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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

#721

Post by ishan0304__ »

icedchai wrote: post #541
nlh wrote: post #532

Earlier quoted context omitted.

One of the greatest quotes I've ever heard from a founder buddy was when his startup was going through a particularly dark moment and struggling: One of the investors said to him "Maybe you should seriously think about shutting down and giving us our money back", to which he replied: "It's not your money anymore."

Yeah, then the investors call a board meeting and bring in a new CEO to provide adult supervision after a 2/3rds vote. The give that guy more equity than you to keep the ship afloat. "It's not your company anymore."

Can never happen, the guy who says that this ain't ur money no more has made sure that investors know their place on board, they r afterall just passive investors who r spreading risks around, even wework a company that has fucked up financials had to give their founder close to a billion dollars just for stepping down, as long as the founder is a majority stakeholder, he will always remain in control

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

#722

Post by palata »

nkohari wrote: post #420
palata wrote: post #295

Earlier quoted context omitted.

> I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder. Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.

> Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups. Have you been a founder? If not, I'm not sure you fully realize what goes into the job. Everyone wants to be a founder, but nobody wants to _be_ a founder.

> I'm not sure you fully realize what goes into the job.

Can it be a lot worse than working as many hours as possible and burning out? Because startup employees do that, without the compensation the founders get.

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

#723

Post by nealchandra »

skybrian wrote: post #611
PheonixPharts wrote: post #557

Earlier quoted context omitted.

> 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 se…

I believe in diversification and index funds for most people, but this seems overdone. The issue here is that sometimes if you procrastinate about diversifying, it pays off very well. As a Google employee (who joined after IPO), it was by far my best investment and funded my retirement. I guess that's accidental gambling. I did have other investments.

The way you can test if it's accidental gambling is by answering the following:

If you had worked at a different company with pure cash comp equivalent to your RSUs, would you have invested the same $$ in Google stock? Or would you have invested it instead in an aggressive but diversified portfolio (e.g. 100% S&P 500 or even just a bucket of blue-chip tech stocks).

I am confident that for the vast majority of tech employees they would choose the latter if they were operating in a pure cash regime.

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

#724

Post by lotsofpulp »

simonebrunozzi wrote: post #570
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…

You are not taking into account QSBS. [0] 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...

I do not see the purpose of this nitpick.

The numbers are made up anyway, adjust up by a few hundred thousand and the point that securing one’s shelter is worth foregoing winning the lottery still stands.

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

#725

Post by booleandilemma »

phone8675309 wrote: post #667
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…

> If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k. Not really enough to de-risk your life although still might be welcome (and employees would appreciate having the choice). $20k would be a life changing amount of money for me right now

What would you do with $20k that would change your life?

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

#727

Post by 6510 »

burutthrow1234 wrote: post #300
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…

> Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here! Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs. If you start a real business you can…

I one time tried to do a normal startup with 20-30 owners all financially liable. There are other challenges tho.

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

#728

Post by smcin »

dclowd9901 wrote: post #720
smcin wrote: post #711

Earlier quoted context omitted.

I meant say more about the gaming the politics part, not so much the showmanship and self-promotion part. Say there are several people who meet the criteria to get promoted, which ones tend to get it and which not, based on which political behavior?

Tends to be the one with more friends. That’s pretty much it. That’s the politicking.

Allies, not friends. In that sort of environment, what sort of things get you allies? other than what you mentioned. For example when you say gaming the process, how to approach reviews?

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

#729

Post by projectazorian »

sshconnection wrote: post #702
underdeserver wrote: post #673

Earlier quoted context omitted.

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.

An early stage startup is a bad place to avoid working insane hours.

Chances are higher that those hours won't feel like "work" though.

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

#730

Post by iainctduncan »

Background: I work in technical diligence and talk to a lot of companies just before they do exits to PE firms (i.e., usually the first big cash-in). One of the things I see over and over again is just how much great people matter. Not only do they matter for getting you there, but they matter for how much you get when you get there. Our work is used at the negotiation table: piles of tech debt and stuff that needs to be seriously fixed up comes off the top... a "hair-cut" as they put it. Your pile of tech debt and ignored security issues and so on could be millions off the deal.

So... I agree with this writer that it there is likely more value to early founders than they think in doing that which motivates star-level early employees to join and stay.

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