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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

#741

Post by goalonetwo »

habosa wrote: post #736
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.

Yeah. Founding engineers are drinking the koolaid narrative from the founders. I know I have been in the past.

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

#742

Post by sshconnection »

davedx wrote: post #493
randerson wrote: post #433

Earlier quoted context omitted.

My experience was similar, right down to the $10,000 worth of options. Eventually the company went public and those options would have been worth $5M if I'd had the foresight (and cash) to exercise them (which I didn't). The co-founders did not have exercise costs or AMT of course. It is an unfair system indeed. I'd encourage those seeking to be early engineers to go work at a FAANG for a few years before joining a s…

Wait, you couldn’t find the 10k cash to exercise 5m worth of options?

The options were likely 10k when he was issued them at hiring. When leaving the company, he would need to purchase those options (likely within 90 days if it's a shitty policy). Then, the real kicker is that he would have to pay taxes on the on-paper gains between the 10k and the current valuation. So lets say the company was worth half of what it was at IPO, he would now own 2.5m of stock, owe taxes on 2.49m of income, and have to pay that off with early engineer salary and no liquidity on his equity.

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

#743

Post by wbl »

earnesti wrote: post #696
ditonal wrote: post #566

Earlier quoted context omitted.

Early executives at those companies did very well. Early employees did well, but risk-adjusted , not really. I know people who were fairly early at those companies and they own nice SFH in the Bay Area but they're still working as Directors or whatever. Consider that if you could make 400k (including liquid stock) in compensation at FAANG but you take 180k at the startup, you're basically betting 220k a year on the c…

If you can get that 400k FAANG job, take it, for ducks sake. Not everyone can, and for some of them the startup deal can be quite OK. People who can get 400k job at FAANG should be smart enough to avoid shitty startups. Looks like they aren't, based on these comments.

Ex ante it's hard to tell what's shitty and what isn't. Remember some VCs also got fooled by it!

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

#744

Post by ozim »

hn_throwaway_99 wrote: post #715
corry wrote: post #652

Earlier quoted context omitted.

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…

I think the other thing to realize is that the change in this "startup calculus" has happened only relatively recently. The "old" calculus was that, being an early employee in a startup, you'd make less cash money than at a "big corp", but if the company "hit" you'd end up doing much better. Just look at the stories of early Microsoft employees, or the Google chef whose stock options ended up being worth tens of mill…

Part of vacuum up the talent strategy that made it more expensive to launch any competition.

Other part, buying out any promising startups and letting them rot on the sidelines of the main business.

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

#745

Post by thruway516 »

jedberg wrote: post #682
corry wrote: post #652

Earlier quoted context omitted.

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…

I'm in that position right now, and have done it a few times in the past (my entire career is switching between startups and public companies). I work for startups because I get a ton of responsibility for things I would never get at a big company. I get a chance to learn a ton of new stuff. Through my career, I've made all my money at the public companies, and had most of my skill growth from the startups (Netflix b…

No Reddit f-u money?

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

#746

Post by jedberg »

thruway516 wrote: post #745
jedberg wrote: post #682

Earlier quoted context omitted.

I'm in that position right now, and have done it a few times in the past (my entire career is switching between startups and public companies). I work for startups because I get a ton of responsibility for things I would never get at a big company. I get a chance to learn a ton of new stuff. Through my career, I've made all my money at the public companies, and had most of my skill growth from the startups (Netflix b…

No Reddit f-u money?

I did not get any stock in reddit when I worked there. I worked there between when they were first acquired and when they were spun back out. The guys I hired got f-u money and I couldn't be happier for them, they deserve it for how hard they worked and how long they waited!

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

#747

Post by Finbarr »

chinchilla2020 wrote: post #733
Finbarr wrote: post #520

Earlier quoted context omitted.

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…

At an early startup, your execution has a meaningful impact on the outcome. This isn’t true for craps. It may be for poker, though.

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

#748

Post by skybrian »

nealchandra wrote: post #723
skybrian wrote: post #611

Earlier quoted context omitted.

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 em…

No, I definitely wouldn't have invested so much in Google. However, I'm not sure how much to attribute to it being a default choice, versus the differences between an inside versus an outside view.

It's easier to be comfortable investing long-term in something you know well. While there's a lot I'll never know about Google, I think I understand the company somewhat better than others. For example, I can discount a lot of news articles as being written by people who don't really understand the culture. If I hadn't worked there, I might worry more.

That's less and less true, though, as much has changed since I left. And for investment purposes, maybe that bias only seemed to be helpful, versus an outside view?

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

#749

Post by comp_throw7 »

bradleyjg wrote: post #403
est31 wrote: post #366

Earlier quoted context omitted.

The startups where employees get really rich still exist. I'm pretty sure the early employees of OpenAI are generationally rich for example. It's just that these companies very often are the darlings since their inception, get constantly talked about. Everyone wants to to invest in them and everyone wants to join them. So they have the ability to pick out the best talent, in other words, it's unlikely you'll be able…

Re: openAI We’ll see when it happens. If I had to name a company most likely to have massive landmines buried in front of common stock cashing out, it would be at the top of the list.

Notwithstanding the gross non-disparagement stuff, they've already had 3 tender offers, so not sure what you're waiting for.

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

#750

Post by flowingfocus »

WalterBright wrote: post #553
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…

For me, it's always regret: 1. If I buy stock, and the stock goes down, I regret buying 2. If I buy a stock, and the stock goes up, I regret not buying more There's no winning :-/

I find that it sometimes easier to accept this as this is just how life is when I read people with experience write about this. If this is true for you as well:

There is a good book review about it on SSC https://www.astralcodexten.com/p/your-book-review-the-laws-o...

> Whether or not you make money, you have regrets! If you profited, you could have made more. If you lost money, you shouldn’t have made the trade at all. Like death and taxes, you can’t avoid adverse selection.

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