661–670 of 943 posts
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This is when you immediately liquidate your stock position, instead of taking a loan using it as a collateral, which would likely cost you 10%-15% in interest, not 30%.
No, in this example the person sold equity in order to get the 500K. They can't use the equity as collateral for the loan because they dont own it anymore
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> 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 even if hedging is going to be the correct choice 99% of the time. IMHO, it's very easy not to regret, with…
Regret is perhaps too strong of a word. But $5M is $5M even if you have $45M. Sure, it won't change your life since you have the $45M, but the incremental investing / philanthropy / estate / family help etc that it allows you is real in absolute terms. The other thing I've noticed is that for people on the other side of this transaction, it's not like "smaller numbers" all of a sudden become immaterial. $1M is still…
The whole concept of diminishing marginal utility is that this isn’t true. The first $5M is worth far more to a given individual than the last $5M.
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If we talk about stock options , the company is still private, and no stock was issued. Paying taxes on options for stock that may never materialize, or never be worth much, sucks. I won't (and didn't) buy options before an IPO or an acquisition is scheduled, even if they had been granted, unless I have money to gamble on it. I won't consider options as a part of my pay, unless I'm a founder %) They are but a lottery…
The options are exerciseable whenever they are vested (and if you are on good terms, sometimes before that). This can be a waste of money, or a huge boon in terms of taxes avoided.
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…
Another consideration is that employees are much less conscious of the real value of their stock than founders, and you don’t want to make the (lack of) value of their shares too obvious in the early stages. If you tell them the value of their stock is $200k, and 90% of that is imaginary, then they might start thinking about that job offer with a 500k stock grant at a listed company.
Founder liquidity events are done in secret in startup land. There's a simple reason for that. It's wrong. Startup employees, especially early ones, take on most of the risk that founders do. They take pay cuts. They work insane hours. They sacrifice. And they have the same liquidity needs, too. It's wrong to make them wait a decade for a fraction of the liquidity that founders got in the Series B. It's wrong to forc…
I don’t understand the framing here, where they need to justify why they get paid. They created and secured a thing and sell off chunks of it along the way when it suits them. What’s strange about that? If you buy a cheap stretch of land in the middle of nowhere and develop it and sell pieces of it off, that’s just understandable. When you come on board as an employee, you’re just not in the same situation.
They did not do that alone. If they had, there would be no employees to keep secrets from.
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I don’t understand the framing here, where they need to justify why they get paid. They created and secured a thing and sell off chunks of it along the way when it suits them. What’s strange about that? If you buy a cheap stretch of land in the middle of nowhere and develop it and sell pieces of it off, that’s just understandable. When you come on board as an employee, you’re just not in the same situation.
Using your analogy, this is Alice bought a cheap stretch of land in the middle of nowhere, and wanted to develop it, but she couldn't afford to pay Bob to develop it. Alice then offers to pay Bob a smaller portion of money and some of her land in exchange for developing it. Bob has other clients looking to pay him more money, but he decides to take Alice's contract because he wants the land. Why is Bob not in the sam…
>>Why is Bob not in the same situation?
In this specific circumstance, Bob agreed to an arrangement that contractually doesn't put him in the same situation. Hopefully Bob will learn from this experience and, if possible, negotiate better (or equivalent rights) instead of willingly agreeing to unequal rights.
Pragmatically, unless and until more workers are willing to take the risk to become founders themselves, the balance of power usually is in the founders' and investors' favour (i.e. capital).
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…
$20k would be a life changing amount of money for me right now
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I don’t understand the framing here, where they need to justify why they get paid. They created and secured a thing and sell off chunks of it along the way when it suits them. What’s strange about that? If you buy a cheap stretch of land in the middle of nowhere and develop it and sell pieces of it off, that’s just understandable. When you come on board as an employee, you’re just not in the same situation.
It's hard to make this point without a normative argument, but by analogy to land, a company is not only the land but also the workers laboring on it. It's reminiscent of serfdom. The serfs are attached to the land, and they own very little of it (if at all, and with many strings attached), even though their continued work is a large reason why the land would be considered valuable in the market in the first place.
Founder liquidity events are done in secret in startup land. There's a simple reason for that. It's wrong. Startup employees, especially early ones, take on most of the risk that founders do. They take pay cuts. They work insane hours. They sacrifice. And they have the same liquidity needs, too. It's wrong to make them wait a decade for a fraction of the liquidity that founders got in the Series B. It's wrong to forc…
I don’t understand the framing here, where they need to justify why they get paid. They created and secured a thing and sell off chunks of it along the way when it suits them. What’s strange about that? If you buy a cheap stretch of land in the middle of nowhere and develop it and sell pieces of it off, that’s just understandable. When you come on board as an employee, you’re just not in the same situation.
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to put it bluntly asf, you're being poor (and I'm being insensitive). what's $500k going to do for you if you come from a rich family? you already have your rent paid for until you die, and vacations paid for. all you have to do to do is put up with your annoying family, which isn't the worst if you've been through therapy. your mom or dad's abusive? if you've been through enough family therapy, that's not a problem.…
Yes, there are people who won't get the same benefit from hedging like this. But they're a small minority. Not that many people meet your description here.