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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

#311

Post by mbesto »

bradleyjg wrote: post #258
kneath wrote: post #16

Earlier quoted context omitted.

I have seen a lot of companies, a lot of rounds. I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees). I love the idea of your universe, though.

All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.

> All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup.

As long as naive 22 year olds think have that one friend that stuck around long enough to cash out on an IPO, then yes. On a risk-adjusted basis, this has basically always been the case - you're better off working at FAANG.

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

#312

Post by shortrounddev2 »

sleepingreset wrote: post #305
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…

out of college directly, would you recommend a similar position? looking for early career options

I don't think you could get hired as engineer #1 straight out of college

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

#313

Post by DandyDev »

adastra22 wrote: post #83
rytill wrote: post #8

Only a small percentage of tech companies raise a series A or beyond. To me, this just seems like a capital-efficient alternative to the founder increasing their salary that could be negotiated. I had no such perception that this was some “secret” thing, I assumed it happened since you can do whatever you want if the investors and founders agree that it makes sense.

This whole thread is leaving me very confused. Series A is the first priced round. You're saying only a small percentage of tech companies raise a priced round?

The company I work for raised a $1M pre-seed round, $10M seed and $25M series A

I imagine other companies went through a similar scenario but failed before series A

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

#315

Post by mountainb »

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…

Who has the cause of action? The majority shareholders. Who authorized the stock sale? The majority shareholders. Are they really likely to sue the founder for something that the shareholders authorized?

Only in some states would minority shareholders have a cause of action. So there are some states in which the courts agree with you. As you might imagine, startups do not typically incorporate in those states.

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

#316

Post by geepeeyoudata »

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 table, so you dont know what the denominator is. 30,000 shares of What!? No one would tell you. You should run.

Third, the VCs installed a buddy from SV as CEO who was creative with revenue. Great -- so they make their bonuses based on creative revenue, but the company gets saddled with VC rounds they have to dig out of w/o showing real revenue growth. Once you get SV insiders being placed into the company, often with their entourage of cousins and neighbors' kids as Director of HR or Director of Finance -- RUN FAST. The company is being strip-mined for cash, while Engineers slave away trying to code their way out of the wreckage left by locusts.

The C-Suite operated in a separate tier of the company with a heads-i-win-tails-you-lose setup. You could tell -- no way you are all driving Tesla Plaid on a "startup salary" -- the "startup salary" was for suckers, engineers, and those not in the VC-back-scratch loop.

My advice to everyone -- if you want risk, be a founder. Not Engineer #1 or #10. If you want balanced risk, go to a Series C or D company where you dont have the risk of fake accounting. If you want money, go to a public company with real accounting rules, visible revenue, visible liabilities, and more accountability.

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

#317

Post by p1esk »

smeej wrote: post #265
bradleyjg wrote: post #258

Earlier quoted context omitted.

All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.

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.

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

#318

Post by elzbardico »

gitfan86 wrote: post #255
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 don't the the author is saying that founders don't deserve 400k after 7 years of hard work. He is saying that it is sketchy that this is hidden from employees.

No. the author is not saying that.

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

#319

Post by disgruntledphd2 »

shortrounddev2 wrote: post #312
sleepingreset wrote: post #305

Earlier quoted context omitted.

out of college directly, would you recommend a similar position? looking for early career options

I don't think you could get hired as engineer #1 straight out of college

And even if you could, you probably shouldn't. Go get experience with a bigger company first, so that the startup experience is more useful to you.

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

#320

Post by grvdrm »

throrway12 wrote: post #129

I worked at a preseed company recently. Here's my experience: - Work 9 to 7 everyday. 6 days a week. - People are working 9 am - 5 am in crunch time. Then joining again at 10 am. - Monetary Comp is exactly market average. - Equity Comp is even more paltry since founders raised at a huge valuation. - Founders make unrealistic promises. Eg: It took a competitor with 7 people, 3 months to make a product. The founder tol…

Honest question: do people with young kids do these jobs well, or at all?

I'm sure the answer is sometimes, yes. But, as a 41-yr-old father of two kids (6, 2) and a wife in PE, the pace and stress strike me as contradictory to being present in a marriage, being present with my kids, managing my health, etc.

I'd love to hear how the people with families manage (or fail) this pace?

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