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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

#421

Post by _heimdall »

throwaway2037 wrote: post #211
knappe wrote: post #106

Look, I've worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn't going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively. My first startup I walked with a paltry sum and t…

> Plan around it being worth zero and go in eyes wide open. This is the best advice I have seen on HN about start-ups. Note: I have seen it repeated multiple times.

I've joined two startups now as the 2nd and 4th engineer. I went into both expecting nothing from options or shares, and knowingly accepted a lower than market salary because I liked the teams and projects.

I couldn't be happier. Neither panned out for me with regards to stocks, and I definitely didn't get rich in the process, but I very much enjoyed the jobs and when I decided to leave it was only because the business direction wasn't a fit for what I wanted to spend my time on.

It sure sounds like a privledged position, but it more came down to us living cheaply compared to our income and having the breathing room to trade a higher salary for work that I really enjoyed. I hope more people can make that tradeoff, it's much more fulfilling in my opinion

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

#422

Post by jonathankoren »

xandrius wrote: post #160
jonathankoren wrote: post #140

Earlier quoted context omitted.

Yes. Because you’re literally the same as the founder, but getting waaaay less equity. First employee is always a sucker

But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that. So I am not sure it's that easy. Of course, the idea is to keep the same work/life balance one would have at a more established company.

It is that easy. Employee 1 is getting paid below market. That’s why they offer 0.9% equity. Meanwhile, the founders are also getting paid. No one is working for free. One of the first things VCs tell you is to make yourself comfortable so you can concentrate on the company. That’s literally one of the reasons why VCs tell founders to sell equity early, to make up for lost income, while Employees 1+ has to ride the rocket into the ground.

It’s Baby’s First Labor Exploitation.

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

#423

Post by blitzar »

xandrius wrote: post #364
geepeeyoudata wrote: post #328

Earlier quoted context omitted.

>> What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal? OR....you could just become a founding engineer by actually founding and keep 90% of the equity. You can get that salary with an equity raise, its worth not being the low-person on the totem pole.

That's forgetting what a founder actually has to do and worry about.

Advertise for a founding CEO and offer them 1-2%.

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

#424

Post by munchbunny »

torginus wrote: post #346
inhumantsar wrote: post #105

Earlier quoted context omitted.

the lottery ticket analogy doesn't quite hit the mark imho. I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people. even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquis…

Sorry I'm a total dumbo when it comes to startups, but what do you 'vest'? I thought vesting is for stock options (maybe stake?). And your startup is not on the stock market, and won't ever be unless it gets a billion-dollar valuation. Even stake might be worthless, if the company fails, despite you building a kickass backend for it.

Yes, you vest stock options, and given that risk for startups is very much front-loaded, vesting schedules that are back-loaded are a big red flag for incentive misalignment. And that's ignoring all of the problems with stock options as opposed to RSU's.

The baseline is something like a 4-year vesting schedule with a 1 year cliff and monthly after that, uniform distribution. Anything more back-loaded or worse than that is a red flag.

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

#425

Post by jejeyyy77 »

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…

most i know who work as eng #1 (non founder), are new grads who couldn't get into FANG. So mainly just looking for experience/inflated job title to boost their resume.

So not like these startups are getting top senior talent who obv will want to get PAID.

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

#426

Post by aeyes »

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…

What I don't get is that you are engineer #1 but you say the vibe and culture are bad.

Why didn't you build a better culture? I very much doubt that the management team took all the hiring decisions on their own after they got you on board. I'd say the most important part of my job as #1 was to hire and build the team.

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

#427

Post by romanhn »

lumost wrote: post #386
titanomachy wrote: post #171

Earlier quoted context omitted.

I went through exactly the same discussion in my last job search, and was assured that the offer was in line with industry standards. Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever. I liked the team and I think it would have been a fun job, but not quite fun enough to work nearly for free. I don’t think I’ll eve…

I recall a discussion where a founder kept insisting that a 10% offer for a pre-funding startup was beyond standard and that I should be lucky to get such an offer.. the experience left a bad taste in my mouth. Ultimately, this individual needed someone to shape and build the core of their product and the net of a series B would have been at most a wash compared to current employment.

They're not wrong though? 10% is more late cofounder territory, you won't find anyone giving up so much equity for an early employee.

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

#428

Post by nkohari »

extr wrote: post #154
lumost wrote: post #90

Earlier quoted context omitted.

This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.

I recently applied to a seed stage YC company that was offering me 1.5% equity for a founding eng role which they felt was generous. So basically I get to do all the work for like 1/50th of what the founder has? Get real lol. I even pointed this out to them and they said "it's totally normal, that's the way it's done". Like oh okay, as long as everyone else is getting ripped off too.

> So basically I get to do all the work for like 1/50th of what the founder has?

Who raised the money that the company is using to pay salaries? When investors put money into a seed company, they're largely betting on the founders' perceived skillset and previous experience (or other bona fides like education).

One thing that most people don't realize is that being a founder means that you're inextricably tied to the company for its lifespan. Losing a founder is terrible optics and can be a death sentence for a startup. Regardless of the actual reason, every subsequent investor conversation will involve an explanation of what happened.

If you want more equity, you should ask for it! And you definitely shouldn't take a job where you'd feel under-compensated! But realistically, if you want a "founder-level" equity, you have to start your own company.

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

#429

Post by petesergeant »

oblio wrote: post #389
petesergeant wrote: post #224

Earlier quoted context omitted.

The government is expecting something in return for these breaks rather than them being some kind of gift, though.

The government is not monolithic and politicians might except other things than what their constituents want. It's a bad test of the value of an investment.

For sure, and it may well have been a terrible investment with terrible returns, but selling to the government and responding to government incentives is an entirely legitimate thing to do, rather than some kind of inherent weakness in a company’s model. A company being “saved” by a government contract is a company being saved by making sales to its largest customer.

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

#430

Post by owlstuffing »

boringg wrote: post #400
burutthrow1234 wrote: post #300

Earlier quoted context omitted.

> Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here! Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs. If you start a real business you can…

I don't know why you are trying to make this a me vs them situation. Both situations are difficult in different ways and they are all real businesses. "Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque." - Sounds like you are trolling or alternatively incredibly naive. "If you start a real business you can expect to take on debt". ... Real business? Come on. No one in…

> I don't know why you are trying to make this a me vs them situation.

In terms of economic disparity it _is_ very much an us vs them situation.

Consider the optics over the last 20+ years. The middle class and their small businesses have been decimated while former VC funded companies hoover up their futures on Wall Street.

The level of risk involved starting an average small business is much closer to home compared with a startup seeking VC funding. The former can literally lose his shirt, the latter has to settle for a high six figure salary somewhere else.

Failing to see that limits the value of your comment significantly.

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