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How to Not Get Screwed over as a Software Engineer [video]

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Re: How to Not Get Screwed over as a Software Engineer [video]

#251

Earlier quoted context omitted.

Thanks. I have some experience with Big Five and MBTI, but I’m not satisfied with them since they are too general in what they describe and also they’re not scientific enough imho. I’d be happy to see more rigorous research in this area because it could be both useful for self-development and it sometimes might help to understand oneself as well. And it’s also fun to do these assessments :p I’m curious of your take o…

The Big Five are legit, worked out through decades of psychology analysis and studies. MBTI is astrology for nerds.

And type A/B is like astrology with only 2 signs, funded by tobacco companies and developed by cardiologists

Not sure why this stuff lives on but it seems to be a meaningless way of classifying people

Re: How to Not Get Screwed over as a Software Engineer [video]

#252
post #250

Earlier quoted context omitted.

How do you feel about options that can be exercised for 7+ years after you leave? Does that change your calculus at all.

Yes, that would make mid-growth startups more attractive to join. I know a few startups have done that but I haven't encountered one yet. Also, wasn't there a scandal a few years ago of a startup that promised that and later canceled? So would have to see the contractual wording carefully.

I didn't hear about this, nor could I find anything specific on Google. I did find that apparently some companies have pretty aggressive clawback clauses, which is a huge yikes from me.

Anyway, I think if you ever do talk to a mid stage startup, you should tell them this is what it would take to convince you. More people demanding it will likely cause the market to move.

Re: How to Not Get Screwed over as a Software Engineer [video]

#253

One of the top comments on the YouTube video attached to the article talks about how someone wasted their 20s working as the founding engineer (employee #6 of a 6-person startup) and when the company exited for $100 MM, they only got 100k and are still working at 40 years of age while the other 5, presumably having cofounder-level equity, are retired. This is the true risk of startups, and, if you're looking to maxim…

I think there is a clear mismatch between how founders and employees value equity. The advice on the internet is to always ignore the equity component, but founders are definitionally there because they think the thing they are building will be worth something, otherwise they should still be working somewhere else. I think the actual takeaway here is that people who go to work at startups should be far more discernin…

The mismatch is not necessarily down to a pure % game, it's related to who's in the room when decisions are made.

The founders are the ones that will be in the room when things like share dilution etc. are discussed. The employees (likely) will not.

The people in the room decide:

a) Who can cash out when b) Who gets diluted and by how much

If you're not in the room, you get no say.

Re: How to Not Get Screwed over as a Software Engineer [video]

#254

Earlier quoted context omitted.

I think there is a clear mismatch between how founders and employees value equity. The advice on the internet is to always ignore the equity component, but founders are definitionally there because they think the thing they are building will be worth something, otherwise they should still be working somewhere else. I think the actual takeaway here is that people who go to work at startups should be far more discernin…

The mismatch is not necessarily down to a pure % game, it's related to who's in the room when decisions are made. The founders are the ones that will be in the room when things like share dilution etc. are discussed. The employees (likely) will not. The people in the room decide: a) Who can cash out when b) Who gets diluted and by how much If you're not in the room, you get no say.

I am unaware of any situations where employees have been diluted out but founders have not. There are cases where everyone gets diluted out because the company is doing poorly and needs to be recapitalized, but in those situation everyone's shares are basically worth nothing and founders are unlikely to be issues large stakes.

Companies do generally want to disincentivize employees from cashing out for a while since it lets them maintain a very low 409a valuation for common stock so that they can issue options with low strike prices (which is good for employees), but generally secondary markets do exist for companies that are doing well.

But yes, fundamentally, employees and other small shareholders do not get to make the decisions about company fundraising, either in startups or big companies. The lack of control doesn't make these companies bad investments.

Re: How to Not Get Screwed over as a Software Engineer [video]

#255

Earlier quoted context omitted.

The mismatch is not necessarily down to a pure % game, it's related to who's in the room when decisions are made. The founders are the ones that will be in the room when things like share dilution etc. are discussed. The employees (likely) will not. The people in the room decide: a) Who can cash out when b) Who gets diluted and by how much If you're not in the room, you get no say.

I am unaware of any situations where employees have been diluted out but founders have not. There are cases where everyone gets diluted out because the company is doing poorly and needs to be recapitalized, but in those situation everyone's shares are basically worth nothing and founders are unlikely to be issues large stakes. Companies do generally want to disincentivize employees from cashing out for a while since…

Not a bad investment per-se, but regarding "there is a clear mismatch between how founders and employees value equity" - The founders have more control, and therefore their equity is worth more.

e.g. Founders raise, selling off some of their shares as part of the raise. Everyone else has an illiquid asset, Founders can negotiate a payout.

The major shareholders can authorise issuance of new shares, different classes of shares, issue new shares with anti-dilution clauses. You're correct though, it's easier to value shares with a secondary market.

There are lots of schemes that an unscrupulous founder has at their disposal, so one has to be their own advocate and value their shares appropriately.

Re: How to Not Get Screwed over as a Software Engineer [video]

#256

Earlier quoted context omitted.

I am unaware of any situations where employees have been diluted out but founders have not. There are cases where everyone gets diluted out because the company is doing poorly and needs to be recapitalized, but in those situation everyone's shares are basically worth nothing and founders are unlikely to be issues large stakes. Companies do generally want to disincentivize employees from cashing out for a while since…

Not a bad investment per-se, but regarding "there is a clear mismatch between how founders and employees value equity" - The founders have more control, and therefore their equity is worth more. e.g. Founders raise, selling off some of their shares as part of the raise. Everyone else has an illiquid asset, Founders can negotiate a payout. The major shareholders can authorise issuance of new shares, different classes…

Not to deny that founders are in a privileged position, but they are still beholden to other investors and have clear incentives (and legal obligations) to not screw over current employees.

Even when founders control the board, the company has to sign binding documents with investors that govern what can be done, and the investors have a lot of leverage to ensure that the terms do not allow wiggle room for founders to screw them over.

No major investor is going to agree to anti-dilution terms for founders, and you better believe they are not going to give additional grants to founders for the sake of it.

Founders will definitely cash out some stock if they can, but generally it is a small part of their total holdings at fundraising time (e.g. 5% of their holdings per round) since that is both meaningful downside protection for them and not so much that investors believe the founders are no longer aligned. This is definitely a real benefit, but I don't think most employees would be moved by being able to sell 5%/round.

Either all or a vast majority of founder stock is still common stock alongside employees though, so they're generally fairly aligned with employees IMO.

Which is all to say; I think it is actually pretty tricky for a founder to create an outcome that makes themselves disproportionately rich beyond what the ownership%/strike price combo should imply and I don't think founders can generally turn a given % of a company into meaningfully more money than an employee can if there is any sort of liquidity event.

There are situations (acquihires, recapitalizations, etc) where founders get bigger forward looking grants for themselves than employees, but I think this is less about the stock itself and more about what they can convince investors/acquirers about the forward looking value they provide and are generally all symptomatic of a startup that is failing in some way.

Re: How to Not Get Screwed over as a Software Engineer [video]

#257
post #226
post #149

Earlier quoted context omitted.

Been working at startups on and off for over 20 years. In total I've spent more money on stock options than I've made from them.

I’m on the same boat, plus the startup I helped co-found later found a loophole to steal my 20% of equity. Startups are a scam.

Sorry to hear that. What was the loophole?
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