote: post #316
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 worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little upside. They would offer 500 options, or 1000 options, or 30,000 options -- but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! Secondly, they wont share the cap t…

> but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?!

I was in a company when my options were "purchased" from me at the strike price, when the company itself was sold. We never made it to IPO. I've learned to not overvalue options and phantom stock, and just chalk it up to another bonus down the road. The real money is, or already has been, made elsewhere.

What really steams my biscuits is when I figured out how the payout was worth less than the unpaid overtime (never more than 50 hours a week), weekend support time, and travel time spent in my years there.

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

#397

Post by hn_throwaway_99 »

extragood wrote: post #135
selestify wrote: post #95

Earlier quoted context omitted.

Why the disparity? Especially with Canada - no language barrier and no time zone differences. Why doesn’t the free market equalize Canadian dev wages with American ones?

I am convinced that the WFH movement is responsible for the recent offshoring trend. Before 2020, it was fairly uncommon to work remotely and most employees were expected to physically come to the office. You would relocate if you got a job in another state, and employers had to go through a painful visa process to access foreign workers or set up expensive international satellite offices. The great WFH experiment ki…

I definitely agree with this. In addition to WFH, consumer-grade Zoom/Meet/etc. got good enough right around the pandemic (just before really) where it made off shoring really feasible. I've especially seen an explosion of offshoring to Latin American and Eastern Europe. The time zones make things much more workable than, say, India or China.

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

#398

Post by bob1029 »

I just got off the ride (at a small startup) after ~9 years. Not much to show for it economically, but I did gain a lot of confidence and experience around how to actually run a business. I've picked up a lot of lessons, most in what not to do. I'd say it was absolutely worth it compared to alternative paths that I was previously on.

My biggest takeaway is to focus on compelling problems, rather than delusions of financial grandeur. I've learned that solving a hard thing and hearing the feedback from the customer brings me a lot more joy than hypothetical promises of extra cash in the bank. The money is a mind killer for me, especially when it's not real yet. Stock options are no longer something that interest me. I'll negotiate additional salary instead. The only company with stock options I am interested in would be a company that I personally found and retain control over.

One other lesson is to pull the rip cord the microsecond you think something doesn't feel right with management/leadership. I started thinking things like "does anyone care about the sales funnel?", "Why are we only talking to one prospect at a time!?", etc... The chances you will be able to "fix" some other person in this setting are pretty much zero, unless they actively want to be helped. I feel like I could have jumped off this ride at the ~7 year mark and walked away with 99% of the wisdom I have right now.

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

#399

Post by bradleyjg »

p1esk wrote: post #317
smeej wrote: post #265

Earlier quoted context omitted.

I'd tweak this slightly: "It's exceedingly foolish to be an employee at an early startup for the money. " I think there are a lot of us who struggle to fit the larger corporate mold who pretty much only thrive in the startup world. I can't speak for all of them, but I've been very willing to take the balance of lower cash compensation and a fistful of lottery tickets and not having 12 layers of middle management brea…

Why does everyone thinks startups don’t pay well? I have worked for various startups all my life, most of them well funded, and competing for talent with faangs. Yes, I could probably make more at Google but I don’t feel like I’m underpaid. At the last 3 startups my base salary was above 250k. I work remotely and I rarely work more than 30 hours a week.

Early startup is the part you seem to be overlooking. A well funded startup with few or no runway concerns is a different calculation.

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

#400

Post by boringg »

burutthrow1234 wrote: post #300
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…

I don't know why you are trying to make this a me vs them situation. Both situations are difficult in different ways and they are all real businesses.

"Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque." - Sounds like you are trolling or alternatively incredibly naive.

"If you start a real business you can expect to take on debt". ... Real business? Come on.

No one in this thread is saying starting a business is easy - ice cream business is debt funded because you have a very definitive range of outcomes. Venture funding is completely different animal - failing to see that limits the value of your comment significantly.

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