Silicon Valley's best kept secret: Founder liquidity • Hacker News Board

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

#831

Post by rmbyrro » Thu, Jun 13, 2024, 7:48 AM UTC

forgot-im-old wrote: post #799

rmbyrro wrote: post #760

Earlier quoted context omitted.

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.

SpaceX was founded in 2002.

https://www.sec.gov/edgar/browse/?CIK=1181412

Musk & Griffin had a relationship around establishing a Mars colony even before SpaceX foundation. Musk even tried to recruit Griffin when assembling SpaceX founding team.

Book: Liftoff, p. 11 - https://books.google.com.br/books?id=DQ7jDwAAQBAJ&printsec=f...

By 2005, SpaceX was already leasing a launch pad for Falcon 1 and Falcon 5.

https://spaceflightnow.com/falcon/050120lc36/

In 2006, Nasa contracted SpaceX, referred by Griffin in the link you shared.

https://www.nasa.gov/wp-content/uploads/2015/04/189228main_s...

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

#832

Post by surfingdino » Thu, Jun 13, 2024, 7:49 AM UTC

whiplash451 wrote: post #819

surfingdino wrote: post #139

This and my own experience with employee stock options led me to reject any work for startups that offer stock options. It is a way to make you work hard and allow to be treated like dirt for less money. The lowest point was having to walk across town to the office to eat energy bars from the office kitchenette, because I could not afford a bus fare or food as my pay was delayed by a week over Christmas. Meanwhile, t…

Working for an early stage startup with no stock options carries its own risk. You want insurance against the case in which it actually rockets to billions in valuation (even if extremely unlikely)

The best insurance is to get paid market rate and not work for them.

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

#833

Post by kelnos » Thu, Jun 13, 2024, 7:53 AM UTC

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…

> I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable

I don't think that's debatable at all; I think it's bullshit. Once your options vest, they are yours. They are compensation for the work you have already done, not the work you will do in the future.

Once/if your company switches to RSU grants from option grants, then at vest day your stock is yours, and can't be taken away when you leave the company (well, I imagine they could write up a contract that says that, but that would be quite non-standard, and I would never work for a company that did something like that). The vested RSUs are, again, compensation for the work you have already done, not the work you will do in the future. I don't see why options and RSUs should be considered differently here.

(I might even stretch that into the idea that it's bullshit that startup options expire at all, even if you stay with the company forever, but I do think that's debatable.)

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

#834

Post by kelnos » Thu, Jun 13, 2024, 8:04 AM UTC

jjav wrote: post #821

nirvdrum wrote: post #555

Earlier quoted context omitted.

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…

> 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.

That's terrible advice, if you present it in an absolutist, blanket way like that. I do wish I early-exercised at my last startup, since I had a nasty AMT bill when I finally did exercise, and I could have had better tax treatment under the small business qualified stock rules when I finally sold. But: a) early exercising my initial grants would have cost me $40k, which would have eaten into my savings to a degree I wasn't comfortable with at the time, and b) I early exercised at two previous startups, which failed, and that ended up being money flushed down the drain to the tune of around $9k.

Sometimes people want to wait a bit to get a better idea of the company's prospects before investing their own money into it. Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric. Sure, if you're a super early employee and have 5-cent options, maybe you'll feel comfortable gambling that money away (but maybe you won't be!). Yes, there will likely be a tax penalty for waiting, but that can be a reasonable and sound financial decision.

I was (fortunately) a few years too young to get mired in the original '00s dot-com bust, but I know several people who were encouraged/pressured to take out loans in order to (early) exercise their startup stock options, and ended up with worthless or underwater stock, but still had to repay those loans. It would have to be a pretty exceptional situation for me to recommend anyone take that route.

(I do agree that a startup not allowing you to early exercise is a red flag, though.)

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

#835

Post by kelnos » Thu, Jun 13, 2024, 8:09 AM UTC

jjav wrote: post #823

earnesti wrote: post #694

Earlier quoted context omitted.

> 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 y…

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

I guess you're looking in the wrong places. Over the past 13 years, I've worked for five startups (both full-time and contract) that paid market rate (two paid a fair bit above, even). In my professional and social circles, this has been pretty common. Certainly some have worked below market rate for some companies, but that seems to be the exception, not the rule.

> But at an established company you are also making money on RSUs, often more than your salary

That's definitely not been my experience. At established companies, the RSUs are usually a nice quarterly bonus, in the wide range of 10-50% of base (annualized). Certainly there are some where the RSUs can end up being several multiples of base (I've worked at one like that, though my equity comp level was not common, and was mainly a consequence of my long tenure there from when they were small), but I don't think it's that common. A lot of people seem to assert that you can easily get that at a FAANG, but that doesn't seem to be true. Some people can, but not the median employee.

Also consider that a lot of the stories of high equity comp come from people talking about the FAANGs. Those companies were founded 20-25+ years ago, and matured into established companies 10-15+ years ago; the "rules" have changed quite a bit since then.

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

#836

Post by kelnos » Thu, Jun 13, 2024, 8:26 AM UTC

ditonal wrote: post #566

Finbarr wrote: post #542

Earlier quoted context omitted.

Many huge private companies, like Stripe, have found ways to provide liquidity to their employees without going public, e.g., through tender offers. Some more recent examples of companies where early employees did very well would be AirBnB, Coinbase and DoorDash.

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…

> Consider that if you could make 400k (including liquid stock) in compensation at FAANG

I'm very skeptical of the idea that this is common for new hires at FAANGs today. Certainly some people can command that level of comp, but I find it hard to believe the median employee can.

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

#837

Post by kelnos » Thu, Jun 13, 2024, 8:30 AM UTC

JakeTheAndroid wrote: post #582

ditonal wrote: post #534

Earlier quoted context omitted.

This is the “startup myth” that lets the scam perpetuate. The world has changed. Google IPOed just a few years after it founded. Now Stripe, objectively one of the most successful startups ever, still hasn’t IPOed after 15 years. Liquidity preference Dilution Even the F in FAANG had a major movie made about early employees getting shafted by dilution! FAANG is 5 companies founded a long time ago. Since then VCs have…

I don't agree it's a myth. Is it an extreme risk? Yes, of course. Do people view the risks to be way too low? Yes. But I worked at Cloudflare pre-IPO, got shares at 1.73, and at one point CF was at 200 a share. That was more or less what I was "promised" from the equity. Stripe is one example of a successful startup not going public, but there are tons of startups that are going public. And there are many startups th…

> I don't think VCs changed much from when Google went public until COVID.

VCs changed a ton over that time. In 2004 VCs were still smarting from the dot-com bust. And VCs were hardly spewing cash during and in the aftermath of the GFC of 2007/08. The days of easy VC money were mainly in the early-mid to late '10s.

And as you point out with your end date of COVID, VCs have now backed off again, as they did around 2000 and 2008 during those bust/bear cycles. I would credit interest rate increases with the current backoff, though, not COVID. During early COVID, funding was still fairly well available, assuming your business wasn't something that required in-person contact; even better if your business facilitated home-office work.

> At least it's not been my experience in tech over the last 8+ years.

That's only ~4 years pre-COVID; either seems like too short a horizon to make this sort of assessment. (Source: been in tech for 20-odd years.)

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

#838

Post by kelnos » Thu, Jun 13, 2024, 8:39 AM UTC

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…

I think a better analogy would be a poker room than a craps table. You don't get to influence the outcome at a craps table, but your performance at a startup will influence its probability of success. Also your choice of which craps table to play at doesn't change your odds, but you can certainly change your odds of success at a startup by choosing which one to join. Obviously there are no sure things, but after a while you can at least weed out most of the dumb startup ideas and/or the incompetent founders.

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

#839

Post by kelnos » Thu, Jun 13, 2024, 8:42 AM UTC

tomrod wrote: post #445

moneywoes wrote: post #435

Earlier quoted context omitted.

do investors allow that

They don't control it.

If you, the founder, only own 20% of the company, the investors absolutely do control it (absent super-voting shares, anyway). You can propose shutting down the company, but the investors can fire you and bring in a CEO who will keep it going.

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

#840

Post by kelnos » Thu, Jun 13, 2024, 8:45 AM UTC

Finbarr wrote: post #379

whynotminot wrote: post #367

Earlier quoted context omitted.

It’s a shame you were forced to take on this burden and not allowed to be a regular engineer like your peers.

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…

> tech press tends to focus on the successes.

On the flip side, though, any regular HN reader has likely seen dozens of accounts written by startup founders whose companies have failed. And there's quite a bit of overlap between the set of HN readers and the set of past, current, and likely-future startup founders.