[HN Gopher] If founders treated investors the way they treat emp...
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If founders treated investors the way they treat employees
Author : yodon
Score : 123 points
Date : 2022-04-20 16:55 UTC (6 hours ago)
(HTM) web link (software.rajivprab.com)
(TXT) w3m dump (software.rajivprab.com)
| d23 wrote:
| Ha! Really close to a conversation I had with a recruiter back
| when I was looking. They were promising a ton of equity, and when
| I asked to see just a high level picture of the finances to make
| sure basics like the amount of runway were reasonably long I was
| met with an awkward pause. It's really strange that companies not
| only expect you to take a massive risk on the "upside potential"
| and then won't even let you inspect the current state.
|
| So yeah: I'll just go with Google I guess /shrug
| ryandrake wrote:
| I once interviewed for a software position at a risky looking
| small company, and I asked the CEO/owner if the books were
| available for me to verify their 1-5 year outlook before I
| moved my family across the country for the job. He looked
| totally shocked and gave a weirdly cagey "no". I learned long
| after the fact that at first he was mortified and then later
| had a "wow who does he think he is" chuckle with the HR lady
| about me.
|
| They ended up making a barely acceptable offer because despite
| my horrible faux pas, I was a domain expert and they couldn't
| keep staff for more than a year. And I accepted because I was 1
| month away from being bankrupt and homeless. Lasted a year and
| a half. The business turned out to be solid but I left for
| greener pastures.
|
| I have no idea why owners are so cagey about the health of
| their businesses and funding sources, to potential employees.
| Especially when things are basically fine! He was bootstrapped
| and evidently had fine cash flow. Why is this a faux pas to
| ask? HN is full of entrepreneurs: why are you so offended when
| a candidate asks about cash flow or to see the cap table?
| kmonsen wrote:
| I once interviewed with a startup and the equity part of the
| offer was only x number of options. So I was like, OK what is
| current/expected evaluation and how many shares outstanding,
| like what is the percentage I get. That was apparently "big
| company thinking" and they rescinded the offer just for
| asking this question (through the experienced recruiter).
| jacquesm wrote:
| evaluation -> valuation?
| lovich wrote:
| These are intelligent people and the actions don't make sense
| when you look at the details, like your example of being in a
| fine position. That only leaves unaccounted for variables at
| play, and the best I've been able to tell is that its a
| cultural gap between the execs and the plebs that plays out
| even at small startups.
|
| You see the same behavior in non tech companies when VPs find
| out what their senior software engineers are paid, and start
| getting upset at the similar salary level, even though that's
| the market price. Or in things like rules that only Execs get
| to fly first class. I had a an executive have HR look into me
| "breaking the rules" when he saw me in first class with him
| on the way to a company event after I paid to upgrade my own
| seat.
| toomuchtodo wrote:
| Hard to take the lizard brain out of the human.
| manquer wrote:
| - Founders/management get defensive because they don't think
| they are so small that they cannot be trusted to pay you on
| time and when you ask for data it implies you don't trust
| their word that can taken as insulting/lack-of-confidence in
| them.
|
| - The other common reason is those numbers are confidential
| not just from employees, a competitor or investor who is
| evaluating a competitor could use it against you, so founders
| worry about that stuff, you may not take the offer and
| mention it to next company you talk to etc.
|
| - Few tech employees have the financial know-how to read
| financials, especially of startups . Most early stage
| investors rarely go through the actual books in any detail.
|
| - Measures like churn, CAC, ARR, MRR are the go-to metrics .
| The actual book numbers basis cash flow can be very bad
| although company is in decent health, this is why banks will
| not loan early-stage startups money unlike small businesses
| as startup numbers are not simply good enough by traditional
| metrics.
|
| - In small enough companies exposing the books to new
| employee will give rough idea of who is earning how much
| including the founders, and what else company is spending
| money on, keeping the information asymmetry can be seen as
| beneficial by founders.
| WalterBright wrote:
| On the other hand, I know a fellow who thought the startup had
| no future, and wanted a higher salary in lieu of options.
| Management said ok.
|
| A couple years later, the ship came in, and it was a big payday
| for the other employees, but not him. He was furious.
| jacquesm wrote:
| I'm pretty sure they were totally floored that you asked that
| question. They probably expected a starry eyed response and a
| 'where do I sign, master'.
| Animats wrote:
| That's what most crypto investments look like.
| akavi wrote:
| Huh, a lot of this doesn't ring true to me, as someone who's
| negotiated comp at 6 (mostly YC backed) startups over the past 5
| years.
|
| In my experience, 10 year expiration dates for options and
| reasonably detailed financials (at the very least, ARR, ARR
| growth rate, churn rate) have been table stakes. And most
| companies were happy to let me view their latest round's pitch
| deck, after signing an NDA.
|
| It's frustrating that almost no company offers early exercise
| rights, given how significant a tax value that it can represent,
| but compared to most other industries, it does seem tech is
| particularly employee friendly.
| lbotos wrote:
| It's fascinating because the 2 YC backed startups I worked for
| both offered early exercise. Not saying you are wrong, In my n
| = 2 experience, I thought it was in the "YC Playbook".
| anamax wrote:
| > And most companies were happy to let me view their latest
| round's pitch deck, after signing an NDA.
|
| If potential investors are seeing that deck without an NDA, why
| should you sign one?
| CardenB wrote:
| Because employees that you interview are different from
| investors.
|
| At a minimum, you are going to interview a lot more engineers
| that are tempted to divulge trade secrets than investors.
| 21723 wrote:
| The real answer, of course, is social class. Marx was right.
| Investors are the bourgeoisie, and you're a proletarian whose
| survival needs are an exploitable resource. They don't follow
| the rules you do. Investors are like Ancient Greek gods (or
| Ancient Greek something else) to founders, and you and I are
| shit to these people, and the moment you stop making excuses
| for their behavior and see it as it really is, it all makes
| sense.
|
| What even Marx didn't foresee was the effectiveness with
| which managerial bureaucrats (who might have been considered
| upper proletarian in the 1800s) would take the system over
| for their own purposes and merge into--and, arguably, become
| --the real elite... the same thing that happened in certain
| failed socialist experiments.
| [deleted]
| IncRnd wrote:
| Well, actually I had a similar conversation at a startup a few
| years back. I wanted to be paid in stock instead of money. This
| is actually not an uncommon sort of conversation when you intend
| to work at a company, but where they want you to sell a separate
| existing company you already hold.
|
| In any case working for a paycheck is different compared to
| investing for a possible payday.
| 21723 wrote:
| If the investors had bought in, Episode 2 would have 60% of the
| investors either being made so miserable they quit, or fired "for
| performance" after 364 days of service ("cliff") so they get
| nothing--of course, even the employees who do hold on rarely get
| anything, but that's another story.
|
| The really sickening thing is that most acquisitions (since
| that's the likely route for these companys, if they succeed at
| all) involve the common stock getting wiped out while the
| executives get "management incentive plans" in new stock. They
| still get screwed if they leave the acquirer (since their vesting
| clocks usually reset) but they at least have a shot at getting
| something.
| anm89 wrote:
| I'd have to imagine that taking equity as an employee is in most
| cases a negative EV move. Keep in mind, people win powerball.
| That fact that something is negative EV doesn't mean there aren't
| winners.
|
| FAANG RSUs might potentially be another exception.
|
| But it seems like early stage startup options are an absolutely
| minefields for employees. I've seen instances where it was setup
| so regardless of how the company performed, people in the first
| 10 employees would have walked away with nothing in an exit.
|
| And that's before talking about Cliffs. Even if every other thing
| falls into place, you can just get fired on day 355 if a founder
| decides they'd prefer to hold more equity.
| ada1981 wrote:
| I'd like to see the inverse of this -- if founders treated
| employees like they treat investors.
| eatonphil wrote:
| > Can't you guys just replace this 90-day clause with a 10-year
| expiry, so that I wouldn't have to deal with all these risks?
|
| I'm not an expert but my understanding is that everyone should be
| pushing for this or for options to be way cheaper to purchase
| when you leave.
|
| Without one of those two options the safest thing to do to not
| waste vesting time is join a public company or a late stage
| startup. Late stage startup you're more likely to be acquired or
| IPO while you're there and you don't purchase options out of
| pocket.
|
| Early stage startups are where you're least likely to stay the
| 7-12 years required for the exit event to take place and thus
| most likely to leave vested options on the table when you leave
| the company because you don't have cash and/or don't want to risk
| that cash.
| anamax wrote:
| If it's early, you should 83(b) the options. That eliminates
| the "tax at exercise" problem and starts the long-term holding
| clock.
|
| Yes, you have to come up with the cash to buy the stock at
| 83(b) time, but if it's early, that's pocket change.
| bcassedy wrote:
| It's not pocket change for people early in their career. An
| early engineer in a series A company could easily be getting
| 10k+ in options
| HWR_14 wrote:
| As I understand it, options being cheaper to purchase means a
| larger tax bill when you vest them, since they have a strike
| price below their current value.
| lbotos wrote:
| I'm not sure what you mean.
|
| You aren't taxed when options vest because there was no gain.
| Only when you exercise options, and you will be taxed on the
| gain. So if you make more money, sure your tax will be
| higher.
|
| RSUs are taxed at vest as that's a gain.
| HWR_14 wrote:
| Because the options, when they vest, have no value.
| However, an ITM option does have value. The amount it's
| ITM. So you'd have to pay the amount it's below FMV as
| income, right?
| bspear wrote:
| Believe the downside to 10-year is that they convert from ISOs
| to NSOs, which is far less tax-favorable
|
| But obviously, much better cashflow-wise
| guelo wrote:
| It's so unethical. Especially since most engineers aren't savvy
| enough to have this conversation, the whole pitch is designed to
| bamboozle.
| biomcgary wrote:
| On the other hands, some founders are amazing. I'm currently
| working at a biotech startup started by a very successful serial
| founder. At this company, the founder hired people that he has
| worked with before, so my colleagues are top-notch. The founder
| respects everyone he hired (and vice versa). The short-term
| compensation is highly competitive and rather than options, all
| employees were able to purchase shares (and the cost was covered
| by a bonus). All of the employees are regularly briefed on the
| fund-raising prospects (SAFE notes, Series A). Of course, I had
| just resigned from a company that fit the OP's description all
| too well.
| sl9dmk2 wrote:
| Gotta love the satire. Another thing investors have is access to
| the full cap table and what people are paid across their entire
| portfolio.
|
| Employees have hearsay and scraps of info that friends are
| willing to share. Limited information = easy exploit
|
| Found this database of startup comp that sorta evens the playing
| field: https://topstartups.io/startup-salary-equity-database/
|
| Anything else out there?
| VinLucero wrote:
| Levels.fyi has good compensation data.
| 21723 wrote:
| The long con of startups is that founders want you to think
| you're an investor--in truth, you are, because you're investing
| time, which ought to be more valuable than the money of people
| who have scads of it--and work like you're an investor... but
| they're still going to treat you like an employee. It's the
| same dysfunctional bureaucracy of the corporate ladder, except
| in this iteration it's across companies, so you don't even see
| the true executives (VCs). There are more rungs, more pitfalls,
| and greater socioeconomic distances than there ever were
| before.
|
| The innovation of Silicon Valley isn't anything to do with
| technology, and hasn't been since the 1990s. Rather, it's the
| disposable company. If the investors get sick of something
| existing, they can choose not to fund it in the next round,
| call their friends and tell everyone else not to fund it, and
| it dies, allowing them to build something new in its place. The
| advantages (to investors) of the disposable company are legion,
| but one if them is that it doesn't matter all that much if you
| pick a scumbag. Which is also why YC backs so many DVFs
| (domestic violence founders). If they're jerks who get stuff
| done, you can let them collect a few million before firing them
| and putting your buddies in executive positions; if they're
| jerks who don't get stuff done, then you scrap the company and
| fund some other DVF.
| sl9dmk2 wrote:
| > Which is also why YC backs so many DVFs (domestic violence
| founders)
|
| Are you Ryan Breslow?
| 21723 wrote:
| I don't know who he is. Should I?
| sl9dmk2 wrote:
| https://twitter.com/theryanking/status/148578482364175564
| 8?s...
|
| Curious to hear more about DVFs. Not surprised they
| exist, but doubt they are the majority?
| carlosdp wrote:
| Every time one of these is written, it comes off as if the 90-day
| window is something startups came up with to try and screw
| employees.
|
| A reminder that the 90-day window is a requirement by law in
| order for options to qualify as Incentive Stock Options, and
| receive favorable tax treatment for employees [1].
|
| If you want to do 10-yr exercise, that's fine, but until the law
| is changed those will be NSOs and not receive that special tax
| treatment and will be taxed on exercise instead of on sale.
|
| [1] https://www.cooleygo.com/isos-v-nsos-whats-the-difference/
| woah wrote:
| There was a talk that's been shared on here from Ben Horowitz
| where he explicitly pitches the 90-day window as a way to screw
| employees. That's probably where the perception comes from:
|
| > The second way to handle it - no companies do this, which is
| why I actually really like this post that he wrote - is you can
| say up front, " Look you are guaranteed to get your salary but
| for your stock to be meaningful, these are the things that have
| to happened. You have to have vested. Two, you have to stay
| until we get to an exit. Untile the company makes it. You've
| got other money." Finally, the company actually has to be worth
| something. Because 10 percent of nothing is nothing. The reason
| we set the policy this way is we really value people who stay.
| So don't join this company if you are going to join another one
| in 18 months because you're going to get screwed. Our policy
| guarantees you're going to get screwed.
|
| https://genius.com/B-horowitz-lecture-15-how-to-manage-annot...
| ghiculescu wrote:
| He pitches it as a way of screwing employees who aggressively
| job hop. Not really the same thing.
| gkop wrote:
| No, a16z is very explicit about their views. This is not
| from Ben but from the current managing partner:
|
| > A 10-year exercise window is really a direct wealth
| transfer from the employees who choose to remain at the
| company and build future shareholder value, to former
| employees who are no longer contributing to building the
| business/ its ultimate value.
|
| https://a16z.com/2016/06/23/options-timing/
| jacquesm wrote:
| I read that as you're supposed to loyal right up to the
| point the company decides to lay you off and you better
| not think that you have any freedom once you sign on
| because we will _retroactively_ screw you. The
| percentages in the typical option pool are not going to
| move the needle anyway and those employees that served
| the company early on took far greater risks than those
| that did so later and probably were paid much less too.
| So as far as I 'm concerned they are well entitled to
| their stock.
| gkop wrote:
| Totally. It's really fantastic that a16z is transparent
| about their values. It's safe to assume other VCs share
| these beliefs but choose not to disclose them.
| 21723 wrote:
| Yeah, because fuck those workers who try to make a free
| market work for them once in a while. Don't they realize
| that market talk is only a way for their social class
| superiors to justify doing whatever they want, and that it
| isn't for them?
| 21723 wrote:
| At this point, I'm surprised when other people are surprised
| that founders and investors work together to screw employees.
| "Work", in the corporate sense, is the same sort of
| exploitative, morally vacuous, might-makes-right dominance
| hierarchy that humans have been forming for thousands of
| years. We haven't evolved beyond that garbage yet.
| [deleted]
| heliodor wrote:
| Then the startup should explain it. They prefer to say nothing
| on the topic. So, they typically care a lot about the UX of
| product users but not about the UX of their employees. Seems
| shortsighted.
| jkaplowitz wrote:
| That's true and it's not true.
|
| An increasing number of startups issue their grants such that
| they qualify as ISOs if exercised within the 90-day window but
| automatically convert to NSOs 90 days after departure (with the
| actual exercise deadline dependent on employee tenure), so that
| the employee and their tax advisors at time of departure get to
| decide how to handle the tradeoff of more time for reflection
| vs better tax treatment.
|
| What's more, if an employee gets more than $100k of exercisable
| options in a year - very possible especially in cases where
| early exercise is allowed - only $100k of those are treated as
| ISOs. There's no way in which the tax law privileges a short
| post-termination exercise period for the excess above $100k.
|
| Last, some companies use the same options plan both inside the
| US and outside, including my two most recent employers. Most
| employees working outside the US, with some exceptions like US
| citizens and green card holders, wouldn't have to care about
| this US tax law nuance.
| carlosdp wrote:
| Yea I looked into this when we were forming our options plan
| after I read Sam Altman's article arguing for it. It's not as
| common as you might think yet.
|
| We have one of the big name corporate law firms that most VC-
| backed startups use, and when I asked about this kind of
| setup they hadn't heard of it before. Path of least
| resistance was to just do a regular ISO, especially since
| early team members are usually experienced startup people
| like us that are used to ISOs anyways.
|
| Would love to revisit it in the future and see if we can
| enact this sort of plan, although in our case since we're in
| the web3 space, the equity might not matter as much as the
| tokens (which don't get favorable treatment either way atm).
| leoqa wrote:
| Does your company sell the tokens to account for tax
| liability when compensating employees with tokens?
|
| I can imagine a new hell where my bonus is paid in Foo
| tokens but it isn't liquid and then I have a massive tax
| liability as the crypto market tanks.
| rootusrootus wrote:
| (2020), and previously discussed here:
| https://news.ycombinator.com/item?id=24198228
| bspear wrote:
| Somehow I heard Adam Neumann's voice throughout this article :)
|
| But yes, the hypocrisy is real. Employees get screwed big-time by
| lack of information and 90-day exercise window:
| https://www.productlessons.xyz/article/how-stock-options-for...
|
| Important thing is that the message continues to get out there,
| and more people know to ask the right questions.
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