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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

#731

Post by riazrizvi »

indoordin0saur wrote: post #697
riazrizvi wrote: post #645

Earlier quoted context omitted.

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.

This makes sense if you're coming in as employee #50, but what's the difference between a founder and the first engineer?

The difference between the founders and the first employee is the founders own the company

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

#732

Post by icedchai »

ishan0304__ wrote: post #721
icedchai wrote: post #541

Earlier quoted context omitted.

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

I'm skeptical. It is rare for founders to maintain majority control past series A. Unless you are very successful, it doesn't happen.

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

#733

Post by chinchilla2020 »

Finbarr wrote: post #520
ditonal wrote: post #514

Earlier quoted context omitted.

You’re obviously overstating the FAANG SWE lifestyle. But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison. The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that ris…

Let's not forget that FAANG companies were all startups at one point. Early employees at those companies experienced significant upside. Startups can be very high risk, and in rare cases, extreme upside.

The expected value of startup equity is far, far, far below a casino. The ON bet at a craps table is 50% odds. Less than 1% of startups survive.

You might as well go to the casino. You will save years of sweat, heartache, and stress-induced mental decline.

Instead at a casino you get to blow your money quickly, enjoy fun, free drinks, and still have the upside potential to become super rich if you are in the 0.000001 luck percentile.

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

#734

Post by throwaway98797 »

sleepingreset wrote: post #309
throwaway98797 wrote: post #291

Earlier quoted context omitted.

you should work at google startups are about the work

OP wants to get PAID for their work and rewarded for the all-in effort they'd put in. re-read their comment

> Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever

this is why they don’t belong in start up land

running and working in a start up requires a certain type of insanity

this individual is not a fit

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

#735

Post by chinchilla2020 »

throaway893 wrote: post #431
onlyrealcuzzo wrote: post #348

Earlier quoted context omitted.

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…

You are completely detached from the real world. Even in super rich countries like the US there are a lot of people without savings, living paycheck to paycheck. Most/all software engineers outside the US can only dream of ever earning that much money. And yet here you are, worrying that you'll end up only slightly richer than people earning ~$1M per year.

You're saying joining a startup is going to result in success?

Talk about detached from reality.

A 30k job at a local dev shop in Poland is going to reward you more than most startups in the US.

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

#736

Post by habosa »

goalonetwo wrote: post #598

In my 20s I joined a couple startups as "early engineer" or "founding engineer". I quickly realized those are the absolute worst positions to be in. You take almost as much risk as the founders but almost none of the upside. One startup died, the other one sold for 100m$. Out of that I saw 400k$ as an exit. Not too bad but even with that exit I ended up making way less than if I joined a FAANG. In both cases the foun…

Founding engineers are so underpaid relative to founders. I’ve seen it be founding CTO with 40% and founding engineer with 1%. It’s ridiculous and we should not accept it as the standard.

A few good early hires can be just as valuable as good founders.

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

#737

Post by muzani »

adastra22 wrote: post #467
muzani wrote: post #223

Earlier quoted context omitted.

Why is it insane? Some founders take zero salary since the start, and part of the reason for raising funds is that they have to eat too. Anyone who is an "early employee" usually get lower salary than market, and some stock. It's only fair they get to cash out a little early on, or hold on if they're liquid and think it's worth a lot more. It also works well for everyone involved if they're selling their shares to th…

In my industry the series A occurs in the first year of operation, and before the company has really achieved anything. A founder taking money off the table then is ludicrous.

I see. Here, the first stage is seed, which is around the level of YC and then Series A, which is around the level of getting money from YC's Demo Day investors.

We also see pre-seed, where the goal is to get into an accelerator. It's like $2000 for 3%. Enough for a domain name, a laptop, a babysitter, something that gives you the space to do a proof of concept, but not a full MVP.

Here where VC funding is dry, we also have some stage between seed and Series A, where the startup raises from friends, angels, crowdfunding. It's not really given a name because it's a signal that the company has already burned through seed and yet hasn't done enough to raise Series A from proper "professionals".

But here, by the time you've raised Series A, you're expected to be #1 in a market - best language app, best tax app, etc. And Series A is just to prove it works in other markets. Worst case I've seen was a guy raising US$500k seed (not Series A), but they had to prove they could be #1 in five countries.

US is a market of 300M people and even top companies like Amazon don't have to go far, but many countries have both low population and low spending, and investment is still US-centric.

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

#738

Post by throwaway98797 »

LargeWu wrote: post #527
throwaway98797 wrote: post #288

Earlier quoted context omitted.

cause if you fail you have to let people go cause if you fail you have to tell your investors you lost money cause if you fail is a thought that’s always running through your head as you live it

"cause if you fail you have to let people go" This isn't the founder's risk. It's the employee's risk. And it has the added bonus of, if there is a liquidity event, the employee's don't get the upside. I was like engineer #3 at a company that eventually was acquired for ~$250MM. My payout was $60,000, after 5 years of employment there. I could have made more by going and contracting at megacorp for a single year. The…

laying off people who joined you on your dream is highly unpleasant

financially you are correct, but being a leader is mostly about the human stuff

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

#739

Post by throwaway98797 »

yard2010 wrote: post #337
throwaway98797 wrote: post #288

Earlier quoted context omitted.

cause if you fail you have to let people go cause if you fail you have to tell your investors you lost money cause if you fail is a thought that’s always running through your head as you live it

This is not a real risk you're talking about, but small inconveniences. A risk is losing your house for example, or losing the ability to rent. Inconveniences are part of life anyway. Being the first engineer means you get all these inconveniences (tell your wife and your kids) plus real risks as above (taking a loan to buy the options and losing it)

far easier for me to layoff people at megacorp then when your the founder

at megacorp, you shrug and look them in the eye and they know you can’t do much

your in the same boat

as a founder every layoff is YOUR failure

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

#740

Post by dheera »

neilv wrote: post #503
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 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…

Exactly. As a former founder who dealt with hospitalization and thousands of dollars a year in medical bills on the sh!t insurance startups can afford, I too would rather have 500K now than 50M later. There's also a good chance I could turn 500K into 5M-20M in 10 years with reasonably low risk investments.

Plus, setting 100K aside for medical bills and even throwing the 400K into Bitcoin is a far less risky investment than me NOT being in a FAANG and accumulating 401K money which is absolutely critical if you want to keep up with the rising cost of life through retirement. When everyone else who joined Google or Meta out of college and now has a 10 million net worth at 40, that defines the cost of living in the area, and that's the bar you have to keep up with if you want to still live here at 40, 50, 60. Chipotle will cost $50 in a few years. A 1 bedroom apartment will cost $5000 in a few years. UberEats was $15 when it started, already costs $50 for lunch in my area, and at this rate, it will be $200 in a few years. Because those people can afford it, so greedy owners and greedy landlords will up their prices, so I will have to pay not just my $5000 rent, but also the Chipotle worker's rent, and the Chipotle franchise's rent, in order for their prices to stay profitable. The cost of living in the bay has tracked the S&P500, not the CPI. YOU will be priced out if you didn't have liquidity at a younger age to throw into some investments.

I'm at a large company right now. Being compensated enough to be able to afford life in the bay area now, having enough income to afford a mold-free modern apartment in a place where I don't need to worry about getting mugged, and hedge the risks of all the crap that's going on in the world was a big part of my reason to join one. If I had enough saved to "feel safe", I would absolutely be doing a startup again.

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