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

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

#861

Post by kelnos » Thu, Jun 13, 2024, 10:52 AM UTC

carliton wrote: post #89

Many companies don’t get to Series A and very few companies get to Series B. Even if they do get to Series A or B, they won’t be able to raise the amounts you see in the news and have heavy dilution. Very few founders have double digits percent ownership by Series B and Series C. Liquidity of $400k or more is a lot and isn’t available for many founders. All of this after 7 to 10 years of working 80+ hours week, no so…

> exercising options up to 10 years are not uncommon

10 year expiration is the standard, yes, but only if you stay with the company. Most still kill your options 90 days after you quit or are laid off or fired. There's been a small but noticeable trend of companies not pulling this garbage, including the article author.

> I think the OP should work on his company for more than 4 months and have more than 10 employees

Yeah, I thought it was funny that the author seemed to be speaking so authoritatively after so little experience as a founder. I've never been a founder myself, but I would put much more weight behind the words of founders who have been doing it for years and decades.

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

#862

Post by kelnos » Thu, Jun 13, 2024, 10:56 AM UTC

palata wrote: post #340

gafferongames wrote: post #302

Earlier quoted context omitted.

So start your own company then.

Maybe I should, so that I could abuse from the employees and then explain how I deserve to get rich if MY startup succeeds but my employees don't (because it is MY startup, you see? I don't need them).

I mean, you could certainly start your own company, and then be more generous with your employees around these sorts of things. Sadly, you might have more trouble attracting investment, but you could probably still pull it off.

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

#863

Post by kelnos » Thu, Jun 13, 2024, 11:01 AM UTC

palata wrote: post #722

nkohari wrote: post #420

Earlier quoted context omitted.

> Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups. Have you been a founder? If not, I'm not sure you fully realize what goes into the job. Everyone wants to be a founder, but nobody wants to _be_ a founder.

> I'm not sure you fully realize what goes into the job. Can it be a lot worse than working as many hours as possible and burning out? Because startup employees do that, without the compensation the founders get.

To be fair, most startups fail, and the founders of these companies can end up with similar or worse compensation than their employees. Maybe they've volunteered to take a lower salary than their early employee. Maybe because by the time they've started hiring employees, they've been working without any salary at all, burning through their savings and credit cards for a year or more before getting any meaningful funding.

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

#864

Post by nickd2001 » Thu, Jun 13, 2024, 11:01 AM UTC

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…

Maybe its the "romance" and "excitement" of it? I worked for a startup in Seattle, 20+ yrs ago. It had a fun exciting buzz, and... something special about it... the possibility of being part of something big... and having interesting, excitingly intelligent coworkers, that you can learn a lot from, but then of course , it all went to s** (less customers due to market bust). Ultimately we were all laid off, the options I'd bought at 5c each were worth nothing. I didn't expect any riches, it was just an adventure. And importantly, 30 mins drive to the ski hill which was open at night after work.. so.. not a bad time ;). Some of the early employees were bitter. Some had tried being early employees several times in a row, tried to make it big. To me, they were intelligent people so why they didn't they see it as just a gamble which is largely out of their control? Maybe people like to kid themselves? Its the dream of America to make your fortune out of something new and exciting. Why am I even reading this discussion and commenting here? ;) Becos' there's something intangible but exciting about it all. But a lot of it is fantasy. Maybe people like to work for startups for the same reason they like a good book or movie, you can suspend your disbelief and escape from the boring hum-drum where you do a 9-5 that can be similar year after year?

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

#865

Post by kelnos » Thu, Jun 13, 2024, 11:06 AM UTC

gen220 wrote: post #564

carliton wrote: post #89

Many companies don’t get to Series A and very few companies get to Series B. Even if they do get to Series A or B, they won’t be able to raise the amounts you see in the news and have heavy dilution. Very few founders have double digits percent ownership by Series B and Series C. Liquidity of $400k or more is a lot and isn’t available for many founders. All of this after 7 to 10 years of working 80+ hours week, no so…

I often think about how if more people understood the median cap table life cycle from Seed to Acquisition/Shut-down/IPO, there'd be half as many VC-funded companies and twice as many bootstrapped companies every year. Thank you for sharing your experience towards that goal. Unless you're doing some niche b2b thing where you have no personal connections (in which case, why are you doing it at all?), the differential…

I think a part of the problem is that if you've chosen a market where VCs do want to invest, and you decide not to take their money, someone else is going to take it, build and grow faster than you, and out-compete you into the ground.

Sure, maybe their longer-term trajectory is unsustainable growth and disappointing surprises for founders and employees, but by that point your bootstrapped company has already shut down.

But, by all means, find a market where there's scant VC money to be found, and you can probably bootstrap for quite some time without funding. And maybe you will eventually decide to take on funding, but instead of giving 60% of your company away to get it, you only have to give away 30%. Or you decide that giving away 60% is fine, in return for 10x as much investment as you might otherwise get at an earlier stage.

I know a non-zero number of people who have gone that route, and it's worked for them. If I were to start a company, I'd aim for this model myself. But I would have to be very careful choosing my product and market.

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

#866

Post by kelnos » Thu, Jun 13, 2024, 11:08 AM UTC

elzbardico wrote: post #318

gitfan86 wrote: post #255

Earlier quoted context omitted.

I don't the the author is saying that founders don't deserve 400k after 7 years of hard work. He is saying that it is sketchy that this is hidden from employees.

No. the author is not saying that.

Er... that is essentially the entire premise of the article, so I'm not sure how you can make that assertion.

To be a little more generous, the author is perhaps not saying it's sketchy, but is at least saying it's odd and unnecessary to keep this knowledge from employees.

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

#867

Post by kelnos » Thu, Jun 13, 2024, 11:09 AM UTC

sunk1st wrote: post #278

sokoloff wrote: post #180

Earlier quoted context omitted.

I read GP as very few founders individually have double-digit ownership, not collectively.

45 divided by three is 15 is double digit.

Yes, but a single example of this doesn't make it common.

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

#868

Post by kelnos » Thu, Jun 13, 2024, 11:14 AM UTC

throwaway2037 wrote: post #211

knappe wrote: post #106

Look, I've worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn't going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively. My first startup I walked with a paltry sum and t…

> Plan around it being worth zero and go in eyes wide open. This is the best advice I have seen on HN about start-ups. Note: I have seen it repeated multiple times.

I've seen it repeated multiple times, and in the past have even repeated it myself. But these days I'm not so sure. I think you should go into it being ok with the possibility that it'll be worth zero, but I don't think you should plan for it to be worth zero. Put another way, I don't think you should evaluate competing startup offers completely discounting the equity comp. A company that offers $200k and 0.05% of itself is not automatically worse than a company that offers $250k and 0.01% of itself. Hell, that's still true even if they're both offering the same equity ownership percent.

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

#869

Post by kelnos » Thu, Jun 13, 2024, 11:16 AM UTC

user_7832 wrote: post #659

knappe wrote: post #106

Look, I've worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn't going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively. My first startup I walked with a paltry sum and t…

> the owners suddenly went from being doctors with a side hustle to private investors. Did the owners sell the company or get some sort of payout? I'd imagine if they were making decent money they'd have kept the business alive, right? Would you be okay sharing the name of the place?

I think that was the entire point the GP was trying to make. The founders were doctors that decided to start a side hustle, and then one day, boom, they got a huge payout and suddenly stopped "working" and became private investors. (And meanwhile, their employees didn't get all that much out of that "boom".)

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

#870

Post by kelnos » Thu, Jun 13, 2024, 11:20 AM UTC

knappe wrote: post #106

Look, I've worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn't going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively. My first startup I walked with a paltry sum and t…

I've worked for six companies, won the lottery once, and it was life-changing. I'm not bringing this up to brag or to suggest that it's common, but to point out that it is possible.

And frankly I think as time goes on it has become and will become more possible for more people. In part because of people like you who bring up all-too-common stories of how their founders got big payouts, but their employees only saw breadcrumbs. As more and more employees become educated on this stuff, the more pressure it puts on companies to offer better deals to their employees. We have a loooong way to go before my experience is common -- if we do ever get there -- but I do think it's possible that we could get there.