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Silicon Valley's best kept secret: Founder liquidity

stefantheard.com

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

#921

Post by stefantheard »

doodda wrote: post #247

This post has managed to piss off everyone: employees who didn't realize founders were getting liquidity events while they're still sitting on their more-often-than-not valueless equity, and founders who feel they've earned it and don't like the implication they haven't.

This is the reason I didn't check the comments until a couple of days later - I didn't expect anyone to read this and I also figured everyone would be pissed haha - the response is more mellow than I expected for a semi-controversial HN thread though!

It also pissed off some investors, so everyone is pissed off - I might write about something a bit more positive next time :D

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

#922

Post by stefantheard »

albroland wrote: post #69

Nice article, but it is wrong about liquidity events at WeWork. The author only discusses a tender offer that fell through at the end of 2019 after the failed IPO and collapse, implying there was nothing ever before. There was a tender offer in 2017 with the first SoftBank investment, and again in early 2019 (pre IPO attempt, closed in April) associated with the second investment by SoftBank. It is possible there wer…

Thank you for letting me know about this - I searched for other tender offers or liquidity for employees of WeWork and couldn't find anything (and the 2 former WeWork employees I know joined in late 2019 / 2020 - so they had a pretty terrible experience)

I will re-work that section so that it's factually correct

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

#923

Post by stefantheard »

khazhoux wrote: post #73
blobbers wrote: post #30

I think founders generally have 20 to 50x what the first employee has, in my experience. Employees rarely have more than 1%. Founders tend to start out with about 20-40% depending on number of cofounders.

Yeah that line in the article is completely off: > Ask most venture-backed founders why they get 10x more equity than employee #1 Employee #1 typically gets 1%. Sometimes could be up to 2%, but 1% is standard. So then the founder gets 10%? No way. I posit that very, very few early non-founding employees in SV startups have a true notion of how cheap they're working compared to the founders. Founders do founder-y stuf…

I was being generous - if there are 3 cofounders and you let one of your early employees get in the 2-3% range - it might be closer to 10x - but you're right that the majority of the time it's between 20x and 50x, sometimes even more dramatic than that for solo founder scenarios

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

#924

Post by stefantheard »

molsongolden wrote: post #2

I’d also push for allowing early exercise along with secondary sales restricted only by a short right-of-first-refusal period.

We allow early-exercise too but I (possibly, incorrectly) assumed that this was the standard for newly incorporated startups - at least within the last 2-3 years it has become significantly more common.

"secondary sales restricted only by a short right-of-first-refusal period"

I really like this as well, I've always found it confusing when private companies are anti-secondary for former employees especially. I'll look into adding something like this to our stock plan, ROFR protects against any hostile take over weirdness and I'm confident we could add something like this to make it relatively easy to sell on secondary under a certain % threshold.

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

#925

Post by stefantheard »

MobileVet wrote: post #292

This is a great post and I am glad it is getting high visibility. Everyone involved in a startup should understand this and consider it as part of their 'do I join' calculation. Additionally, founders shouldn't try to hide it nor should they horde the returns. Clearly founders are the reason the business exists, but the whole team is the reason it succeeds, everyone deserves a piece of the reward. Mark Cuban is a fam…

I don't know if I agree - but I'm open to being wrong. I can't recall many scenarios where I thought someone was a strong fit at 3 months but a terrible fit at 12 months. I can probably think of a couple of scenarios for 3 months and 6 months, especially with slower time to value roles like leadership positions.

Right now 3 months is within my risk tolerance - and there is another side to the cliff that folks don't talk about too often, pre-cliff people will generally be less transparent with negative feedback for fear of being fired before the cliff hits. I'm ok with giving up a bit of equity and polluting the cap table if it increases transparency faster. Maybe the lower risk bet would be a 6 month cliff but I believe 12 months is too long to hold the equity hostage.

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

#926

Post by stefantheard »

sneak wrote: post #186

> We allow employees to exercise options up to 10 years after they leave instead of 90 days. This always struck me as completely unethical. Your vested options are part of your pay; you should be able to exercise them years after leaving. I would never work for a startup that evaporates my vested options 90 days after leaving. That’s like clawing back cash comp, in my view.

I could not agree more - I still have no idea why 90 days is the standard. It also exploits people who are ignorant about equity compensation more than people who are not - which I think is even worse.

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

#927

Post by stefantheard »

guhcampos wrote: post #726

I like the discussion you folks are having in this post and all, but haven't you asked yourselves who is this guy? Because there isn't much information about him on the Internet and that website has that single one post up.

I'd be asking the same question, it's a fair criticism. I wrote this expecting 10 people to read it and I wrote it as a part of a writer's feedback group. I'm just a random guy who has worked at a lot of startups, nothing special!

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

#928

Post by stefantheard »

p0seidon wrote: post #450

This thread is more entertaining than both TikTok and Netflix combined, which is truly exceptional.

I'm glad I waited for the dust to settle on the battlefield before taking a look at the comments - agreed, super entertaining! haha

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

#929

Post by stefantheard »

kortilla wrote: post #15
ajhit406 wrote: post #4

Love the movement and glad there are founders out there pushing the envelope for their team. (aside: 51 points but only 1 comment? It's a front-page worthy article, but sort of feels like there's some vote gaming happening. I've never seen 50 points w/ 1 comment.)

It’s a vote bait title. (Type of thing people upvote without reading the article)

I had no intention of posting this to HN (someone I don't know posted it!) and also didn't expect more than the 10 people I shared it with to actually read it - no vote bait intended! I'm happy to take your feedback on a better title that is less baity and more apt.

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

#930

Post by stefantheard »

scndrythrwy wrote: post #693

Founder here who turned down an offer to secondary in our B round. It would have brought ~$5M before tax. This would have been a material change in my financial security. I live in a high-cost US city and have been putting off starting a family. It would have removed many concerns that are holding us back from feeling like it's the right time for us. My thinking has evolved, but is roughly: (1) The argument from VCs…

I'll give you nice-guy points for turning it down - that's a very principled position to take when that much money is sitting in front of you and all you have to do is say "yes"

I think your intuition on #2 is right - pro-rata across the board or even if the amounts are small enough, offering to do it as a "series B bonus" line item in payroll is not out of the question. 10% seems on the high side but sub 5% it's probably do-able.

I agree with a lot of what you've written - I understand if you want to stay anonymous but would love to talk to you about this more if you are open to it!

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