Silicon Valley's best kept secret: Founder liquidity • Hacker News Board

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

#501

Post by didgetmaster » Wed, Jun 12, 2024, 3:58 PM UTC

I joined a startup as an engineer about 30 years ago. I was one of the first employees and one of the last to get some 'founder stock'. I took a big risk (low initial salary and even lent them money to make payroll) but it paid off. When the company was purchased 8 years later I did fairly well. Not enough to retire wealthy, but well worth the risk I took. I am glad I did it, but it could have turned out to be a big mistake.

Everyone working for a startup might have a different story to tell. Some good. Some bad. Tread lightly if you wade into the startup waters. It CAN be very rewarding but it can also lead to nowhere.

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

#502

Post by janjongboom » Wed, Jun 12, 2024, 4:00 PM UTC

throwaway-blaze wrote: post #483

anxman wrote: post #199

Earlier quoted context omitted.

I used Founders Preferred shares to get liquidity at the A (for a now defunct startup). In our case, we offered all vested employees the option of selling in the same round on the same terms. I personally don’t recall any disclosure requirements at 10 people; however, we didn’t have that many participate so perhaps it didn’t apply. In general, Founders Preferred does layer on the preference stack but also hopefully b…

Founders never have preferred shares, at least not the same class of preferred (with the same preferences) as investors.

Not never. E.g. all the capital we as founders put in the business before we raised our seed round was converted into Series Seed Preferred shares at the same rights as angels / seed VC. Small portion of total equity but still.

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

#503

Post by neilv » Wed, Jun 12, 2024, 4:02 PM UTC

corry wrote: post #488

Three interesting part of the discussion: (1) The opportunity cost to the founder of taking early liquidity: If a founder cashes out 10% of their position for $500k @ $25M Series A valuation, that de-risks a lot of their personal life. But when the startup ends up selling for $250M, that $500k of 'early' selling would have been worth $5M (less any dilution between rounds) - hard not to regret the choice in that case…

> If a founder cashes out 10% of their position for $500k @ $25M Series A valuation, that de-risks a lot of their personal life. But when the startup ends up selling for $250M, that $500k of 'early' selling would have been worth $5M (less any dilution between rounds) - hard not to regret the choice in that case even if hedging is going to be the correct choice 99% of the time.

IMHO, it's very easy not to regret, with those particular numbers.

I'd take $500K now plus possibly $45M later -- over $0 now and possibly $50M later.

I'd take that deal even if "possibly" were "guaranteed".

(Who might regret that is a founder who was otherwise already wealthy.)

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

#504

Post by ipsento606 » Wed, Jun 12, 2024, 4:02 PM UTC

corry wrote: post #488

Three interesting part of the discussion: (1) The opportunity cost to the founder of taking early liquidity: If a founder cashes out 10% of their position for $500k @ $25M Series A valuation, that de-risks a lot of their personal life. But when the startup ends up selling for $250M, that $500k of 'early' selling would have been worth $5M (less any dilution between rounds) - hard not to regret the choice in that case…

> hard not to regret the choice in that case even if hedging is going to be the correct choice 99% of the time

in the scenario you outline the founder sells the remaining 90% of their position for $45MM?

I don't think many people would experience any real regret at "only" getting $45.5MM instead of $50MM, due to declining marginal utility of money

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

#505

Post by VHRanger » Wed, Jun 12, 2024, 4:03 PM UTC

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…

If you're building everything singlehandedly, then you have leverage over your employer and investors.

You should use that leverage to renegotiate your pay. You'd lose nothing because you're considering quitting anyways.

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

#506

Post by jboggan » Wed, Jun 12, 2024, 4:04 PM UTC

Finbarr wrote: post #375

sneak wrote: post #187

Earlier quoted context omitted.

Where would the stress come from? You get a paycheck and there is no personal downside except opportunity cost (and perhaps reputation). You don’t lose any money if your startup fails.

Hiring, firing, layoffs, making the wrong decisions with limited information and not finding out they were wrong until years later, huge shifts in the tech market around you undermining your business, competitor actions wrecking your business, pressure from investors, pressure from your family to earn more money, uncertainty about whether the business will ever succeed, and an endless list of other things. > You don’…

Exactly. I quit Google in 2017 to work on a promising start-up idea (generative AI chatbot for coding, a tad early on that one) and ended up raising barely any money, running up massive CC debt to finance cost of living and GPUs, and taking a huge compounding opportunity cost to not continue growing as a FAANG SWE (not to mention missing out on the stock market run with the extra money I didn't have). I spent the last several years paying off that debt instead of buying a house or investing, etc. I'm massively behind in earnings and net worth compared to my colleagues who talk about their future startup idea but never struck out on their own.

But I'm finally debt free and ready to risk my future yet again on another startup.

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

#507

Post by light_triad » Wed, Jun 12, 2024, 4:07 PM UTC

While I agree that employees should get more equity and liquidity, I think it comes down to supply and demand:

- If the founders are de-risking appropriately it will take years of no pay/low pay work before they can even consider taking on employees. Building a valuable asset is not done overnight and takes extreme commitment - plus reputational & financial risk, opportunity costs etc.

- It's very rare for companies to get past the Series B stage. When they do, the founders have accumulated non trivial and non replicable knowledge about the market and the customers. The liquidity they get should be worth much more down the road.

Now of course if you are an early employee that is expected to 'make the startup work' like a founder and get none of the benefits there's a problem. On the other hand employees are replaceable & 'swappable' in a way that founders are not.

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

#508

Post by pydry » Wed, Jun 12, 2024, 4:09 PM UTC

boringg wrote: post #497

pydry wrote: post #491

Earlier quoted context omitted.

>The part to me that I see as surprising is dismissal of the stress of taking VC money and being a founder. It is a job thats incredibly demanding. Sounds like you're dismissing the idea that being an early employee is hard.

>>"Early employee is tough". ^^ Literally in my comment.

Yes and the people dismissing how hard it was to be a founder were comparing it to being an early employee.

So, you're saying that it's hard but "not that hard actually".

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

#509

Post by tmpz22 » Wed, Jun 12, 2024, 4:09 PM UTC

joenot443 wrote: post #323

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…

The most common endgame for a startup is slowly running into the ground until the money runs out and you eventually shut the doors. Failing your way into a happy acquisition isn’t really something to expect as a contingency, I don’t think.

The contingency isn't golden handcuffs its using one of the hundreds of C-level connections you made as a Founder doing sales and networking (and accelerator programs) to get you a cushy gig as a Product Lead, Operations Lead, or similar title with a strong paycheck and immediate authority.

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

#510

Post by robertlagrant » Wed, Jun 12, 2024, 4:10 PM UTC

oblio wrote: post #387

robertlagrant wrote: post #280

Earlier quoted context omitted.

> If you have 200 million "of your own money" to spare, you are no longer just a person for the purposes of this conversation, you're a walking VC fund, and you're not really risking a substantial change to your quality of life going from 250M to 50M net worth. Is that what happened? I thought he had $200m, and put in $200m.

Do we know this story from any credible source or are we just trusting Musk's (a famous liar) word about it?

It's true that that's what I thought, which is my statement. And it's better caveated than the previous one, which implied uncaveated that he still had $50m, but hasn't attracted the eye of any budding skeptics.