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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

#791

Post by blobbers »

khazhoux wrote: post #560
pojzon wrote: post #192

Earlier quoted context omitted.

And what happens in case it does not work out well ?

If startup goes to zero, then everyone goes home with nothing. The founders typically don't lose any money of their own -- that cost is shouldered by angel and series-A investors. Often though, the startup has a "soft landing" where it's acquihired by a larger company, and then the founders typically get executive or very senior roles (with large bonuses, etc) meanwhile the non-founders get standard employee packages…

Yes, I'm glad I'm not the only one who thinks the economics of it are a little bit broken. I will never join another start up as employee #1. I'd much rather come into a larger start up with a high cash comp + equity, than very low cash comp, worked to the bone.

The other thing no one talks about is founders tend not to dilute themselves, but often early employees are diluted heavily.

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

#792

Post by davidguetta »

HarHarVeryFunny wrote: post #393

I've read that Sam Altman's net worth has ballooned from hundreds of millions (mostly tied up in Helion) while at OpenAI to billions, and that despite all his protestations of not making a penny from OpenAI, he also has/had a $10M investment in the (~100x profit capped) for-profit part of OpenAI... Given Altman's slippery relationship with the truth, I have to wonder if his sudden significant increase in wealth, if t…

He was rich before ... he has a couple of villas

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

#793

Post by erik_seaberg »

kelnos wrote: post #785
vl wrote: post #776

Earlier quoted context omitted.

I would say that for most RSU lots it's better to wait for long-term capital gain taxes to kick in before selling.

At vesting time you are taxed (immediately) at ordinary income rates on the fair market value the day that it vests, and that's what the cost basis is set to. If you sell on that day, your capital gains from the sale will be (near) $0. The only reason to wait for LTCG on RSUs is if you decided to hold it for some non-zero amount of time after vesting and then the stock price shot up. But then you're also taking on th…

Some companies might make you hold for a few months until the next earnings report and trading window. After that it depends on your tolerance for risk and your attitude about the IRS.

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

#794

Post by WalterBright »

elevatedastalt wrote: post #774
WalterBright wrote: post #553

Earlier quoted context omitted.

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 :-/

The simplest strategy is to buy index funds and hold. I never look at the price of any stock every day. I don't plan to sell any index funds either until I retire.

Buying the S&P500 etf or index fund is the equivalent of the Blackjack "Dealer Strategy". It's perfect for "fire and forget".

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

#795

Post by andrewmutz »

kelnos wrote: post #779
andrewmutz wrote: post #633

Earlier quoted context omitted.

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

I think it'd be pretty rare for a bank to accept equity in a series A startup as collateral for a loan.

And even if it did, it wouldn't really derisk much for the founder, which was the original purpose of taking money off the table.

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

#796

Post by gwbas1c »

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…

> but what else explains the fact that even when there's more risk and likely poorer financial outcomes these otherwise very intelligent people still choose to work at these companies?

That's the wrong question to ask.

The right question to ask is: "How does an early stage startup attract the people it needs to be successful."

Money isn't the only metric, and there are good reasons to say "if you want top dollar, go work for a FAANG."

On the other hand, I was once approached to be employee #1 of a rather interesting startup, and the risk/reward ratio just wasn't there. The company was more likely to fail, and I was more likely to find myself unemployed after 24 months. Now that I have children and a mortgage, I can not do this.

In contrast, the company severely needed someone like me: Significant experience and knowledge; AND active interest in their product, with a mildly personal stake. Relying on someone young and cheap would be risky for them.

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

#797

Post by AYBABTME »

vl wrote: post #776
molyss wrote: post #620

Earlier quoted context omitted.

I’m going to rebound on that and explain why it doesn’t make sense to hold on to RSUs. Disclaimer: I’m an IC myself. I worked for my 1st company for 15 years. Held to their RSUs most of the time. Then moved to another (public) company and stayed there for a year before leaving. Now in a startup with a lower salary and no immediate liquidity on my stock options. When you work at a public company, you have multiple exp…

I would say that for most RSU lots it's better to wait for long-term capital gain taxes to kick in before selling.

That's the incorrect belief that causes so many people to hold their RSUs. The day you vest the RSU is the day someone decided to:

   (1) give you the amount in cash (as regular income) 
   (2) take that cash and buy that stock on your behalf
   (3) turn around and give you the stock
and somehow you decide to let (2) and (3) happen without returning to the cash position in (1) and buying whatever else you would prefer to hold. The LTCG clock starts on that day, and all you're doing by holding your vested RSU is let someone else decide to buy stuff on your behalf and make the decision for you.

(that's assuming that there's an ability to liquidate the RSU on the vest date)

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

#798

Post by Chilko »

extragood wrote: post #548
chollida1 wrote: post #257

Earlier quoted context omitted.

> I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.f Oh wow, how many companies have a series A after 3 years? How did your company survive with…

That policy was actually one of the major reasons I liked that company and stuck with them for so long. Their goal early on was to avoid raising money if at all possible, and they managed that for a long time by mostly being cash-flow positive/profitable. The trade off is slower, but sustainable growth. We hit an inflection point in the early pandemic where money was cheap and we had a ton of new customers coming in,…

> by mostly being cash-flow positive/profitable. The trade off is slower, but sustainable growth.

As someone that is outside of the tech industry, the fact that this is seen as an abnormal approach seems quite ridiculous.

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

#799

Post by forgot-im-old »

rmbyrro wrote: post #760
forgot-im-old wrote: post #256

Earlier quoted context omitted.

[flagged]

You only missed the part that SpaceX was founded several years prior and that Falcon 1 was developed with his own money and solely private risk. Nasa only contracted SpaceX because of that AND because SpaceX saves them billions of dollars from otherwise inefficient suppliers. But that's not relevant.

You must have read Elon's own tales. See who Michael D. Griffin is and his history with Elon.

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

#800

Post by [deleted] »

Matticus_Rex wrote: post #612
fragmede wrote: post #591

Earlier quoted context omitted.

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.

[deleted]
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