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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

#671

Post by bruce511 »

corry wrote: post #639
neilv wrote: post #503

Earlier quoted context omitted.

> 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…

Your argument is treating the future as knowable and certain, while not accounting for the value of risk.

I guess you'll feel pretty bad if you pay for car insurance for 40 years, and never have a crash.

If the 100% upside is guaranteed, then sure, you should hang on.

But if "anything can happen" then cashing out 10% now, and providing a "can't fail" safety net, is well worth it. The reduction of risk of "losing it all" is well worth the 10% premium. And if the (somewhat unlikely) big exit ever happens you still have 90%.

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

#672

Post by JumpCrisscross »

s17n wrote: post #439
JumpCrisscross wrote: post #5

Hmm, I’ll be controversial. Twinned secondaries, i.e. secondaries tied to a primary, are almost always a give away to senior management and the buyer. (They’re frequently syndicated at double-digit spreads.) If the company sucks, senior management gets cash back first while the investor gets top-of-stack liquidation preferences. If the company is doing great, the investor gets to buy stock at a price almost always lo…

> They’re frequently syndicated at double-digit spreads What does this mean?

> What does this mean?

Fund buys stock at X and simultaneously solicits LPs at 1.2X (whether by straight mark-up or, more commonly, by adding management fees, research fees, expense reserves and carry.)

It’s why tenders have a few weeks between end of sellers submitting requests, confirmation of quantities and finally funding.

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

#673

Post by underdeserver »

corry wrote: post #652
gwbas1c wrote: post #627

Earlier quoted context omitted.

I think the most interesting part of the discussion is that the early employees almost always get the worst end of the deal: Going in they have a lower salary than if they work for a more established company. Then, either their shares end up being worthless, or at the final exit, they make less money than if they worked for a more established company the entire time. IE: Being an early employee in a startup is a lose…

I'm curious why you think these employees -- who are getting the worst end of the deal -- are working for startups in the first place? Either they have the skills to be a founder themselves or to work at BigTech... or they are financially ignorant/disinterested enough to not understand how equity in corporations work? Or is the charming and misleading founder who is to blame? My point is that considering the high avg…

Or they want to work at a small startup and have the technical skills, but don't necessarily want to manage people, work insane hours, and meet with customers and potential hires instead of building the product.

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

#675

Post by stevesthrowaway »

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…

Thanks, I feel a little better about the situation. I pushed pretty hard for the equity. One of the founders knew me and sought me out, so I leveraged that a bit. When I signed on, the plan was to raise a new round within a 2 months, which would be accompanied by a bump. But for reasons not worth getting into, we waited about 9 months. I padded my bank account in preparation, and I'm just about to tap into savings, which I really want to avoid.

I just told them I need around 200 to be comfortable. And that's the truth. Response was good, and they can't match that now, but they will. I'm working for good people I trust. And we are building some pretty awesome tech that are much needed in our industry.

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

#676

Post by smcin »

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…

> 2. Going from L5-L7 ... a lot of opportunities for showy work and your own gamesmanship around corporate politics.

Can you say more about that?

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

#677

Post by Oras »

onlyrealcuzzo wrote: post #348
Finbarr wrote: post #66

Secondary at Series A is very rare. Part of the reason more early employees don't get included in secondary sales is because of the Securities Exchange Act of 1934 14e-2. If you have more than 10 sellers involved, the transaction can be considered a tender offer, which triggers additional regulatory requirements and disclosures. > As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR i…

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…

Your comment suggests people making 1M in FAANG and somehow a stable job. Did you hear about the thousands of layoffs in recent years?

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

#678

Post by Sytten »

hn_throwaway_99 wrote: post #530
Sytten wrote: post #518

Earlier quoted context omitted.

Sure until you lose your job, I think having your health insurance tied to employment is really scary for a lot of people (me included). Not everybody has the same tolerance to risk. Our safety net isn't what they have in europe, but it is still better than the US. No offense but it is spoken like a true American. I have dealt with European immigration and it was pleasant/painless for the most part. In the US they ma…

> Sure until you lose your job, I think having your health insurance tied to employment is really scary for a lot of people (me included)... Our safety net isn't what they have in europe, but it is still better than the US. 100% agree, but we weren't talking about which system is better, we were talking about why Canadians may be reluctant to relocate to the US. It's not like Canadians who come to work in the US give…

Yes and no, you lose access to it 6 months after you leave and to have access to it again to need to wait another 6 months while being in the Province. But I get your point, when you are a fresh grad it makes sense to spend a few years in the US. Though less relevant now with remote work, you can get a US salary here its just a bit harder.

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

#679

Post by dclowd9901 »

smcin wrote: post #676
dclowd9901 wrote: post #455

Earlier quoted context omitted.

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…

> 2. Going from L5-L7 ... a lot of opportunities for showy work and your own gamesmanship around corporate politics. Can you say more about that?

A lot of the FAANG companies (all?) have promotion processes that are basically a combination of both peers and managers strongly pulling for your promotion. It often takes a few years just to end up on people’s radars, and that’s a few years of delivering lots of high visibility work and doing lots of tech talks and other sort of corpo-social tasks to get your name out. In a lot of ways, it’s like you’re constantly applying for a new job.

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

#680

Post by bluGill »

georgeecollins wrote: post #648
bluGill wrote: post #621

Earlier quoted context omitted.

There are a lot of ways to do this. However you should NEVER have any significant value in the stock of the company you work for. It has happened - and will happen again - that the company you work for goes bankrupt unexpectedly and now not only are you out of a job but your savings has vanished as well! Even if the company is doing well you need to diversify your savings out of that one basket. There is one exceptio…

Financial advisors will advise you against the risk of having all your wealth in the company you work for for just the reason you describe. If you have a net worth of $10m and it is all in the company you work for you could in one moment loose your job and be broke. So you should diversify. However, employees often have virtually no net worth (why else are they worried about paying taxes on share, except they can't t…

If you have almost no net worth than put it in a bank savings account. If you have more than almost nothing put it in 401k or IRA plans - a house is sometimes a good option too (but only if you will live there for a decade, and of course location location location). Only when you have the above in great shape should you thinking about anything else more risky.
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