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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

#411

Post by o283j5o8j »

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 did early employee several times because I didn't know any better, didn't have anyone around to tell me not to. I won't do that again. All the risk, none of the reward. 1% of $10-20M after 4+ years of 80hrs/wk is less than the difference between a startup salary and a good salary over that same time.

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

#412

Post by romanhn »

cosmic_quanta wrote: post #322
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…

I've been thinking about the equity split amongst early employees. Our startup is reserving 20% of equity for early employees. How about a division by 2 every time? First employee gets 0.5 x 20%, second employee gets 0.25 * 20%, etc. Early employees are better rewarded for the risk, but later employees (e.g. #10) will get basically nothing. It's all about tradeoffs

At 10 employees the company is still incredibly risky. With this scheme you'll never grow past that size.

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

#413

Post by boringg »

doodda wrote: post #247

This post has managed to piss off everyone: employees who didn't realize founders were getting liquidity events while they're still sitting on their more-often-than-not valueless equity, and founders who feel they've earned it and don't like the implication they haven't.

Good point. Its interesting to see the comment thread here.

The part to me that I see as surprising is dismissal of the stress of taking VC money and being a founder. It is a job thats incredibly demanding. Which is eye opening to me that that's how people see it.

If it was so easy why aren't there more of them and more companies?

Early employee is tough - unless the company is on a significant trajectory the options should be valued at zero. That said being an early employee has other benefits such as being part of an interesting team and work problem. Definitely not a cushy job though (and nor is a founder) - both are significantly hard and for a certain personality type.

Everyone else go join a FANGG and get paid if thats what you are looking for comfy life benefits.

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

#414

Post by yieldcrv »

Delaware allows for employee shareholders to demand some transparency, but it doesn't apply to options holders.

VCs and Founders should be far more forthcoming to sweat equity participants. Delaware could mandate that too.

I've been on both sides, where leadership gaslights candidates and employees about why their tiny stock grant is so generous, diluted in the best case scenario. And on the other side where leadership is confused why someone with prior financial success would want to be an employee at all since its so obviously shit. That's sad to me that they can put on two faces, and its enabled in a way that securities laws were made to mitigate.

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

#415

Post by cosmic_quanta »

romanhn wrote: post #412
cosmic_quanta wrote: post #322

Earlier quoted context omitted.

I've been thinking about the equity split amongst early employees. Our startup is reserving 20% of equity for early employees. How about a division by 2 every time? First employee gets 0.5 x 20%, second employee gets 0.25 * 20%, etc. Early employees are better rewarded for the risk, but later employees (e.g. #10) will get basically nothing. It's all about tradeoffs

At 10 employees the company is still incredibly risky. With this scheme you'll never grow past that size.

Well, the alternative (which appears to be the status quo) is to give lower % equity to the first ~50 employees.

What do you think is the ideal breakdown of equity for early employees?

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

#416

Post by jaksmit »

dunno why the writer opted for this: "Our equity packages vest over 3 years instead of the industry standard 4-year period."

given it takes a long time to build companies; so on the contrary, many startups are instead opting for like 6 year windows.

"We allow employees to exercise options up to 10 years after they leave instead of 90 days." - the reason that 90 days is more standard is that it's more tax effective than having options exercisable for 10 years, though many companies are making a compromise on this recently

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

#417

Post by onlyrealcuzzo »

foobarian wrote: post #406
onlyrealcuzzo wrote: post #348

Earlier quoted context omitted.

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…

> making ~$1M per year working 6 hour days at FAANG Can you say more on this? I didn't realize FAANG TCO was quite that high. Maybe it's time to swallow some pride and take the adtech money after all...

The average SUCCESSFUL founder is in their earlier 30s. At that point - you should be at least L4 (probably L5) at FAANG. Salaries are about ~$450k at that level and age.

In 5 years, if you work even a fraction of as hard as you need to be a successful founder, you should be L7 - salaries are usually >$800k at that point.

No, it is not like any average slacker straight out of college in 5 years can get to a $1M salary at FAANG. But if you're the type of person that could successfully grow a company to a multi hundred million valuation in 5 years - you can make $1M at FAANG.

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

#418

Post by kilbuz »

foobarian wrote: post #406
onlyrealcuzzo wrote: post #348

Earlier quoted context omitted.

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…

> making ~$1M per year working 6 hour days at FAANG Can you say more on this? I didn't realize FAANG TCO was quite that high. Maybe it's time to swallow some pride and take the adtech money after all...

You don't start there, but you can get there as you level up. A lot of that would be because the stock on your RSU grants goes up while you work there though. I don't think many SWE have 7 figure targeted comp (highest levels, yes). But plenty get there with refreshers and stock appreciation.

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

#419

Post by stevesthrowaway »

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…

throwaway acct here. I left a flagship tech company with $500k total comp and joined a startup as engineer #1 with 5% options over 4 years. My salary is current $120k and I'm losing money each month, although I've been promised that will changed as soon as we raise more.

We are going to raise a Series A in the next few months. I know a little bit about this stuff, but not enough that I'm confident in exactly what to expect over the next few years, nor enough to know that I've negotiated properly (thought I did lol) and are protecting myself enough. This thread is scaring the shit out of me. I have a good relationship with the two founders and not afraid of being candid with them. Would appreciate any advice.

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

#420

Post by nkohari »

palata wrote: post #295
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.

> 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.

Have you been a founder? If not, I'm not sure you fully realize what goes into the job. Everyone wants to be a founder, but nobody wants to _be_ a founder.

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