When a Unicorn Startup Stumbles, Its Employees Get Hurt • Hacker News Board

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#111

Post by arbitrage314 » Wed, Dec 23, 2015, 6:06 PM UTC

I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself:

If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup.

If you're a good developer, you can get a better deal by working at an established company and simply investing. This has been true for every startup offer I've ever seen. Ever.

I've considered lots of startup jobs because I believed strongly in the companies. Every single time, however, I was able to get a larger chunk of the company by keeping my current job and simply investing.

To give an example, my current job pays about $250k, and one year, I invested $100k of that into a startup, leaving me with ~$150k of salary. This $150k + startup equity was a better deal than the startup was offering in both salary and equity (BY FAR). Plus, equity bought as an investor is much less tax toxic than equity options received as an employee of a startup.

On the other hand, most people who work at startups aren't interested in money. If that's you, that's totally cool!

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#112

Post by gibrown » Wed, Dec 23, 2015, 6:06 PM UTC

alexatkeplar wrote: post #65

By joining a late stage (vs early stage) startup as an employee, you are trading execution risk for valuation risk. At an early stage startup, your shares are essentially free to purchase - especially if you join a company which hasn't had a formal external valuation event (like a fundraise) yet. All your risk is around the startup evolving into a successful business with a high value. Join a late-stage startup, and…

I pretty much agree that's a higher probability way to make money. I think "the real unicorn" is working for and with good people though.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#113

Post by askafriend » Wed, Dec 23, 2015, 6:07 PM UTC

arbitrage314 wrote: post #111

I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself: If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and si…

Can you explain how you were able to invest 100k into a startup without being an angel investor?

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#114

Post by tomasien » Wed, Dec 23, 2015, 6:07 PM UTC

If you strip away all the logically questionable parts of this story, there are 2 really important takeaways:

- Companies: don't make employees exercise options when they leave the company. I love the new "10 years to exercise" trend that has started to emerge. - Employees: don't pay taxes or exercise options early to maximize your gains at an eventual exit. It makes no sense - keep the optionality.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#115

Post by benmanns » Wed, Dec 23, 2015, 6:07 PM UTC

arbitrage314 wrote: post #111

I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself: If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and si…

How did you invest in a startup with only $100k? Was this a seed-stage thing or were you a small contributor to a later round?

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#116

Post by mikekij » Wed, Dec 23, 2015, 6:07 PM UTC

This article highlights the need for two changes in the startup world:

1) We need a different term for the "post-money valuation" that VCs place on a company after fundraising. It is not a valuation in the same way that a public company is valued, due in large part to the preferred stock liquidation preference. Employees hear about a $1B valuation and assume that the IPO or acquisition price will be some multiple of that "valuation".

2) We need some tax reform that prevents employees from needing to pay a tax bill with cash for illiquid shares in a privately held company. It makes perfect sense for an employee of a publicly traded company to need to allocate some of their stock grants to tax obligations, seeing as though they can sell those shares at any time. But employees of privately held companies can't sell their stock (usually), and needing to take real dollars to pay a tax bill on those shares is just not the spirit of the law.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#117

Post by ryguytilidie » Wed, Dec 23, 2015, 6:08 PM UTC

arbitrage314 wrote: post #111

I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself: If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and si…

I would also imagine that you get a MUCH better deal and probably higher preference by investing versus being an employee. Which is also not a great message to send employees.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#118

Post by alexatkeplar » Wed, Dec 23, 2015, 6:09 PM UTC

jonas21 wrote: post #86

alexatkeplar wrote: post #65

By joining a late stage (vs early stage) startup as an employee, you are trading execution risk for valuation risk. At an early stage startup, your shares are essentially free to purchase - especially if you join a company which hasn't had a formal external valuation event (like a fundraise) yet. All your risk is around the startup evolving into a successful business with a high value. Join a late-stage startup, and…

> The real unicorn, for an employee, is a middle- to late-stage company which has successfully executed, is growing, and ideally hasn't had any formal external valuation events. And, like a real unicorn, it doesn't exist. At least not in today's funding environment.

No, I know a couple. Look for companies with around $10-100m annual revenues and no external investors. If you speak to their owners, their biggest frustration is, ironically, competing with unicorns for talent recruitment.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#119

Post by cubano » Wed, Dec 23, 2015, 6:09 PM UTC

nissimk wrote: post #78

ditonal wrote: post #33

Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook. Tech employees need to wake up about common vs preferred shares, and that the former are w…

Information asymetry is the way people get screwed over in financial transactions. Most potential startup employees have no idea what common or preferred shares are. Let alone all of the other details like dilution, liquidation preference, tax implications of employee stock options and lack of liquidity in private securities. Potential startup employees should learn about these things and understand how to protect th…

Of course they should...on top of all the new tech stacks and modern dev paradigms because, of course, engineers have an infinite ability to learn.

I'm not disagreeing with you, per se, but I do marvel at the sheer volume of information young engineers are expected to grok these days...

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#120

Post by gkop » Wed, Dec 23, 2015, 6:10 PM UTC

nostrademons wrote: post #95

nemo44x wrote: post #51

Earlier quoted context omitted.

I agree 100% with this. Employees should be suspicious that they have access to an investment nobody else does - invest now! I've seen countless friends get burned in various ways believing they would be getting rich soon from their options and then fizzle. Either through the company just never having a liquidity event or being sold for less than previous valuation rounds. The worst is I've seen people reject job off…

Employees do have access to an investment to an investment nobody else does. It's just that they need to do due diligence on par with or better than an investor to avoid getting taken advantage of. I've turned down more startup jobs than I can count. When I interview at a startup, I thoroughly research their market, their competitors, their product, and their business model. I ask questions about how they came up wit…

In the context of parent and grandparent, what do you look for when doing your due diligence to evaluate the risk of the employees getting screwed on common shares when every other stakeholder makes money?