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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

#871

Post by kelnos »

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…

I've worked at seed, series A, and series B startups, and I think... it just depends. Only one time (a series A) did I feel exploited. That wasn't because I was an early employee at a startup; it was because the founders were sketchy and lied to us about what was going on with the company's fundamentals.

I frankly don't mind the idea that a founder is going to see orders of magnitudes more cash from a successful exit than I will, though I do think it would be great if that gap were closed a bunch.

Ultimately I worked at startups because I thought the work would be interesting, challenging, and educational (it was), because I wanted autonomy, influence, and impact (I got those), and because didn't want to deal with bureaucracy and many layers of management (I mostly didn't have to). In contrast, working at a FAANG sounds not particularly enjoyable to me. But I've never done that, so maybe it would be more ok than I think. Then again, I did join a 50-person startup and stay until it became a 10,000-person public company, and was pretty unhappy there for the last few years of my tenure, so I think it's pretty reasonable to expect I wouldn't be happy at a FAANG.

I say this to point out that not everyone is looking for the same things out of their employment experience, and that's totally fine.

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

#872

Post by kelnos »

randerson wrote: post #433
geepeeyoudata wrote: post #316

Earlier quoted context omitted.

I worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little upside. They would offer 500 options, or 1000 options, or 30,000 options -- but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! Secondly, they wont share the cap t…

My experience was similar, right down to the $10,000 worth of options. Eventually the company went public and those options would have been worth $5M if I'd had the foresight (and cash) to exercise them (which I didn't). The co-founders did not have exercise costs or AMT of course. It is an unfair system indeed. I'd encourage those seeking to be early engineers to go work at a FAANG for a few years before joining a s…

AMT rules requiring you to report exercised options as income are damn-near criminal, IMO. If you can early-exercise at grant time, file your 83b election, and avoid taxes, great. But if you can't afford it, and want to see anything from that equity, you are stuck staying at that company at least as long as the first liquidity event.

I think the takeaway here is that you should probably not work at a startup if you don't have the cash to early-exercise your option grants (or work there, but value the equity portion of your comp at $0 and be ok with that). Obviously you didn't know or consider that at the time, which is a pretty common level of understanding, I think, one that I shared when I was first dipping my toes into the startup pool myself.

On the plus side, I think financial education and knowledge around startups has gotten leaps and bounds more prevalent over the past dozen years or so. Fewer people will experience the same situation you do, because they'll know not to get into it in the first place. And once enough people understand the implications of these unfair practices, they will have to change if startup founders and investors want to continue to attract talent.

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

#873

Post by kelnos »

djbusby wrote: post #372
geepeeyoudata wrote: post #316

Earlier quoted context omitted.

I worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little upside. They would offer 500 options, or 1000 options, or 30,000 options -- but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! Secondly, they wont share the cap t…

If you are early and they not sharing the cap-table it's a red-flag.

No company I've worked at has showed me their cap table, so I don't think that's a red flag (though I also didn't ask, so maybe they would have). But it's definitely a red flag if they don't answer questions about the cap table that are material to your decision to accept or reject the offer, such as asking them to tell you the number of shares outstanding.

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

#874

Post by kelnos »

pragma_x wrote: post #396
geepeeyoudata wrote: post #316

Earlier quoted context omitted.

I worked at a Series A startup as an employee, and wont be doing that anymore. Early engineers have all the risk (lose job the second things go bad) but little upside. They would offer 500 options, or 1000 options, or 30,000 options -- but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! Secondly, they wont share the cap t…

> but when you look at the prices, that was worth $100-$10,000. Why would anyone take all this risk, and lower base salaries for that lottery ticket?! I was in a company when my options were "purchased" from me at the strike price, when the company itself was sold. We never made it to IPO. I've learned to not overvalue options and phantom stock, and just chalk it up to another bonus down the road. The real money is,…

The big bummer about acquisitions is that they can change the terms of the deal however they want, including devaluing or even outright cancelling all the common stock. IPOs seem much safer in that regard, but obviously a rank-and-file employee has no say in which direction the company goes.

To be fair, though, the bad deals the employees see at acquisition aren't necessarily always due to sketchy exploitation bullshit. Sometimes a bad deal for employees is the only one the board can make, with the alternative being bankruptcy and everyone losing their jobs. It does sting that institutional investors and founders will sometimes get a decent return on their investment/time in those cases, while employees get table scraps, though.

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

#875

Post by kelnos »

wnolens wrote: post #500
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…

I almost left for an ultra early startup, still running on seed money. They offered a typical SDE2-Senior salary + 1%. I was kind of offended. I'd be inventing their core technology (which didn't exist yet and which their CTO wasn't fit to do) and probably interviewing every engineer and growing them. Even IF they achieved a 100-300M exit, after dilution I would be compensated at best par with a FANG Senior over abou…

Oof. The CTO not having the chops to build the core technology would have been a huge red flag for me. At a 75-person startup the CTO should transition to be more of a manager and strategy person than a builder, but at time of founding they should be doing 100% of the building. Hiring the first engineer should be a way to increase the pace of tech work, not start it.

If none of the founders are technical enough to build the MVP, none of them should take the CTO title.

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

#876

Post by kelnos »

dilyevsky wrote: post #801
oblio wrote: post #385

Earlier quoted context omitted.

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

Which is exactly the point the GP was making, I think.

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

#877

Post by kelnos »

throrway12 wrote: post #129

I worked at a preseed company recently. Here's my experience: - Work 9 to 7 everyday. 6 days a week. - People are working 9 am - 5 am in crunch time. Then joining again at 10 am. - Monetary Comp is exactly market average. - Equity Comp is even more paltry since founders raised at a huge valuation. - Founders make unrealistic promises. Eg: It took a competitor with 7 people, 3 months to make a product. The founder tol…

I've worked for a startup similar to that, though it was series A when I joined. It was gross. I stayed there for nearly a year and a half because I did genuinely enjoy the work and my peers, but ultimately the founders ruined the experience for me with their evasiveness and lies, and their creepy later-on focus on "loyalty" when the company's prospects started to go downhill. The last straw was when I was told by another often-in-the-know employee (whom I trusted) that one of the founders had found out I was interviewing at another company, and he called someone he knew there and told them not to hire me. Obviously I don't know for a fact that's what happened, but it sounded believable based on the founder's other behavior, coupled with the seemingly-fantastic interview experience I had.

That hurt, but I realized I had to do a better job of treating interviews as a two-way street. The company was interviewing me, sure, but I also needed to interview them, and learn what I could about the kind of people the founders and my peers were. I also needed to understand up-front what would be expected of me, and how flexible they could be with my time. The next startups I worked for were much better, and I never felt exploited.

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

#878

Post by kelnos »

grvdrm wrote: post #320
throrway12 wrote: post #129

I worked at a preseed company recently. Here's my experience: - Work 9 to 7 everyday. 6 days a week. - People are working 9 am - 5 am in crunch time. Then joining again at 10 am. - Monetary Comp is exactly market average. - Equity Comp is even more paltry since founders raised at a huge valuation. - Founders make unrealistic promises. Eg: It took a competitor with 7 people, 3 months to make a product. The founder tol…

Honest question: do people with young kids do these jobs well, or at all? I'm sure the answer is sometimes, yes. But, as a 41-yr-old father of two kids (6, 2) and a wife in PE, the pace and stress strike me as contradictory to being present in a marriage, being present with my kids, managing my health, etc. I'd love to hear how the people with families manage (or fail) this pace?

I expect not really? I'm 42, married, but no kids. I can't imagine joining an early stage startup. Not just for the kinds of reasons you mention (being present in a marriage), but just because it sounds so exhausting. When I was 30 I could pull an all-nighter and still have a somewhat productive next full day at work until I could finally get some sleep that evening. But these days I'll be a passed-out wreck by 10am, at best, assuming I even make it through the night, and will feel like shit for a couple days afterward.

There's a reason why people in their 20s or early 30s, and/or without a partner or kids, are over-represented in early startups. When I was deepest in my startup work as an employee, I had no time to date, and didn't bother to try. My friends barely saw me; most of the little socializing I did was with my co-workers, and that socializing often felt more like work than play, as we were usually discussing (or complaining about) work.

I do know people our (current) age, with families, who have done it, but I frankly have no idea how, and I'm sure it put a strain on their marriage and on their relationship with their kids.

On the flip side, as someone who has no kids (and doesn't intend to have any), I have noticed a lot more tolerance for missing work / missing meetings / ducking out for a while when it's for childcare than for any other reason. But a childless employee is seen as having no excuse for needing time out of the office here and there for whatever reason. (I suppose this is true to some degree of both startups and established companies, though.)

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

#879

Post by kelnos »

sashank_1509 wrote: post #380
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…

10% to a founding engineer almost never happens. You’re in cofounder territory. There really are 2 reasons to stay in the startup, 1. The startups reaches a great valuation. If it reaches a 1B valuation, then even assuming 50% dilution, you have 10M for 2+ years of work, almost 3-5M per year TC! Yes your founders are earning much more but comparison is the thief of joy, you just got a salary that no big tech company…

> 10% to a founding engineer almost never happens. You’re in cofounder territory.

Morally/ethically, if you're building everything single-handedly from the start, you are a cofounder. Obviously the original founders have no legal obligation to compensate you as such, of course.

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

#880

Post by matthewsinclair »

throwAGIway wrote: post #822
sponaugle wrote: post #466

Earlier quoted context omitted.

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.

Yep. I definitely agree with that.
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