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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

#841

Post by kelnos »

Tepix wrote: post #216
throwbigdata wrote: post #206

Earlier quoted context omitted.

Life is very different at $50M v $250M

Is it?

It depends on the kind of lifestyle you want to live, I guess. If you want to live in a $30M mansion estate with 24/7 domestic staff and have several vacation homes around the world, $50M might not cut it, while $250M should cover it just fine.

If you have a philanthropic bent and want to be able to fund various charities to the tune of $5M or $10M per year (in addition to a reasonably luxurious lifestyle, though considerably less than the above hypothetical), $50M might not be enough to sustain that over time, but $250M probably will.

I think it's fair to say that there's not much difference between net worths of $25M and $50M, or between $50M and $75M. But jumping an order of magnitude from $50M to $250M will let you live a very different kind of life, if you so choose.

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

#843

Post by kelnos »

petesergeant wrote: post #224
KennyBlanken wrote: post #220

Earlier quoted context omitted.

...while he was getting loaned $200,000 a month for personal expenses by his billionaire buddies. https://www.cnbc.com/2017/04/27/the-crucial-decision-teslas-... Also, that may have kept tesla and spacex 'afloat' but what really saved both companies was billions upon billions of dollars in government contracts, subsidies, preferential loans, and tax breaks. Nevada alone gave nearly two billion dollars to Tesla.

The government is expecting something in return for these breaks rather than them being some kind of gift, though.

Expecting, perhaps, but in general there's little to no penalty if those expectations are not realized.

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

#844

Post by JumpCrisscross »

s17n wrote: post #765
JumpCrisscross wrote: post #672

Earlier quoted context omitted.

> What does this mean? Fund buys stock at X and simultaneously solicits LPs at 1.2X (whether by straight mark-up or, more commonly, by adding management fees, research fees, expense reserves and carry.) It’s why tenders have a few weeks between end of sellers submitting requests, confirmation of quantities and finally funding.

Interesting, thanks! Not to get too far off on this tangent, but how is that different from the way VCs / investment funds work in general (taking fees from the LPs in exchange for their services)?

> how is that different from the way VCs / investment funds work in general (taking fees from the LPs in exchange for their services)?

VCs usually raise a fund, i.e. a basket of commitments from LPs, before finding the investments. That means they negotiate the investment terms from a position of strength, commitments in hand.

With tenders, the investor starts by commiting to the issuer and then finds LPs. To the degree they have leverage, it's in their access to the issuer.

For the former, the fees are in exchange for risk. For the latter, they're for access.

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

#845

Post by kelnos »

adastra22 wrote: post #467
muzani wrote: post #223

Earlier quoted context omitted.

Why is it insane? Some founders take zero salary since the start, and part of the reason for raising funds is that they have to eat too. Anyone who is an "early employee" usually get lower salary than market, and some stock. It's only fair they get to cash out a little early on, or hold on if they're liquid and think it's worth a lot more. It also works well for everyone involved if they're selling their shares to th…

In my industry the series A occurs in the first year of operation, and before the company has really achieved anything. A founder taking money off the table then is ludicrous.

In SV-style tech companies it's common for the first round of funding to be considered a "seed" round; it usually comes from angel investors and/or friends and family, though it's not unheard of for larger institutions to get involved at this point.

By the time they're ready for a series A (VCs/larger institutional investors, though sometimes angel investors from the seed round participate as well) they'll very often have something to show for it, and may even have paying customers. The A round can come during the first year of operation, or later.

Given this, it's not uncommon for founders to be able to have some liquidity during their series A. Granted, it's usually not going to be a ton of money, but it can be a nice bonus that allows the founders to pay off debt they might have accrued during the first stages of the company, or perhaps move out of their 1BR apartment and put a down payment on a larger house, etc.

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

#846

Post by BiteCode_dev »

palata wrote: post #470
BiteCode_dev wrote: post #369

Earlier quoted context omitted.

It's not just a matter of place, but what you can have if you work for Google instead. I can make $200k as a freelancer in France, but much more as a Google employee.

$200k is extremely high for France. Even half of that is high. I wish I could do that.

It's very influenced by what you do.

Today I'm giving a training to 3 people, each paying 2600 for this training. It means this week they get billed 7800 in total. If you do that for 30 weeks (not even a full year), you get to 234000.

15 years ago, my team leader was already doing $15K month as salary, and it was a startup in Sophia, not Google, and a long time ago.

So it's all possible, but indeed, not the average situation. The median dev is underpaid in France:

https://www.bitecode.dev/p/french-competitiveness-in-it

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

#847

Post by kelnos »

xbmcuser wrote: post #82
josh2600 wrote: post #6

The best startups have a concept which is summed up thusly: “We all go to the pay window at the same time.” It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird. I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all…

It's not in the interest of the VC that the founders have financial security. Well at least the type of VC's that have come up in since the dot com boom where it was not about building viable businesses but getting sold to the highest bidder when the founder is under financial pressure to sell they can strong arm him into easily compared to a founder that is financially secure and interested in building and running a…

> It's not in the interest of the VC that the founders have financial security.

It's also not in the interest of the VC that the founders are worried about making their rent or mortgage payments, or paying off the credit cards they maxed out paying their AWS bills in the early stages of their company.

The VCs want their founders to be hungry for more, and see their company's growth as a vehicle for that. But they don't want founders to be stressing over basic human needs, either.

Any VC that would refuse to let you take some liquidity in these situations is not a VC you want to make a deal with. And if you can only find VCs like that, your company is probably doing poorly enough that you might want to rethink what you're doing.

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

#848

Post by kelnos »

josh2600 wrote: post #6

The best startups have a concept which is summed up thusly: “We all go to the pay window at the same time.” It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird. I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all…

Asymmetry is common in startups, though. Consider one of the complaints from the article, and discussed here: founders get to keep several tens of percent ownership of their companies (at least initially), while early employees get a small fraction of a percent. Founders are generally not taking two orders of magnitude more risk, or doing two orders of magnitude more work.

I think giving founders liquidity but not employees is maybe ok for series A: the founders may have been working for $0 for a couple years at that point, and may have taken out a second mortgage or ran up a bunch of credit card debt to keep things going. An early employee is not going to do any of that once they join, even if they're getting paid a below market rate salary. That is definitely an asymmetry! Getting some liquidity at the series A allows the founders to pay down debt and replenish their savings, financial issues that are probably directly related to their time working on their company.

But after the series A, founders should be able to pay themselves a livable salary. The founders and employees should be on much more equal (or at least comparable) footing when it comes to their regular income. By the time the series B comes along, if the founders are going to get some (more) liquidity, the employees should get some too. That only seems fair.

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

#849

Post by kelnos »

bradlys wrote: post #405
p1esk wrote: post #317

Earlier quoted context omitted.

Why does everyone thinks startups don’t pay well? I have worked for various startups all my life, most of them well funded, and competing for talent with faangs. Yes, I could probably make more at Google but I don’t feel like I’m underpaid. At the last 3 startups my base salary was above 250k. I work remotely and I rarely work more than 30 hours a week.

I’d say you’re uncommon. I’ve never seen anyone who is a typical engineer making $250k/yr at a startup that’s below $1B valuation. Same for the amount of work you’re doing and that it’s remote with that compensation. It’s possible you’d be making $700k+/yr if you were at google. About triple what you are now.

Eh, not quite your $250k number, but I was making (inflation adjusted) $200k/yr at a startup with ~$100M valuation back in 2010 (senior SWE level). Not sure if I'm typical, though.

> It’s possible you’d be making $700k+/yr if you were at google.

Possible, sure, but not likely. For a mid-tier SWE joining Google (or another FAANG) today, even $350k/yr salary+equity is probably above the median.

Also that feels like a specious comparison: most people (including those who would be otherwise joining a startup) are not joining a FAANG, and will not be getting paid as well.

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

#850

Post by reducesuffering »

FreakLegion wrote: post #705
Finbarr wrote: post #629

Earlier quoted context omitted.

> some evidently better than yours as they don’t require this intervention. I’m not sure where that’s coming from. Also plenty of companies out there have control past the A.

Most have voting control, subject to certain investor veto powers, after the A. Very few have it after the B.

Isn’t each round 10-20% to investors? Even in the worst case of Seed, A, and B at 20% each, founders still have 80% -> 64% -> 51% ?

And in the best case it’s just one series A taking ~15%, thus founders still have 85%

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