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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

#531

Post by xnx »

davedx wrote: post #493
randerson wrote: post #433

Earlier quoted context omitted.

My experience was similar, right down to the $10,000 worth of options. Eventually the company went public and those options would have been worth $5M if I'd had the foresight (and cash) to exercise them (which I didn't). The co-founders did not have exercise costs or AMT of course. It is an unfair system indeed. I'd encourage those seeking to be early engineers to go work at a FAANG for a few years before joining a s…

Wait, you couldn’t find the 10k cash to exercise 5m worth of options?

You typically don't know what they're worth when you exercise the options. Often it turns out to be nothing.

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

#532

Post by nlh »

tomrod wrote: post #445
moneywoes wrote: post #435

Earlier quoted context omitted.

do investors allow that

They don't control it.

One of the greatest quotes I've ever heard from a founder buddy was when his startup was going through a particularly dark moment and struggling: One of the investors said to him "Maybe you should seriously think about shutting down and giving us our money back", to which he replied:

"It's not your money anymore."

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

#533

Post by notanadvice »

People are talking about angry founders and angry employees, but there is another side to this post:

Prospective founders who work in big tech companies and have a family which depend on them. I include myself in that group, and I thought I needed 10 years worth of savings to venture on creating my own startup. But from the discussion, in about four years it is possible to match big tech compensation.

I feel more motivated to start a company now.

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

#534

Post by ditonal »

Finbarr wrote: post #520
ditonal wrote: post #514

Earlier quoted context omitted.

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.

This is the “startup myth” that lets the scam perpetuate.

The world has changed. Google IPOed just a few years after it founded. Now Stripe, objectively one of the most successful startups ever, still hasn’t IPOed after 15 years.

Liquidity preference Dilution

Even the F in FAANG had a major movie made about early employees getting shafted by dilution!

FAANG is 5 companies founded a long time ago. Since then VCs have completely rewritten the rules of the game. But they’ll still point to extreme outliers in the old rules. The fairy tale of the Google masseuse has probably cost tens of thousands of engineers millions in compensation.

You need to get things in writing and do the math and startups make it as difficult as possible to do that and then the math never adds up. So they resort to fairy tales.

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

#535

Post by thunkshift1 »

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…

Also bake in the fact in your calculations that 9/10 startups will not see the kind of success you are talking about. And the authors point still stands.. the founder made some money at liquidity event at round A vs … making even more money later if he doesnt sell?

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

#536

Post by p1esk »

bradlys wrote: post #405
p1esk wrote: post #317

Earlier quoted context omitted.

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.

I’d say you’re uncommon. I’ve never seen anyone who is a typical engineer making $250k/yr at a startup that’s below $1B valuation. Same for the amount of work you’re doing and that it’s remote with that compensation. It’s possible you’d be making $700k+/yr if you were at google. About triple what you are now.

What many people don’t seem to realize is there are a lot of early stage but already well funded (10M+) startups who are desperately looking for top quality people. Once I was approached by a founder who offered 500k base salary (wasn’t a good fit for my area of expertise).

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

#537

Post by tmpz22 »

jejeyyy77 wrote: post #425
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.

I went this route and now have a resume of inflated titles. I learned a lot and believe I can do some things in the top 10 percentile, just not the things many companies are currently hiring for (top 10 percentile in a narrow development skillset such as ML, or a specific language, or algorithms).

Im cynical and ultimately an rebuilding my dev career around a platform that will give me opportunities for entrepreneurship AND individual contributor work as an employee (Apple Ecosystem - iOS client development + product dev/mgn).

If I were to do it over again I 100% would've avoided startups early in my career when I could lean on junior positions to grow in a more mainstream manner. I'd have more money in my pocket, less stress, and less cynicism.

--

The problem is there is objectively zero way for fresh grads to learn these lessons. Even with prominent threads like these being available to some, the bearish attitude in every other thread will be more appealing to a fresh grad.

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

#538

Post by koalaman »

RhodesianHunter wrote: post #529
palata wrote: post #293

Earlier quoted context omitted.

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.

Yeah agreed to both of you. I had the same thought.

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

#539

Post by vonmoltke »

lupire wrote: post #268
darth_avocado wrote: post #35

Earlier quoted context omitted.

It’s like trading windows and blackout periods for employee RSUs, but equity selloff on a schedule for the c suite.

Regular employees can also make scheduled trading plans. ETP.

We couldn't at Twitter, which is the only company I've worked at that had a blanket trading blackout policy. The closest we could do was elect to sell all RSUs as soon as they vested (even if outside an open window).

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

#540

Post by RhodesianHunter »

gen220 wrote: post #454
stevesthrowaway wrote: post #419

Earlier quoted context omitted.

throwaway acct here. I left a flagship tech company with $500k total comp and joined a startup as engineer #1 with 5% options over 4 years. My salary is current $120k and I'm losing money each month, although I've been promised that will changed as soon as we raise more. We are going to raise a Series A in the next few months. I know a little bit about this stuff, but not enough that I'm confident in exactly what to…

You should be candid with them that you're uncomfortable with the cash portion of your comp. 5% is an unusually high % of equity, the founders likely assumed you were happy to trade-off cash for equity. Series A is usually a dilutive round and it's normal to grant people like yourself more options to compensate for the dilution (i.e. to keep you at 5% of the new cap table). My 2¢: I know people in your position who h…

> I know people in your position who have ~$200k cash comp in addition to meaningful equity.

That's great, so long as its taken within the context of "200k is way more than the average US engineer makes without any equity"

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