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

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

#521

Post by apinstein » Wed, Jun 12, 2024, 4:26 PM UTC

The only fair way to analyze this is by looking at opportunity cost, which isn’t what TFA does.

Founders often have slightly higher market value (though not always) than first employees, so they are giving up more to go the startup route.

Separately, TFA further underestimates founder risk as they are typically not taking salary during pre-seed, and no or low salary during seed. However employees 1-5 typically get mostly cash, often much closer to market.

Thirdly, there is also often a lot more stress in being the founder. It is a complex, all day job. You have the weight of keeping things going for all employees, and when cash is low it’s your paycheck that gets delayed/cut first, not your employees.

That said I am all for reasonable early stage liquidity where it makes sense, but as many other commenters have mentioned, it tends to not be life changing super early for most early employees. Most employees would rather keep the bet on the table. Also, I am strongly against large founder secondaries. I think it’s helpful for founder to remain feeling “not financially successful”, especially first time founders, so that they keep their heart in the game. I followed this practice with my companies.

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

#522

Post by tivert » Wed, Jun 12, 2024, 4:27 PM UTC

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. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.

My startup idea is a firm that uses generative AI to flood the internet with pro-startup, pro-VC, pro-founder propaganda, so that message will never reach the naive 22 year olds. Personally, I think it's like saving the environment, since naive 22 year olds are precious resource we cannot allow to be destroyed.

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

#523

Post by jakjak123 » Wed, Jun 12, 2024, 4:28 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…

This 100%. Really the only reason to work at a startup as an engineer is if you really want to, because everyone pays low and the tiny bit of equity is essentially worthless in 99% of cases, which gives it a very low value.

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

#524

Post by hn_throwaway_99 » Wed, Jun 12, 2024, 4:28 PM UTC

PeterisP wrote: post #244

jahewson wrote: post #114

Earlier quoted context omitted.

How much do Canadian tech companies earn per employee? There’s your answer.

So many of the companies are global, or at least have offices both in USA and Canada. Why do they hire devs in USA instead of Canada?

In my experience the best Canadian devs came to the US specifically because they could make so much more. Not sure if that's changed much over the past 5 years given the explosion of remote work.

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

#525

Post by algobro » Wed, Jun 12, 2024, 4:28 PM UTC

alexvitkov wrote: post #513

algobro wrote: post #496

Earlier quoted context omitted.

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.

Good catch, fixed.

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

#526

Post by bps4484 » Wed, Jun 12, 2024, 4:29 PM UTC

AnarchismIsCool wrote: post #37

iEchoic wrote: post #14

Making less money isn't really the risky part about founding a startup. The risky part is missing out on years of other life experiences, stressing (or losing) your closest personal relationships, failing and feeling personally responsible for disappointing everyone you convinced to believe in you, and developing an anxiety disorder (or worse) from chronic long-term stress. Author's suggestion that they could have ta…

Having been a key early employee at a failed startup, horseshit. The employees bear the burden too, if they're working their asses off at an early stage startup they believe in the cause just as much. Viewing founders as somehow magically special is a symptom of the broader misguided hero worship the US has right now.

I'm sorry this isn't true. Your name wasn't on the line when you took the investment, and the OP pointed out with his "5 startups in 10 years" line, it's very easy for early employees to walk away. That isn't as available to founders. There is much more burden (reputational, financial, emotional) on the founders.

I've been a founder, and I've been a key early employee. It is very different.

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

#527

Post by LargeWu » Wed, Jun 12, 2024, 4:30 PM UTC

throwaway98797 wrote: post #288

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.

cause if you fail you have to let people go cause if you fail you have to tell your investors you lost money cause if you fail is a thought that’s always running through your head as you live it

"cause if you fail you have to let people go"

This isn't the founder's risk. It's the employee's risk. And it has the added bonus of, if there is a liquidity event, the employee's don't get the upside.

I was like engineer #3 at a company that eventually was acquired for ~$250MM. My payout was $60,000, after 5 years of employment there. I could have made more by going and contracting at megacorp for a single year. There was never any upside for me.

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

#528

Post by cosmic_quanta » Wed, Jun 12, 2024, 4:31 PM UTC

zenlikethat wrote: post #452

cosmic_quanta wrote: post #415

Earlier quoted context omitted.

Well, the alternative (which appears to be the status quo) is to give lower % equity to the first ~50 employees. What do you think is the ideal breakdown of equity for early employees?

people already do a variant of “earlier gets more, later gets less” that’s a lot smoother/linear than your scheme and can be customized and adjusted to roles (engineers get more than salespeople as an example). With what you describe, offering some exec down the line 0.5% or whatever is impossible. You need flexibility because at any moment some killer candidate might come along that you need to juice the grant for.…

That makes sense, thanks

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

#529

Post by RhodesianHunter » Wed, Jun 12, 2024, 4:34 PM UTC

palata wrote: post #293

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 have been working in multiple startups, I've come to think that it's a Ponzi scheme for the founders. Generally underpaid and quickly toxic. It is an experience, but it's important to know it.

It's a Ponzi scheme for VC and other investors.

Founders just get greased palms along the way if they're successful.

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

#530

Post by hn_throwaway_99 » Wed, Jun 12, 2024, 4:34 PM UTC

Sytten wrote: post #518

hn_throwaway_99 wrote: post #391

Earlier quoted context omitted.

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 ma…

> 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)... Our safety net isn't what they have in europe, but it is still better than the US.

100% agree, but we weren't talking about which system is better, we were talking about why Canadians may be reluctant to relocate to the US. It's not like Canadians who come to work in the US give up their citizenship. Worse comes to worst and you lose your job and health care and have a major medical issue, the Canadian safety net is still there for you.