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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

#821

Post by jjav »

nirvdrum wrote: post #555
jakjak123 wrote: post #523

Earlier quoted context omitted.

This 100%. Really the only reason to work at a startup as an engineer is if you really want to, because everyone pays low and the tiny bit of equity is essentially worthless in 99% of cases, which gives it a very low value.

And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options. If you've gotten laid off, eating into your savings while searching for a job is a pretty risky proposition. If you have an appreciable amount of equity, that bill can be rather high. Then there's AMT. Many end up letting the options expire. So, taking that pay cut for equity really didn't work…

> And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options.

This is why I advise everyone that you must early exercise (exercise your option as soon as you start with the company) if you're going to join a startup.

Some startups don't let you early excercise. Run far, far away. Find a different startup. Never join a startup that does not let you early exercise.

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

#822

Post by throwAGIway »

sponaugle wrote: post #466
matthewsinclair wrote: post #296

Earlier quoted context omitted.

I guess it comes down to what "it" is. My sense (and this is just a personal orientation) is that if a CEO came to me and said, "Hey, I need a CTO for this new business I'm building", the very _next_ thing they say is really important. If it is a) "Right, I've had this braingasm, and you need to build it, and for the privilege, you get 5% of the company!" versus b) "Right, I've had this idea, done some market validat…

Interesting... My initial reaction about the startup looking for a CTO was the same as yours. I was a founder and CTO, so it seems odd that you would not already have that in the mix... however I can see how there could be an idea, a market, a sales strategy, and a tech idea without the actual tech. In that case you would need to find a CTO to build that tech. Of course the real gotcha is that there is no 'idea, mark…

The most successful startups that haven't been founded by technical people I have seen usually didn't even have much of an idea - but they had customers and kept talking to them and created a product vision out of that. All startups should be doing that.

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

#823

Post by jjav »

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…

> If you get paid a slightly below market rate and get some worthless equity, what's the big deal?

If you really do, agree that it's ok and a fun ride.

But where are you going to find a startup that pays market rate? Never seen one.

Base salary can be very close! But at an established company you are also making money on RSUs, often more than your salary. And usually have a bonus, which can be quite significant.

So your base salary might be 250K in an established company and 200K at the startup. Not a huge difference. But total comp at the established company is more like 500K-600K vs. at the startup just 200K. Huge difference.

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

#824

Post by scruple »

erik_seaberg wrote: post #793
kelnos wrote: post #785

Earlier quoted context omitted.

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.

How does that work?

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

#825

Post by godelski »

dheera wrote: post #815
kelnos wrote: post #781

Earlier quoted context omitted.

> There's also a good chance I could turn 500K into 5M-20M in 10 years with reasonably low risk investments. I would very much like to know where you can find low-risk investments that are likely to net you 10x-40x returns in the span of 10 years. (But overall I very much agree with your point that $500k now and $45M later can be a much much much better deal for someone than $0 now and $50M later. I would likely take…

> where you can find By doing homework and research every day and investing only in things you personally deeply understand. But if you don't want to do that ... passively investing in QQQ would have given you a 5.4X return in the past 10 years. If you just throw your money across some large, too-big-to-fail companies, you could have 10X'ed easily. AAPL, NVDA, MSFT, TSLA, NFLX have all >10X in the past 10 years. GOOG…

QQQ would have turned your 500k into 2.56M

AAPL, NVDA (even without the recent events), MSFT, TSLA, NFLX, yeah sure. But out of those, only Apple and Microsoft were reasonable companies to put that kind of money into. I think you're not realizing that you're cherry-picking.

I mean I think your point still stands with just looking at QQQ, but I'm just saying over embellishing hurts your argument, not helps.

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

#826

Post by AntiRemote »

onlyrealcuzzo wrote: post #348
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…

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…

[dead]

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

#827

Post by kelnos »

> Investors and founders both tend to think that if employees knew founders were getting liquidity that that would negatively impact employee morale (it wouldn’t)

Not sure I agree there. If employees widely knew founders were getting liquidity but the rank-and-file aren't, I think there would be a hit to morale.

Of course, the solution there isn't secrecy, it's giving employees some liquidity.

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

#828

Post by dilyevsky »

jjav wrote: post #806
dilyevsky wrote: post #544

Earlier quoted context omitted.

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…

See my point about long exercise window - 5-10y is not uncommon now. I’d rather have that even though it converts to PSOs than gamble ~50k + amt on early exercise. Unless you’re super early ofc which changes the math

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

#829

Post by kelnos »

onlyrealcuzzo wrote: post #348
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…

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…

> our peers are all making ~$1M per year working 6 hour days at FAANG

I think you overestimate median pay at the FAANGs by quite a lot.

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

#830

Post by kelnos »

dfadsadsf wrote: post #808
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…

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.

I think we're talking about the risk level when compared to various ways to work at a tech company, not risk level when compared against all possible occupations.
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