There seems to be so much variance in starting a company that I'm not sure how valid it is to use the 'averages' to create an earnings graph.
That's the entire purpose of averages, though.
The ROI on being an entrepreneur vs. an employee
61–70 of 105 posts
Re: The ROI on being an entrepreneur vs. an employee
#62A VC funded company, assuming you are capable of raising a seed round, can generally pay sfba founders 50-120k for full time work pretty soon after (founding, or people going full-time). Those same people are generally forgoing 100-200k jobs. The equity value of a founder's shares is an order of magnitude higher than an early hire, or two orders higher than a late A or B round hire, and 3-4 orders higher than a pre I…
These days, being an employee at at a profitable series B+ company may not make you rich, but it's a nice balance of risk and reward: you'll almost certainly walk away with the equivalent of a few hundred thousand per year, with a pretty cushy lifestyle on top of that. I know plenty of people who have jumped from one big valley name to another at mid-growth stage, and they're not hurting financially (plus, it makes y…
"You'll almost certainly walk away with the equivalent of a few hundred thousand per year"
"Certainly" is an inappropriately strong word. Even if you assume a salary of $150,000/year, in order to reach $300,000/year you would need to make $150,000/year in stock options, which comes out to $450,000 total if you assume it takes 3 years to get from series B+ to an acquisition/IPO. Of course, it could take longer. Or the median outcome could occur and neither event would happen.
So even in the unlikely scenario that the company goes from series B -> liquidation event in 3 years, and you get 0.25% equity (I'm assuming unreasonably generous stock options here for your average engineer, especially given the base salary), the company needs a $180MM liquidation event for the math to work out. This of course assumes that all stock is equal and your investors don't have a liquidation preference or anything like that. It also assumes the company doesn't take additional financing that dilutes the option pool.
Re: The ROI on being an entrepreneur vs. an employee
#63Earlier quoted context omitted.
No, look at this: References to: - http://www.law.cornell.edu/uscode/text/26/861 - http://www.law.cornell.edu/cfr/text/26/1.1441-1 - http://www.irs.gov/pub/irs-pdf/i1042s.pdf NAME_OF_COMPANY LLC is a single member LLC, and as such disregarded for federal tax purposes as a separate entity from its owner, FULLNAME, a resident of COUNTRY and a nonresident alien for US tax purposes. According to Section 1.1441-1 of Treas…
Are you talking about a non citizen doing this, or a citizen/permanent resident? A noncitizen actually can use the USA as a tax haven in ways similar to this (I'm not sure of the specifics of this particular situation). IMO there isn't a whole lot special about non US people not owning US taxes when outside the US. A US citizen or permanent resident is taxed on global income (you do get around your first 95k/yr deduc…
I am talking about a non US citizen.
N.B. I don't know why somebody downvoted me for clarifying the previous point.
Re: The ROI on being an entrepreneur vs. an employee
#64A VC funded company, assuming you are capable of raising a seed round, can generally pay sfba founders 50-120k for full time work pretty soon after (founding, or people going full-time). Those same people are generally forgoing 100-200k jobs. The equity value of a founder's shares is an order of magnitude higher than an early hire, or two orders higher than a late A or B round hire, and 3-4 orders higher than a pre I…
I'd like to make a small observation here, $10 - 15MM after taxes is fine. That is where you earn $240K after taxes and fees during a recession, or $20K a month free and clear. You live in a nice single family home that is paid for anywhere in the US, and you spend a lot of time travelling and sight seeing. Or if your more entrepreneurial you spend your time building things, coaching youngsters, collecting old cars or steam locomotives and restoring them to original condition. You never run out of money, you never run out of health care, toys, or shelter. If you're working 9 to 5 somewhere its because its fun and you "like to keep your hand in the game."
Pretty much anyone would call that "rich." The exception are people who have a issues around money and their only definition of rich is 'more than everyone else.'
Re: The ROI on being an entrepreneur vs. an employee
#65Earlier quoted context omitted.
In the US if you have a mortgage and/or office in your house you can take additional deductions. Contributions to an individual 401k are deductible.
Certainly. And I do that. But after a point, you're losing a ton of money by not having enough deductions to cover your income.
Which puts you in the same position as an employee paying top tax rates. It's the pre-tax deductions (cost of doing business expenses) that differentiate working for yourself or for someone else.
Re: The ROI on being an entrepreneur vs. an employee
#66Earlier quoted context omitted.
Is this for an S-Corp / LLC? Because C-Corps pay income tax with a top rate of 35%. And is that how pass-through-taxation works? You only pay it once you withdraw it?
What was described above was basically tax evasion, especially the bit about charging your own company rent to operate out of your house. No form of entity works like that in the U.S. You get a choice: you can either have a pass-through entity (owners are taxed as if they received the income directly...even if they never actually receive it) or a deferral entity like a corporation (corporation is taxed, but its owner…
This makes way more sense.. Sounded too good to be true
Re: The ROI on being an entrepreneur vs. an employee
#67Earlier quoted context omitted.
Certainly. And I do that. But after a point, you're losing a ton of money by not having enough deductions to cover your income.
Which puts you in the same position as an employee paying top tax rates. It's the pre-tax deductions (cost of doing business expenses) that differentiate working for yourself or for someone else.
But those pre-tax deductions are pretty limited in the software development field. More code written != more deductions taken.
Re: The ROI on being an entrepreneur vs. an employee
#68Earlier quoted context omitted.
Can you expand upon that? I am always looking to reduce my taxes. I got killed with my 1099s this year.
(Sorry in advance for this long, rambling response) This applies to the US and forgive me if you have already done some of this. The first step is to get your corporation set up (use an online service or an accountant). It's a bit of paperwork but you can do it for around $400. Once you do that you can open a corporate bank account. At that point you bill your clients as a corporation and provide them with your corpo…
You don't need to setup a corporation or payroll to get these benefits. Anyone can deduct business expenses. You end up paying the same payroll taxes either way.
Re: The ROI on being an entrepreneur vs. an employee
#69Earlier quoted context omitted.
These days, being an employee at at a profitable series B+ company may not make you rich, but it's a nice balance of risk and reward: you'll almost certainly walk away with the equivalent of a few hundred thousand per year, with a pretty cushy lifestyle on top of that. I know plenty of people who have jumped from one big valley name to another at mid-growth stage, and they're not hurting financially (plus, it makes y…
"You'll almost certainly walk away with the equivalent of a few hundred thousand per year" "Certainly" is an inappropriately strong word. Even if you assume a salary of $150,000/year, in order to reach $300,000/year you would need to make $150,000/year in stock options, which comes out to $450,000 total if you assume it takes 3 years to get from series B+ to an acquisition/IPO. Of course, it could take longer. Or the…
If you're in a company that's series B+, a $180M liquidation event is a fail, and you shouldn't expect to make anything.
I'm not counting angel rounds as a series A here. I'm talking about the big rounds that are invested to scale the business of an already-successful product. Companies that take these kinds of rounds can still fail, but the rate is nowhere near the same as for an early stage startup. And there's still upside in it for the employees: if you get .01% at a $100M series B valuation, and the company eventually IPOs for $1B, you've walked away with a grant worth $100,000.
We're only a factor of ~4 apart -- make that .02% and a $2B exit (or .01% at 50M for a $2B exit, or...), and you're basically there. And we haven't even talked about raises and/or retention grants, yet. So perhaps "certainly" was a strong choice of words, but it isn't totally ridiculous, either. Being a later stage employee at a hot company is a pretty good deal.
Re: The ROI on being an entrepreneur vs. an employee
#70A VC funded company, assuming you are capable of raising a seed round, can generally pay sfba founders 50-120k for full time work pretty soon after (founding, or people going full-time). Those same people are generally forgoing 100-200k jobs. The equity value of a founder's shares is an order of magnitude higher than an early hire, or two orders higher than a late A or B round hire, and 3-4 orders higher than a pre I…
I'd like to make a small observation here, $10 - 15MM after taxes is fine. That is where you earn $240K after taxes and fees during a recession , or $20K a month free and clear. You live in a nice single family home that is paid for anywhere in the US, and you spend a lot of time travelling and sight seeing. Or if your more entrepreneurial you spend your time building things, coaching youngsters, collecting old cars…
I'd call that "post economic", but $5-10mm pretax (which is more likely what an employee gets at a Google as an engineer hired before IPO who stays through IPO for 4y) is not enough, after taking care of one's personal expenses, to really fund serious startups.
My definition of "rich" is being able to do something (fund businesses) which you fundamentally can't do while earning a salary. You could do that at an extremely limited scale either as a well paid employee or as 5-15mm exited founder.
It's a pointless semantic argument, though. My real argument is that founders are making 10, 100, or 1000x what others are making in virtually all positive outcomes, and not actually doing badly in negative outcomes (sometimes better, due to soft landings; sometimes worse, due to forgone salary).