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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

#901

Post by dheera »

godelski wrote: post #825
dheera wrote: post #815

Earlier quoted context omitted.

> where you can find By doing homework and research every day and investing only in things you personally deeply understand. But if you don't want to do that ... passively investing in QQQ would have given you a 5.4X return in the past 10 years. If you just throw your money across some large, too-big-to-fail companies, you could have 10X'ed easily. AAPL, NVDA, MSFT, TSLA, NFLX have all >10X in the past 10 years. GOOG…

QQQ would have turned your 500k into 2.56M AAPL, NVDA (even without the recent events), MSFT, TSLA, NFLX, yeah sure. But out of those, only Apple and Microsoft were reasonable companies to put that kind of money into. I think you're not realizing that you're cherry-picking. I mean I think your point still stands with just looking at QQQ, but I'm just saying over embellishing hurts your argument, not helps.

Meh, this isn't a me vs. you situation. If you take value from my overall comment, great. If you think my whole comment is invalidated by one statement that you do not believe, I'm not interested in defending it.

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

#902

Post by hatsix »

seansmccullough wrote: post #477
onlyrealcuzzo wrote: post #348

Earlier quoted context omitted.

Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away. Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really w…

> while your peers are all making ~$1M per year working 6 hour days at FAANG Unless you are a manager, in which case you are working more like 12 hour a day.

I know a red badge director (10-15 years) at Amazon who dipped well below 500k due to the last 4 years of stock prices. Though this recent climb has been great for their morale.

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

#903

Post by heleninboodler »

kelnos wrote: post #836
ditonal wrote: post #566

Earlier quoted context omitted.

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.

The median employee also isn't the guy who's going to make a killing by being an instrumental early employee at startup. It's apples and oranges. I'd argue that the person who is versatile and productive enough to help build a startup from zero is also in the upper tier of those FAANG employees, and commanding 400k+ per year isn't out of reach.

I personally have taken both paths, and made what I considered a ridiculous amount of money at a startup (after I'd been gone for a while, having bought my stock). When I got my cash out, I didn't quit my not-technically-FAANG-but-pretty-close job and that comp continues to grow. I never expected this, but my comp has grown to the point where the cumulative amount I've made here has actually surpassed the startup money. 7 years at each place, and the steady paycheck eventually outpaced the big windfall. The difference is I can keep the steady paycheck indefinitely, so it's definitely the win if I stick it out. Of course, now I'm itching to do a startup again. :)

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

#904

Post by 0xB31B1B »

AlwaysBCoding wrote: post #681
0xB31B1B wrote: post #657

Earlier quoted context omitted.

its not done this way because the founders want to screw you, its done this way because of a bunch of arcane tax laws. Its complicated to explain, but the origin of all of these weird "options not equity" and "90 days to expire" type things are because of US tax law. If the startup could give you shares without putting the employee and the company both in a very puntantive tax situation they would.

This isn't true. Company executives don't owe a fiduciary duty to employees or holders of stock options in a company, they only owe a fiduciary duty to concrete shareholders. There are a lot of founders of less than high moral character who want to keep it this way. I sent a Section 220 demand letter to the founders of this company to get transparency on the money that was taken during the secondary stock sale and th…

my comment was a response to the comment above, complaining about options and exercise windows offering options, not what you're talking about WRT secondary sales and corporate privacy. The reason we have options and all this weird stuff is indeed tax law. Private companies do not grant equity because it is generally extremely tax disadvantaged to both the employee and the company itself. For instance, the 90 day window is a consequence of ISOs to NQOs, which has a direct tax consequence. I'm not arguing that 90 day exercise window is absolutely better than 10 year exercise window, im just saying that everything is downstream from tax and corporate law.

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

#905

Post by FreakLegion »

reducesuffering wrote: post #850
FreakLegion wrote: post #705

Earlier quoted context omitted.

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%

Each round carves out 10+% for employee options, on top of 10-30+% to investors (Seed can be anywhere from 10-30%, Series A is typically 20% to just the lead, Series B 10%+).

Equity ownership and voting control are also different things. After the B you commonly have 2 investors and an independent director on the board, alongside 1-2 founders.

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

#906

Post by mavelikara »

goalonetwo wrote: post #598

In my 20s I joined a couple startups as "early engineer" or "founding engineer". I quickly realized those are the absolute worst positions to be in. You take almost as much risk as the founders but almost none of the upside. One startup died, the other one sold for 100m$. Out of that I saw 400k$ as an exit. Not too bad but even with that exit I ended up making way less than if I joined a FAANG. In both cases the foun…

How do the startups that you found flourish without employees?

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

#907

Post by jjav »

kelnos wrote: post #835
jjav wrote: post #823

Earlier quoted context omitted.

> 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 b…

> I guess you're looking in the wrong places.

It's possible! I live in the silicon valley bubble.

I've worked for 5 startups (and had offers from about ~5 more to know what they would've paid). None have been close to total comp at a public company.

All of them have been very competitive (or even higher!) on base salary.

But there's no recurring RSUs in a startup (since there is no stock to trade), and rarely bonuses. So total comp is about 30-40% of my total comp when working at public companies.

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

#908

Post by jjav »

kelnos wrote: post #834
jjav wrote: post #821

Earlier quoted context omitted.

> 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 qualifi…

> Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric.

It is far too late then.

One of the many benefits of doing early exercise is that you exercise the option when the grant price is the same as the current valuation so there is zero profit (and you file an 83(b)).

If you wait too long, your grant might've been at $0.01 but now the valuation is $5.00 (making up numbers but both of these are in the ballpark of my past startup experiences). It is way too late to exercise those options, you'll be paying tax on $4.99 of profit on a stock that you can't sell and might go down! If you waited that long, now you need to keep waiting until there is liquidity so you can do a same day sale.

> take out loans

That would be a terrible idea. Like I said in parallel comments, if the price is too high for your comfort level, don't join that startup.

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

#909

Post by jjav »

dilyevsky wrote: post #828
jjav wrote: post #806

Earlier quoted context omitted.

> Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs I strongly disagree, early exercise is always optimal if the cost makes sense to you. The primary reason it is so valuable is so that you don't lose everything if you have to change jobs for whatever reason before a liquidity event. If you join a startup and don't early exercise, now you are going to have to work there for…

See my point about long exercise window - 5-10y is not uncommon now. I’d rather have that even though it converts to PSOs than gamble ~50k + amt on early exercise. Unless you’re super early ofc which changes the math

> 5-10y is not uncommon now

Is it?

I'd be curious on survey data on that if something is available.

Personally I've never encountered a startup that had anything other than the standard 90 day after you quit exercise window. I know these long exercise windows exist but as far as I knew they are pretty rare.

> gamble ~50k

That's a huge number though, I'd never gamble that much either.

I'm talking about very early in the startup. If the strike price is above a few pennies, it's too late (although of course depends on the number of options and your personal budget).

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

#910

Post by whiplash451 »

surfingdino wrote: post #832
whiplash451 wrote: post #819

Earlier quoted context omitted.

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.

I like your train of thoughts.
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