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

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

#881

Post by dumbfounder » Thu, Jun 13, 2024, 1:36 PM UTC

KingMob wrote: post #287

dumbfounder wrote: post #242

I don’t agree with this sentiment: Investors, founders, and employees all believe that founders are taking more risk than early employees (this isn’t true once founders have exclusive access to liquidity) This completely discounts how much risk and stress go into the early stages before money is raised, or before enough money is raised to pay founders properly. They often go into debt, put many aspects of their lives…

...? Much of what you described applies to early employees, too.

I have always taken a lower salary than early employees. And had periods before raising money and after the money dried up where I was taking no salary. I think it is way way way more common for founders to do this than early employees.

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

#882

Post by davedx » Thu, Jun 13, 2024, 2:08 PM UTC

sshconnection wrote: post #742

davedx wrote: post #493

Earlier quoted context omitted.

Wait, you couldn’t find the 10k cash to exercise 5m worth of options?

The options were likely 10k when he was issued them at hiring. When leaving the company, he would need to purchase those options (likely within 90 days if it's a shitty policy). Then, the real kicker is that he would have to pay taxes on the on-paper gains between the 10k and the current valuation. So lets say the company was worth half of what it was at IPO, he would now own 2.5m of stock, owe taxes on 2.49m of inco…

No liquidity? He said the company went public…

I know people don’t get the best deals on startup equity but something doesn’t add up here

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

#883

Post by habosa » Thu, Jun 13, 2024, 2:18 PM UTC

mckravchyk wrote: post #816

habosa wrote: post #736

Earlier quoted context omitted.

Founding engineers are so underpaid relative to founders. I’ve seen it be founding CTO with 40% and founding engineer with 1%. It’s ridiculous and we should not accept it as the standard. A few good early hires can be just as valuable as good founders.

Is it? If founders were getting only 10% of ownership which would be further diluted in following funding rounds, how many of them would take the risk of starting a company? On the other hand, if early employees were not getting any equity, how many of them would apply anyway because they need the job / or want to gain experience and build their network with limited risk? (not saying that they should not be getting e…

Many founding engineers do later start their own company after they see how much of a better deal the founder can get (mentioned in the article).

Foinding engineers that need the job and would take it without any equity aren’t the difference-makers I’m talking about.

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

#884

Post by anxman » Thu, Jun 13, 2024, 2:36 PM UTC

throwaway-blaze wrote: post #483

anxman wrote: post #199

Earlier quoted context omitted.

I used Founders Preferred shares to get liquidity at the A (for a now defunct startup). In our case, we offered all vested employees the option of selling in the same round on the same terms. I personally don’t recall any disclosure requirements at 10 people; however, we didn’t have that many participate so perhaps it didn’t apply. In general, Founders Preferred does layer on the preference stack but also hopefully b…

Founders never have preferred shares, at least not the same class of preferred (with the same preferences) as investors.

Founder Preferred is a special class of stock that can convert into Preferred when sold. It’s different from Common as it doesn’t affect the 409A. IANAL.

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

#885

Post by jefecoon » Thu, Jun 13, 2024, 2:40 PM UTC

kelnos wrote: post #833

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…

> 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 t…

100%

If equity is going to be a material component of compensation, then the argument "you're not committed enough, you deserve nothing if you leave..." is utter nonsense.

Imho, many/most of these draconian equity / option terms are nothing more than attempts at 'golden handcuffs' to make it more challenging for employees to leave these startups.

Sadly, they work: I know many who couldn't leave roles til they'd saved up for years, or could finally ink second mortgage on their home, etc in order to purchase all their equity in their 90 day post-exit windows....

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

#886

Post by anonymousDan » Thu, Jun 13, 2024, 2:41 PM UTC

kelnos wrote: post #856

anonymousDan wrote: post #198

Earlier quoted context omitted.

How would you negotiate that in practice? Would it be reasonable to ask for it to be in your contract? How would you suggest wording it roughly? Sorry I'm inexperienced with this kind of thing and have no idea how I would go about negotiating for it.

I think for the most part you can't negotiate for this sort of thing, because most companies are not going to work up a one-off, custom equity comp agreement. Not just for you, someone they've just finished interviewing, seem to have some enthusiasm about, but ultimately they have only a vague idea of how you're going to perform or how long you're going to stick around. Either the company offers it, or they don't. I…

Great, thanks for the response. That seems like a realistic perspective on what is achievable in most cases. I guess it's good to have it in mind as something to raise on the offchance it might be something a particular company is willing to be flexible on.

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

#887

Post by wait_a_minute » Thu, Jun 13, 2024, 2:49 PM UTC

zeroonetwothree wrote: post #813

wait_a_minute wrote: post #778

Earlier quoted context omitted.

That will change once legislation gets passed requiring remote workers who are not located in the same country to need to go through the work visa process. The outsourcers are shooting themselves in the foot. Once the law drops and they cannot bring over the cheap remote labor due to visa limits, they will end up with skeleton crew teams that cannot maintain the spaghetti systems that are being built.

They could just use a contractor as an intermediary. This doesn’t seem like it would be effective.

Legislation could easily be crafted to block even contractor firms from circumventing the requirement. Either way, someone remoting in from abroad would have to get a visa. This will solve the problem. It's definitely coming, because to work domestically they'd need a visa...so doing the work remotely is not an exemption to that.

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

#888

Post by geepeeyoudata » Thu, Jun 13, 2024, 2:59 PM UTC

davedx wrote: post #882

sshconnection wrote: post #742

Earlier quoted context omitted.

The options were likely 10k when he was issued them at hiring. When leaving the company, he would need to purchase those options (likely within 90 days if it's a shitty policy). Then, the real kicker is that he would have to pay taxes on the on-paper gains between the 10k and the current valuation. So lets say the company was worth half of what it was at IPO, he would now own 2.5m of stock, owe taxes on 2.49m of inco…

No liquidity? He said the company went public… I know people don’t get the best deals on startup equity but something doesn’t add up here

>> No liquidity? He said the company went public… >> I know people don’t get the best deals on startup equity but something doesn’t add up here

Many startups stay private for 7-10 years. Most go broke, shut down, or have face-saving acqui-hires with no economic gain. If you leave at year 1,2,3,4,5, or 6 you have to pay UPFRONT to exercise the options and pay taxes UPFRONT. But you are stuck with private stock you cannot sell. In 95% of cases, the private stock can never be sold because the company goes broke. You dont know if your company, in year 7, 8, 9, 10, or beyond MIGHT be one of the lucky 5%

If you are going to spend $100k or $500k exercising options and paying taxes, you might as well buy QQQQ or NVDA or something with better odds of success.

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

#889

Post by phone8675309 » Thu, Jun 13, 2024, 3:03 PM UTC

booleandilemma wrote: post #725

phone8675309 wrote: post #667

Earlier quoted context omitted.

> If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k. Not really enough to de-risk your life although still might be welcome (and employees would appreciate having the choice). $20k would be a life changing amount of money for me right now

What would you do with $20k that would change your life?

Let me complete a down payment on a house and stop renting.

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

#890

Post by gen220 » Thu, Jun 13, 2024, 3:25 PM UTC

kelnos wrote: post #851

gen220 wrote: post #458

Earlier quoted context omitted.

I think one component of their point is that the marginal utility of money beyond $200k/year cash comp is quite small, especially if you (1) came to tech early in life (2) plan on staying in it for most of your working life. With that perspective, $200k/year and $700k/year both reduce to "well-paid". Also, a Staff title at a Seed or Series A startup can definitely ask for $250k/year, although they'd likely be trading…

Whoa, that doesn't even pass the smell test, let alone any kind of deeper analysis. Certainly this depends on where you're going to live, but if you're in a place where startups are common (even considering the current remote work situation), $200k/yr will either be a stretch for you to meet your living expenses, or will require that you live fairly modestly, especially if you have dependents. If you are able to put…

I will happily die on the hill that the marginal utility at $200k vs $700k is a pure function of your lifestyle, even in high cost-of-living areas (I live in one of the highest!). Your choice of adjectives "modestly", "fairly small", "quite comfortably", and "quite a bit" that are ways for smuggling lifestyle choices into the equation, which might apply to you but are by no means universal.

This boils down to "if you have more money, you can spend more money and maybe retire early". This is not a line of reasoning I'm trying to refute.

Dependents are an interesting wrinkle that is worth discussing separately. But let's stay on the straight and narrow, we can talk about in another comment if you wish.

> And I don't think your (1) & (2) points really make sense here. Investments compound over time

The reason I invoked these points was not to compare "could you save $50k at age 22 or $10k at age 22?", it was to compare "could you save $10k at age 22 or $50k at age 32?"

If you're beginning a high-income career later in life, the time-value of money is different because you have less time.

If you start early, you actually need to earn less to hit the same comparatively "fixed" long-term savings goals, because you have more time to compound.

Again, be careful to avoid falling back on "if you have more money, you'll have more money, which is obviously good".

> And I wouldn't even consider all this to be lifestyle creep

Regularly dining at fancy restaurants (anything in the Michelin orbit), taking luxurious vacations (I'd define as anything north of $300/day), and purchasing expensive toys (I don't think this needs any qualification...) is indeed the definition of lifestyle creep, and it's A-OK that they aren't sustainable at $200k/yr.

You can live extremely comfortably without these things. Whether you perceive them as acceptable or not is a you thing, not an objective thing. We actually do get to choose our values and our hobbies!