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How to Choose a Startup to Work for by Thinking Like an Investor

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Re: How to Choose a Startup to Work for by Thinking Like an Investor

#141

Post by drewmol »

chrisbennet wrote: post #17
Harj wrote: post #7

Earlier quoted context omitted.

Sure, you can't diversify in parallel but you can in series.

Considering how long you would have to stay to get anything from an equity event (4-8 yrs?) you realistically can't work for 10 startups. If you luck out and work for one that does have some success, you will probably find that, unlike a VC, you don't have "2X preferences" or an anti-dilution arrangement so you get nothing or next to nothing. In the meantime you may have traded your youth for magic beans - putting of…

>Putting off things like getting a house, a girlfriend, etc because you are working long hours for sub-market pay. That is the real tragedy.

Just wanted to repeat this for emphasis ;-)

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#142

Post by sokoloff »

alex_young wrote: post #139
fgonzag wrote: post #138

Earlier quoted context omitted.

If Google or MS give you options, or RSUs, or whatever, they are essentially cash. You'll be able to liquidate them at market price as soon as you vest. So in those companies stock options are a real form of compensation. For startups whose stock has 0 actual value in a market, then yeah stock options are worth nothing.

Stock Options are just that - an option to buy a share of stock at a future date. They are a bet on a future outcome which contains lots of risk. Restricted Stock Units are cash. They are new shares issued to you with restrictions on exercising them. Once they vest, there is no value in not selling them immediately. The tax consequences are the same if you hold them, and you gain the value of diversification by selli…

> The tax consequences are the same if you hold them

The gains that occur after vest-and-release are capital gains. Capital gains for assets held over a year are much lower than ordinary income rates for most people receiving RSUs. (It's still reasonable advice to diversify in the typical case.)

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#143

Post by mlthoughts2018 »

tschwimmer wrote: post #123
Alex3917 wrote: post #93

Earlier quoted context omitted.

> It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. As an employee though you can contribute your sweat equity on a daily basis, rather than needing to make your contribution upfront. So if you figure out the startup is a scam after day 3 of working there full time, you're free to quit immediately with basically no sunk cost. If investors could drip o…

I don’t agree with your point about employees being able to ‘get their money out.’ If you have short stints at many startups I am young to see that as a serious red flag as a hiring manager. You can do it at one place but I think even if you do it twice in succession it’s going to suggest a pattern. Disclaimer: I’m not a software engineer so it may be less impactful than I think. RE: your point about IRR, I also don’…

Why would it be a red flag? Many companies have horrible cultures and dysfunction and you only get to see it after starting full-time. It’s very common to realize you are not compatible with the particular dysfunction of a certain job and need to leave even just after a few months just for basic reasons of taking care of yourself. This can easily happen at multiple consecutive jobs.

I’ll even go further and claim that in tech and especially in start-ups, hiring is deliberately deceptive. As a candidate you are at a severe information asymmetry disadvantage when you have to decide to join, and companies very often manipulate that situation to bait and switch on overqualified candidates, lie about or hide financial details, emphasize the wrong things to create halo bias in your decision making, etc.

Given just how egregiously bad companies are, just in general behavior, I don’t see why it’s surprising or controversial or “a sign” of anything to see a job history with a lot of short stints.

In fact, if a hiring manager or HR staff looks at a resume with short stints as a bad thing, that actually seems more like an indicator that the company is bad. They are thinking, “this person doesn’t patiently swallow company bullshit for keeping up appearances on the resume... they’ll never stick it out in our horribly toxic culture...” and it’s very telling that companies think this way instead of fixing their bullshit and being realistic about candidates needing to hop between jobs when company culture is bad.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#144

Post by alex_young »

sokoloff wrote: post #142
alex_young wrote: post #139

Earlier quoted context omitted.

Stock Options are just that - an option to buy a share of stock at a future date. They are a bet on a future outcome which contains lots of risk. Restricted Stock Units are cash. They are new shares issued to you with restrictions on exercising them. Once they vest, there is no value in not selling them immediately. The tax consequences are the same if you hold them, and you gain the value of diversification by selli…

> The tax consequences are the same if you hold them The gains that occur after vest-and-release are capital gains. Capital gains for assets held over a year are much lower than ordinary income rates for most people receiving RSUs. (It's still reasonable advice to diversify in the typical case.)

I think I'm either misreading your comment, or there's a misunderstanding here.

When RSUs are issued, they typically appreciate in value due to either an increase in share price or a discount or both.

When the RSUs vest, one of 2 things happens: either the number of shares is reduced by a sum equivalent to pay income taxes, or (more rarely) income taxes are paid by the recipient later at tax time. In either case, the shares didn't exist in the recipient's account before that vesting date.

If the shares are sold, those funds can be used to buy other shares if desired. If they are held, they are just normal shares in that company. In either case, they appreciate as capital gains instead of income, starting with the point in time when they were either purchased or vested whichever the case may be.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#145

Post by sokoloff »

alex_young wrote: post #144
sokoloff wrote: post #142

Earlier quoted context omitted.

> The tax consequences are the same if you hold them The gains that occur after vest-and-release are capital gains. Capital gains for assets held over a year are much lower than ordinary income rates for most people receiving RSUs. (It's still reasonable advice to diversify in the typical case.)

I think I'm either misreading your comment, or there's a misunderstanding here. When RSUs are issued, they typically appreciate in value due to either an increase in share price or a discount or both. When the RSUs vest, one of 2 things happens: either the number of shares is reduced by a sum equivalent to pay income taxes, or (more rarely) income taxes are paid by the recipient later at tax time. In either case, the…

When the RSUs vest, what typically happens is both of the things you describe. A number of shares is withheld at vesting and the value sent to the Treasury as an income tax withholding. The following April, you true-up the full tax liability with the full number of shares treated as ordinary income. (The withholding is typically at the supplemental wage rate [22%, used to be 25%], which is frequently not enough to cover the full amount of tax due.)

Your initial comment suggested that you didn't distinguish between the ordinary income and capital gains taxation for the pre and post time periods. It turns out you did understand that distinction, but I didn't glean that from your prior text.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#146

Post by JJMcJ »

joe3774 wrote: post #106
the_jeremy wrote: post #100

Earlier quoted context omitted.

I think there are. Teachers (pretty much as a whole) and public defenders seem to fit here. I know multiple photographers whose passion is landscapes/nature and only grudgingly supplement that income with weddings/portraits.

doctors without borders unusually have a very well paid job and do the free consultations on the side, like writing code and publishing it on github

Also a physician working with Doctors Without Borders doesn't do it for a chance to get really rich.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#147

Post by JJMcJ »

sk5t wrote: post #103
deanmoriarty wrote: post #96

Earlier quoted context omitted.

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but t…

How about: Doctors Without Borders? Docs who enter general practice in underserved areas rather than metropolitan dermatology? Legal pro bono work, or most prosecutors?

They forgo some income, or work for free.

But for public service, not because there is a 0.1% chance they'll get a lot of money.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#148

Post by JohnFen »

deanmoriarty wrote: post #96
JohnFen wrote: post #92

Earlier quoted context omitted.

Decades of experience has taught me that stock options are essentially wallpaper. Sure, if a company wants to give me options, I'll take them -- but they are in no way a substitute for real compensation, and I won't accept them in lieu of something real. That said, if a startup is doing something that really turns my gears and I like the company, then I'm absolutely willing to work for less pay in order to be a part…

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but t…

> I'm not a trust fund kid and grew up dirt poor

This applies equally to me.

Here's the thing -- a job that isn't fun and interesting is a job I can't tolerate regardless of how much it pays. Life is too short to suffer on a daily basis.

But I do have a minimum amount of income that I can tolerate as well. I have to earn enough money to live, after all. How much the minimum is depends on the cost of living in my area.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#149

Post by deanmoriarty »

JohnFen wrote: post #148
deanmoriarty wrote: post #96

Earlier quoted context omitted.

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but t…

> I'm not a trust fund kid and grew up dirt poor This applies equally to me. Here's the thing -- a job that isn't fun and interesting is a job I can't tolerate regardless of how much it pays. Life is too short to suffer on a daily basis. But I do have a minimum amount of income that I can tolerate as well. I have to earn enough money to live, after all. How much the minimum is depends on the cost of living in my area…

But does the “enough money to live” include money to cover your future living expenses as well? As I was saying, I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism, and won’t be able to claim any social security benefits due to the massive deficit in federal budget.

Hence, what I really strive to make now is actually 3-5X my cost of living expenses every year, so I can ensure a decent retirement down the road.

Based on that math, I really can't afford the luxury of taking a job that will just cover my yearly expenses. In my case, I really have to go for jobs where swes make $300-400k/yr, and I live pretty frugally myself (I spend 60k/y post tax in the Bay Area). I don’t think it’s safe to assume software engineering is a career that you can keep up until your 60s, unlike teachers for example, so you have to plan for it.

I’ve seen several people actually employ this logic and justify to themselves a 120k software job at a cool Bay Area startup, because it fully covers their living expenses in the Bay, despite not letting them save even one single dollar for retirement. I think that’s very irresponsible though, and they’re in for a sad surprise when they’ll discover in their late 40s that employers don’t consider them as hireable as they once were, and now they have to drive Uber to not become destitute (not that there’s anything wrong with that, but it’s hardly a great outcome).

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#150

Post by JohnFen »

deanmoriarty wrote: post #149
JohnFen wrote: post #148

Earlier quoted context omitted.

> I'm not a trust fund kid and grew up dirt poor This applies equally to me. Here's the thing -- a job that isn't fun and interesting is a job I can't tolerate regardless of how much it pays. Life is too short to suffer on a daily basis. But I do have a minimum amount of income that I can tolerate as well. I have to earn enough money to live, after all. How much the minimum is depends on the cost of living in my area…

But does the “enough money to live” include money to cover your future living expenses as well? As I was saying, I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism, and won’t be able to claim any social security benefits due to the massive deficit in federal budget. Hence, what I really strive to make now is actually 3-5X my cost of living expenses every year, so I can ensu…

> But does the “enough money to live” include money to cover your future living expenses as well?

I've covered that through savings over the decades. But, honestly, I don't expect that I'll ever retire anyway.

> I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism

That's not inevitable. I'm in my 50s and am in as much demand as I ever have been. The key (at any age) is that you have to keep your skillset up to date.

Not all companies want experienced people, but companies who strongly prefer younger employees do so because they know they can take advantage of them, and so aren't the sorts of companies I'd be willing to work for anyway.

> In my case, I really have to go for jobs where swes make $300-400k/yr.

Yow! You must live in an area with an insane cost of living! If that were me, I'd move to somewhere more reasonable. Software engineering jobs are everywhere.

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