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

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

#511

Post by foooorsyth » Wed, Jun 12, 2024, 4:11 PM UTC

onlyrealcuzzo wrote: post #417

foobarian wrote: post #406

Earlier quoted context omitted.

> making ~$1M per year working 6 hour days at FAANG Can you say more on this? I didn't realize FAANG TCO was quite that high. Maybe it's time to swallow some pride and take the adtech money after all...

The average SUCCESSFUL founder is in their earlier 30s. At that point - you should be at least L4 (probably L5) at FAANG. Salaries are about ~$450k at that level and age. In 5 years, if you work even a fraction of as hard as you need to be a successful founder, you should be L7 - salaries are usually >$800k at that point. No, it is not like any average slacker straight out of college in 5 years can get to a $1M salar…

>you should be L7

The distribution of the ladder is logarithmic. Most never make L6. L5 is often terminal level IC without any “up or out” obligations. Lots of people spend a long time at L5 and retire.

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

#512

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

etothepii wrote: post #409

tinco wrote: post #210

Earlier quoted context omitted.

In my opinion, you should take the difference between their market salary and the salary they're being offered, and consider that an investment by the employee at the upcoming (not past) valuation. For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (…

I think what you are actually describing is that you should value equity at zero. If to work at a startup you would need 28% equity you are describing a founder. That's fine but there is an enormous difference between these two things. There is also the question of where the $125k comes from to pay your base.

Value equity at zero? I am not sure what you mean by that. If an employee sacrifices $500k to work at your company, then it would make sense to compensate them with $500k worth of equity is my point. The 28% is tongue in cheek, if you're so early that the amount of equity needed to compensate your first hire adequately is 28%, your company hasn't really started yet, and maybe you should just consider them a founder.

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

#513

Post by alexvitkov » Wed, Jun 12, 2024, 4:13 PM UTC

algobro wrote: post #496

onlyrealcuzzo wrote: post #348

Earlier quoted context omitted.

Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away. Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really w…

Sir if you live in USA and do not take a dip into the VC money swimming pool, you are stupid, because crazy people with stupid ideas routinely get to $100 Million valuations, like no other place on earth. Its like going to Disney Land and saying "Oh i'll just sit at the coffee shop". Some people are here for the ride. Some people like the 9 to 5. Like you, obviously. Why dont you go start corporate-drone-news.org, th…

I don't mind the shit take, but please don't use underscores in your domains.

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

#514

Post by ditonal » Wed, Jun 12, 2024, 4:14 PM UTC

onlyrealcuzzo wrote: post #348

Finbarr wrote: post #66

Secondary at Series A is very rare. Part of the reason more early employees don't get included in secondary sales is because of the Securities Exchange Act of 1934 14e-2. If you have more than 10 sellers involved, the transaction can be considered a tender offer, which triggers additional regulatory requirements and disclosures. > As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR i…

Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away. Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really w…

You’re obviously overstating the FAANG SWE lifestyle.

But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.

The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.

As an aside, when people think SWEs don’t need unions/ professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.

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

#515

Post by criddell » Wed, Jun 12, 2024, 4:17 PM UTC

adastra22 wrote: post #467

muzani wrote: post #223

Earlier quoted context omitted.

Why is it insane? Some founders take zero salary since the start, and part of the reason for raising funds is that they have to eat too. Anyone who is an "early employee" usually get lower salary than market, and some stock. It's only fair they get to cash out a little early on, or hold on if they're liquid and think it's worth a lot more. It also works well for everyone involved if they're selling their shares to th…

In my industry the series A occurs in the first year of operation, and before the company has really achieved anything. A founder taking money off the table then is ludicrous.

Founders who have no need for money in the first year or two are fortunate people who are either already wealthy or have a spouse or family supporting them. Surely those aren't the only types of people worth backing.

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

#516

Post by lelandfe » Wed, Jun 12, 2024, 4:20 PM UTC

BiteCode_dev wrote: post #369

palata wrote: post #345

Earlier quoted context omitted.

$200k? Do you live in a place where this is considered a bad salary?

It's not just a matter of place, but what you can have if you work for Google instead. I can make $200k as a freelancer in France, but much more as a Google employee.

Levels.fyi has no Paris salaries @ Google >$292k (for a 12y tenure) https://www.levels.fyi/t/software-engineer/locations/greater...

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

#517

Post by riemannzeta » Wed, Jun 12, 2024, 4:21 PM UTC

This is a wonderful article and kudos to the author for his moral sensibility here. The lack of liquidity and anti-dilution rights for any except a handful of key persons is a dirty secret of Silicon Valley. Most startup employees do not end up better compensated than they would at a larger company on a net present value basis even when their startup is successful -- and they don't as easily get liquidity along the way although there are more private secondary market brokers than there used to be.

The other angle worth observing here is the tax angle. In many cases, the founders are taking liquidity at valuations that are only loosely tied to tax valuations of the company. These valuations are fine for the founders and preferred by the buyers/investors, but undercut the premise of the tax system that was redesigned after the options backdating scandals of the early 2000s, in part, to ensure that taxes were getting paid in accordance with the actual capital gains.

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

#518

Post by Sytten » Wed, Jun 12, 2024, 4:22 PM UTC

hn_throwaway_99 wrote: post #391

Sytten wrote: post #350

Earlier quoted context omitted.

Not that our health care system is going that well these days but true. Also being called a freaking non-resident "alien" is so demeaning, sorry I am human.

None of those reasons make any sense to me. The US health care system is truly fucked, but nearly all the companies paying well for SWEs also provide good health care plans. It sucks that things are so complicated (deductibles, copays, coinsurance, in-network, out-of-network, etc.), but people with good health insurance aren't getting bankrupted by health care costs. And I've seen plenty of colleagues with super-expe…

Sure until you lose your job, I think having your health insurance tied to employment is really scary for a lot of people (me included). Not everybody has the same tolerance to risk. Our safety net isn't what they have in europe, but it is still better than the US.

No offense but it is spoken like a true American. I have dealt with European immigration and it was pleasant/painless for the most part. In the US they make you feel unwelcome and they drown you in paperwork. Not that Canada is much better these days, but I am a citizen so don't need to deal with it.

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

#519

Post by icedchai » Wed, Jun 12, 2024, 4:23 PM UTC

throaway893 wrote: post #447

icedchai wrote: post #392

Earlier quoted context omitted.

Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.

>5 years down the road you own 20% of a $1M What a horrible fate. They only got five years of salary plus 200k extra. I'll include them in my prayers (just kidding, I don't pray).

Except the "$200K" is purely paper, and has an expected value of closer to zero. Remember, common shareholders are the last ones to get paid. Investors have preferences and get paid back first (often with interest.)

Also realize you were probably forced to take a pay cut and have a below average salary due to cost-cutting measures from the board. We'll ignore the non-financial problems, like tons of stress, complaining employees demanding more equity because you couldn't give them raises...

No, it's not a good situation.

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

#520

Post by Finbarr » Wed, Jun 12, 2024, 4:25 PM UTC

ditonal wrote: post #514

onlyrealcuzzo wrote: post #348

Earlier quoted context omitted.

Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away. Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really w…

You’re obviously overstating the FAANG SWE lifestyle. But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison. The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that ris…

Let's not forget that FAANG companies were all startups at one point. Early employees at those companies experienced significant upside. Startups can be very high risk, and in rare cases, extreme upside.