Silicon Valley's best kept secret: Founder liquidity

I've seen startups from a founder perspective and from an employee perspective (VC style startups). I agree there is more stress as a founder, but people really underestimate the toll as an early employee - the gap is smaller than many people think. Particularly those ideal missionary-type early employees, they take on just as much mental ownership burden as the founders. It is also an all-day job. Let me tell you, when the money runs low, it is immensely stressful as an early employee - it is both hard to be the one making the decisions and it is hard to not be the one making the decisions. The ability to walk away isn't a benefit, it's a burden.

Their jobs can be different (or can be very much the same - depends on people and every startup is its own beast) with founders needing to deal with fundraising, board management, and ultimately having the impossible problems land at their feet which is often out-of-scope (and out-of-sight) for early employees. But the same core problem exists for both - your actions will dictate the success of the company.

And there is a huge amount of understanding of the founder burden and support for them, from financial to emotional to reputational. Where are the support networks for early employees? People will say the founders, but this is a load of crap for the same reason that founders rely on relationships with other founders rather than talking to their board or teammates.

Early employee is probably the worst engineering gig in Silicon Valley on most dimensions. Unless you just want to 0 to 1 build things. Then I haven't seen a job that can compare.

Unless you're doing some niche b2b thing where you have no personal connections (in which case, why are you doing it at all?), the differential financial returns of going with VC are often negative, if not neutral. The main diff is you can "fail up" into the investor class if you prove your worth but the business goes sideways. But even that is a dissatisfying career for most founder-type people.

To whoever needs to read this: start your own company, avoid raising money.

Consider that if you could make 400k (including liquid stock) in compensation at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company. Except unlike any other company you bet 220k on, you won't get a board seat, you won't get access to key metrics, your influence will be dominated by "real" investor's influence.

If your NW is less than 10M, which presumably it is, anyone who's heard even heard of the words "Kelly Criterion" would tell you your nuts for betting 220k a year on one startup. And yet, you get treated like "an employee" and not like "an investor" for taking that insane risk.

So YC has invested in 5000 companies, and you can name 3 that had top-notch outcomes, thats 0.06% success - and you had to work like a dog to realize it! And that money was locked up. Those same early employees could have taken that $220k/ year, put it on Bitcoin or Apple stock, and retired off that. And Bitcoin and Apple were much easier "picks" than an given startup.

The math simply does not add up and the whole system runs off mystique and naivety. And I've worked at startups that gave me a hard time about asking about outstanding shares, about asking about the cap table, about asking about liquidation preference. This is _critical_ information before you invest a significant portion of your life and net worth on a company and that they're guarded about and it should raise the ultimate alarm bells that they don't fall over themselves to explain every part of it.

There's a bunch of propaganda out there "Explaining ISOs, written by a16z" that's a smoke screen of the truth. The math does not add up.

The dream startup employee is really really good at Transformer architectures and really really bad at personal finance. Fortunately for startups, a shocking amount of these people exist. But it doesn't change that if sharp financiers looked at employee equity packages at startups objectively, every single one would agree it's a scam deal.

When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.

[0]: https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...