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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

#551

Post by shmel »

closeparen wrote: post #479
shmel wrote: post #384

Earlier quoted context omitted.

If you only care about money, sure. I have plenty of friends working in FAANG. For some mysterious reason any time I ask them about work, they say something along the lines "ehh... it's fiiiine. Paycheck is pretty good though". Okay, not all, but perhaps 95%. And half of them work massive overtime on regular basis. I can get behind working weekends when you hope to change the world. They often say things like: "yeah,…

The Bay Area housing market is too competitive for this. If you’re renting a room in your early 20s then sure just have fun, any tech job should cover it. If you want to own a place to raise a family in by your 30s, and you don’t have some exogenous source of wealth, you’re going to need every dollar of liquid compensation you can possibly get.

Or you can just live somewhere else. The world doesn't end at Bay Area.

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

#552

Post by eschneider »

jjav wrote: post #159
xandrius wrote: post #155

Earlier quoted context omitted.

Yeah but I don't think it's fair to compare salaries to FAANG firms, as they are extreme outliers (and not really good companies). So you would get paid like at another company but get equity on top and it's not a good deal? How comes?

> So you would get paid like at another company but get equity on top and it's not a good deal? How comes? If it were truly market rate (total comp not just base salary) then sure, it's a good deal. How likely are you to find that in an early startup? It must be pretty close to zero percent chance. But if you find it, sure, it's good. You'll still work harder and be more stressed but it'll be a different learning exp…

A lot of it comes down to management/team quality. Do you want to spend an awful lot of time with these folks? Do you think you'll learn from each other? Do these folks seem to know what they're doing and are the building a product that interests you? If you can say yes to most (all?) of those questions, then all-in-all, it's probably a wash. If not, run.

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

#553

Post by WalterBright »

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…

For me, it's always regret:

1. If I buy stock, and the stock goes down, I regret buying

2. If I buy a stock, and the stock goes up, I regret not buying more

There's no winning :-/

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

#554

Post by hedora »

palata wrote: post #473
CSMastermind wrote: post #358

Earlier quoted context omitted.

It's normally considered a bad salary in comparison to what you could be making. I won't speak for the poster but I left a ~$1m / year TC job ($300k base the rest RSUs) to join a startup. I have a good salary compared to the population at large but it's a fraction of what I could be making on the hope that my equity turns into something meaningful that makes up for it.

I wish I knew how to get to $200k. Not even mentioning 1m/year, that seems absolutely insane to me.

The easiest way is to move to the SF area. However, you'll end up spending most of the after-tax pay on housing, food, etc. For example, rent on a 1 bedroom apartment in the suburbs is going to be $30-60K per year:

https://www.zillow.com/santa-clara-ca/apartments/1-bedrooms/

The cost of pretty much everything around here reflects that cost of living. Businesses have to pay workers enough to allow them to live in the area.

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

#555

Post by nirvdrum »

jakjak123 wrote: post #523
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…

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.

And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options. If you've gotten laid off, eating into your savings while searching for a job is a pretty risky proposition. If you have an appreciable amount of equity, that bill can be rather high. Then there's AMT. Many end up letting the options expire. So, taking that pay cut for equity really didn't work out -- you had less money to exercise the options and because you couldn't, the option portion of your compensation was effectively clawed back.

I very much appreciate the startups pushing to extend the exercise window out to 5 - 10 years, but that's far from the norm. I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable, but that's certainly not the case when folks are laid off. And we commonly discuss people thriving in one particular phase of a company. If you're not in that phase, it's no good for either the company or the employee to continue the relationship just to defer having to exercise options.

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

#556

Post by galaxyLogic »

thunkshift1 wrote: post #535
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?

Bird in hand is better than 3 in the bush

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

#557

Post by PheonixPharts »

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

If you can't handle "regret" in these cases, then you probably shouldn't be in a position where you're deriving the vast majority of your income/weatlh from investments (which is fundamentally what a CEO does).

It's astounding how many ICs can't wrap their heads around the concept that holding onto your RSUs make absolutely no financial sense. With rare exceptions, this doesn't make sense for anyone. And yet, fear for "regret" keeps people holding.

But it's not shocking that even in tech many ICs are not good at reasoning financially. But if you want to be a co-founder, and hold a lot of your wealth in investments it's essentially that you learn to reason, plan and accept outcomes accordingly. Otherwise you're more-or-less a professional gambler.

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

#558

Post by onlyrealcuzzo »

dclowd9901 wrote: post #455
onlyrealcuzzo wrote: post #417

Earlier quoted context omitted.

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…

Big caveats on these numbers: 1. You’ll have to be located in SF or Seattle. 2. Going from L5-L7 is _not_ trivial. It requires a somewhat miraculous combination of being on a productive team with a good boss, a lot of opportunities for showy work and your own gamesmanship around corporate politics. Is it possible? Sure. But in my short stint at Amazon, I met a lot of people who should have been higher level and were…

> Going from L5-L7 is _not_ trivial

It is trivial compared to growing a company successfully from $10M valuation to $100M valuation + an exit.

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

#559

Post by smokel »

Thorrez wrote: post #492
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…

>while your peers are all making ~$1M per year working 6 hour days at FAANG I highly doubt ALL your peers are making that much. And I think the people making $1M per year at FAANG tend to work much more than 6 hour days. You have to be very productive to get $1M per year.

The "Four Yorkeshiremen" sketch by Monty Python always lightens my mood when this kind of bragging comes up.

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

#560

Post by khazhoux »

pojzon wrote: post #192
khazhoux wrote: post #73

Earlier quoted context omitted.

Yeah that line in the article is completely off: > Ask most venture-backed founders why they get 10x more equity than employee #1 Employee #1 typically gets 1%. Sometimes could be up to 2%, but 1% is standard. So then the founder gets 10%? No way. I posit that very, very few early non-founding employees in SV startups have a true notion of how cheap they're working compared to the founders. Founders do founder-y stuf…

And what happens in case it does not work out well ?

If startup goes to zero, then everyone goes home with nothing. The founders typically don't lose any money of their own -- that cost is shouldered by angel and series-A investors.

Often though, the startup has a "soft landing" where it's acquihired by a larger company, and then the founders typically get executive or very senior roles (with large bonuses, etc) meanwhile the non-founders get standard employee packages.

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