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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

#801

Post by dilyevsky »

oblio wrote: post #385
koalaman wrote: post #266

I recently left a long career in FANG to roll the dice on an early startup. I was pretty surprised by the uneven terms between founders and early employees. From what I could tell the early employees takes more risk than the founders because they don't get that magic token dollar turning into their share of the founding equity event and have to pay the fictional valuation of the seed to convert their options. Dependi…

You have the current unicorns, basically anything from about the time YC started, and then you have the old school unicorns. For comparison, Microsoft IPOed in 1986: > The company's 1986 initial public offering (IPO) and subsequent rise in its share price created three billionaires and an estimated 12,000 millionaires among Microsoft employees. https://en.wikipedia.org/wiki/Microsoft I would really, really want to kn…

Google and Facebook of the more recent ones, though it was nowhere near 12000 i think

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

#802

Post by dilyevsky »

stevesthrowaway wrote: post #419
throwailearner wrote: post #297

Posting from throwaway so I can be very open. I joined a YC startup as engineer #1 with close to $200k salary and 2% options vesting at the usual 4 years, with a 10 year window. I feel like this was bettern than usual, and for a while felt like I struck an awesome deal, but as time went on I realised I was building everything single-handedly, while getting (at best) 2%, which started to annoy me deep down. Over two y…

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…

5% is insanely high based on the founders I surveyed personally (probably around 50 at this point) and generally available info from hiring pros. They must really value you. Cash comp is probably low (depending on the locale ofc) but i dont know how much money you raised.

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

#803

Post by brokenmachine »

dheera wrote: post #740
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…

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 investmen…

>There's also a good chance I could turn 500K into 5M-20M in 10 years with reasonably low risk investments.

Please tell me more about these 25-37% pa low risk 10 year investments.

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

#804

Post by shortrounddev2 »

sashank_1509 wrote: post #370
shortrounddev2 wrote: post #307

Earlier quoted context omitted.

My primary motivation as an employee of a startup is fear of personal financial ruin. That the company won't be able to make payroll and I won't be able to pay my rent, that I'll be evicted eventually or that if the company goes under I won't be able to find a new job. There is no mission or any other soft carrot that I care about. I also don't have any faith in stock options. I can't imagine caring about reputationa…

Perhaps you shouldn’t be working in a startup because your lifestyle is unaffordable, or your company is paying you peanuts. I have worked in startups in Silicon Valley and have had many friends working for them. Most startups pay a base salary of around 200k$ I reckon (for new grads, perhaps 150k). This might come down to 9-10k after taxes per month. A good 2 bedroom house to rent in a location like San Jose would b…

I don't live in California, the startup I work for is remote. I don't fear financial ruin because I don't have money, I fear it because I catastrophize everything. There's no evidence to suggest I would be homeless if I lost my job, but that's just where my brain goes.

But I'd like to point out that in your math, you calculated the cost of a car and a rent, but no other living expenses. Also in what universe does a car cost $1000/month??

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

#805

Post by rsanek »

earnesti wrote: post #694
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…

> high risks high upside but really its extreme risk and almost no upside Extreme risk? Some startups pay fair salaries. I don't think startups are that risky (unless you start putting money into them, that is a suckers deal). Or if you work for free, what you naturally should not do. Not everyone can get a FAANG job so it is not very clear alternative. If you get paid a slightly below market rate and get some worthl…

that's the thing though. you're not getting paid "slightly below market," you're taking a ~50% paycut to work at a startup vs FAANG

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

#806

Post by jjav »

dilyevsky wrote: post #544
jjav wrote: post #121

Earlier quoted context omitted.

I think there's a confusion between the related events. Filing the 83(b) form with the IRS is between you and the IRS. Company isn't involved so not something they can restrict. However, filing that 83(b) only makes any sense if you are allowed to early exercise and that is indeed entirely up to the company. So if they don't let you early exercise you also won't be filing the 83(b). Pro tip: Never join a startup that…

Yes i assumed parent was referring to early exercise but maybe i misread. Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs especially if long exercise window is offered so probably why it’s not offered - to avoid a ton of drama later on

> Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs

I strongly disagree, early exercise is always optimal if the cost makes sense to you.

The primary reason it is so valuable is so that you don't lose everything if you have to change jobs for whatever reason before a liquidity event. If you join a startup and don't early exercise, now you are going to have to work there for however long it takes for liquidity, which could be many many years. Maybe your life changes and you have to change jobs, but you're trapped, or lose everything you worked for.

Always early exercise! If the startup doesn't allow it, find a different startup.

Edit: I should add that by not early exercising you can still lose a lot even if there is a liquidity event while you're still there! I lost a staggering amount of money on my first startup due to not early exercising even though it went through an IPO while I was there. But later I left (lured to another startup) so I had to excercise (same day sell) all the option in the typical 90 day window after quitting. Had I early exercised years before when I joined, I could've held those shares for 15x returns.

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

#807

Post by fragmede »

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.

my goal isn't that someone who is in that position reads this. as you said, they're a small minority. they already know this. but people who aren't in that position might want to know how the world is shaped for other people

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

#808

Post by dfadsadsf »

ditonal wrote: post #514
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’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…

Extreme risk is driving truck in Iraq or smuggling drugs to Singapore. Working in air conditioned office for double median US salary is not extreme risk by any means.

With that I agree with you that upside is often lower than people expect.

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

#809

Post by rsanek »

hedora wrote: post #554
palata wrote: post #473

Earlier quoted context omitted.

I wish I knew how to get to $200k. Not even mentioning 1m/year, that seems absolutely insane to me.

The easiest way is to move to the SF area. However, you'll end up spending most of the after-tax pay on housing, food, etc. For example, rent on a 1 bedroom apartment in the suburbs is going to be $30-60K per year: https://www.zillow.com/santa-clara-ca/apartments/1-bedrooms/ The cost of pretty much everything around here reflects that cost of living. Businesses have to pay workers enough to allow them to live in the…

you don't have to. I lived in south bay with $30-40k in total annual expenses for years. that said, i was single and made sacrifices to save.

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

#810

Post by ukuina »

ipaddr wrote: post #472
Finbarr wrote: post #379

Earlier quoted context omitted.

Nobody is forced to become a founder. A lot of people are naive to the sheer level of stress involved, and think it’s going to be easier than it actually is. You don’t find out just how stressful it is until you’re already super committed, have raised money, have employees, and there’s no easy way out without screwing a whole bunch of people over. Founders tend to only talk about the good things happening at their co…

If you can't stomach screwing people over you shouldn't be a CEO.

This long-running narrative that you have to be a sociopath to be a CEO is false.
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