[HN Gopher] Silicon Valley's best kept secret: Founder liquidity
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Silicon Valley's best kept secret: Founder liquidity
Author : mooreds
Score : 1574 points
Date : 2024-06-12 03:32 UTC (19 hours ago)
(HTM) web link (www.stefantheard.com)
(TXT) w3m dump (www.stefantheard.com)
| molsongolden wrote:
| I'd also push for allowing early exercise along with secondary
| sales restricted only by a short right-of-first-refusal period.
| JumpCrisscross wrote:
| > _allowing early exercise along with secondary sales
| restricted only by a short right-of-first-refusal period_
|
| Do you mean cashless exercise?
| tdiggity wrote:
| I think he means 83b early exercise:
| https://www.esofund.com/blog/early-exercise-
| options-83b-elec...
|
| Extremely beneficial when paired with QSBS and liquidity.
| JumpCrisscross wrote:
| Does anyone restrict 83b elections? Is that even allowed?
| dilyevsky wrote:
| Ive seen it restricted so yes
| jjav wrote:
| I think there's a confusion between the related events.
| Filing the 83(b) form with the IRS is between you and the
| IRS. Company isn't involved so not something they can
| restrict.
|
| However, filing that 83(b) only makes any sense if you
| are allowed to early exercise and that is indeed entirely
| up to the company. So if they don't let you early
| exercise you also won't be filing the 83(b).
|
| Pro tip: Never join a startup that does not let you early
| exercise!!
| dilyevsky wrote:
| Yes i assumed parent was referring to early exercise but
| maybe i misread. Imo early exercise doesn't make a ton of
| sense when the company no longer qualifies for qsbs
| especially if long exercise window is offered so probably
| why it's not offered - to avoid a ton of drama later on
| stanleydrew wrote:
| What would this even look like? An 83b election is
| something I file with the IRS. Are you suggesting a
| company might have me sign a contract committing me to
| _not_ file an 83b election?
|
| How would they ever find out if I did file, and why would
| they care?
| tdiggity wrote:
| It's been a possibility in my options contracts. However,
| the company must agree to it, cash your exercise check,
| and send the necessary paperwork to the IRS. If they
| choose not to cooperate, you're out of luck.
| jahewson wrote:
| My understanding is that 83b applies to stock, not
| options, so you have to first exercise the options and
| hold unvested stock. That requires early exercise.
| molsongolden wrote:
| Not a restriction of the 83b election but a restriction
| of when you can exercise. Without early exercise you are
| stuck exercising as you vest so there's more likely to be
| a taxable spread between your option strike price and the
| value of the stock. With early exercise you are
| exercising and making the 83b election when there's no
| taxable spread.
| molsongolden wrote:
| Sorry, separate concepts executed at separate times.
|
| Early exercise (yep, 83b in the US) when options are issued
| then allowing employees to sell shares down the road, outside
| of fundraising events (Forge, EquityZen, sales to angel SPVs,
| etc.).
| stanleydrew wrote:
| No, although it could also be cashless.
|
| Early exercise is purchasing shares before your options vest,
| making you a shareholder sooner and solving a bunch of tax
| issues. The company retains the right (basically the
| obligation) to repurchase any unvested shares should you
| leave the company before fully vesting.
| NullHypothesist wrote:
| Having only worked for larger companies (RSU stage), I'm curious
| what the typical breakdown of founder to early employee to
| investor to later employee equity looks like. I'm sure it differs
| pretty wildly, but I'd love to know what a 'typical' case for
| mid-to-late-stage start up looks like.
| parentheses wrote:
| I can share some details.
|
| Employee 1: ~1%
|
| Employee 10: ~0.1%
|
| Employee 1000: 0.01%
|
| I'm extrapolating from past experiences in SaaS companies where
| I was employee number X and X has varied fairly widely.
| o11c wrote:
| If my math is correct, this fails catastrophically for
| companies with more than 15 tredecillion employees.
| atomicnumber3 wrote:
| This always seems like a huge scam to me. Employee 1 gets 1%?
| It seems unfair from multiple perspectives.
|
| One is just a straight up naive sense of fairness. If I'm
| going to be in the trenches with you, I had better be able to
| see my ownership % in a pie chart with my glasses off. If
| we're out here both making chairs and when we sell a chair
| for $100, you get $85 (assuming someone took one of the
| standard-ish seed rounds that are usually 10-20%?) and I get
| $1? No thanks.
|
| The other sense is aware that the founder is taking various
| risks and blah blah blah. Ok whatever. Let's pretend somehow
| 1% is a fair number and just look at it from a payoff
| perspective. 1% of stripe? Yeah I'll take that. 1% of the
| other 1000 startups who had mediocre exits or just muddle
| along to finally do some kind of tender? I'm barely breaking
| even. 1% of the other 10000 startups that just folded? At
| least I can mop the sweat off my brow with the paper I
| signed.
|
| It seems like the only reasonable way to look at this is you
| either join a company for a competitive wage and get WLB, or
| you join a rocket ship in the hopes of becoming genuinely
| wealthy while pouring your blood, sweat and tears into it. So
| taking 1% and a shitty salary and having terrible WLB sounds
| like a huge suckers game.
| cbsmith wrote:
| It's not even remotely fair, but it does follow the golden
| rule: he who has the gold makes the rules. The founders
| were the ones who investors were willing to trust their
| money with. Employee #1 was not.
| kolinko wrote:
| If you don't believe a startup can be the next Stripe, then
| you definitely shouldn't take 1% and work as one of the
| first employees.
|
| Also, the risk profile and expectations are vastly
| different between founders and first employees. E.g.
| founders are expected to not quit unless the company
| collapses completely, first employees can quit whenever
| they wish. Also, if the runway is short, founders work for
| free and can even go into debt, whereas employees have a
| stable salary.
| temp90210 wrote:
| Outside US but I never regret getting equity/options and
| usually it went hand in hand with the higher paying jobs
| (paltry compared to US standards!) rather than being a
| salary/equity tradeoff. Atlassian is a great example
| though I have not worked for them.
|
| I think companies here tend to have less fuck you over
| terms in employment share schemes but OTOH are less
| likely to get rich but one company made several employees
| rich (does 8 figures count?) here.
| zamfi wrote:
| This isn't a terrible take, but there doesn't seem to be a
| shortage of people for whom this doesn't feel like a scam.
|
| I'm not particularly fond of the founder hype train, and
| the typical line is indeed "various risks and blah blah
| blah" but what's often left out is that employee #1 at a
| post-funding startup is a pretty different job/profile than
| co-founder.
|
| Most employee #1's don't have relationships with investors,
| might not be as employable outside the startup world, and
| they don't sit on the board, don't have the same formal
| responsibilities, and rarely are able to raise money to
| found their own startup -- in fact, this is the often the
| key reason they're even interested in being employee #1.
|
| It's a market, and as a market I'm not sure it's that
| skewed.
|
| Want 25%+ of the company? Start it. There's no cabal
| preventing you from doing that. Have better options than 1%
| of a likely-dead startup, that pay more and have better
| WLB? Take them.
|
| After all, few industries give _any_ employees equity.
| First employee at an ice cream parlor? 0%. First employee
| of a hedge fund? 0%. First employee of a medical practice?
| 0%.
|
| Equity grants can be motivating and aligning, and frankly
| more industries should probably consider them. But not that
| many people are in a position to found a startup that can
| raise money (larger equity grants are much more common for
| pre-external-funding employees) and this differential
| reflects that.
|
| Btw, "1% of the other 10000 startups that folded" is worth
| about the same as a founder's 40%: $0. The issue is the
| middle ground, but there the equity grant is often not
| worth the paper it's written on: typically the acquirers
| dictate who gets the money. 1% or 5%, unless the acquirer
| is trying to retain you, chances are you'll see nothing
| even if the nominal payout is large.
|
| Anyway, the upshot is what people have been saying for
| decades: don't do a startup for the money. Do it because
| you want to be part of that kind of thing, and treat any
| exit money as a bonus.
| jahewson wrote:
| Unicorn or bust is the name of the game. Once you
| understand that it's not so bad.
|
| It's also possible to level-up pretty well from an
| acquisition, where maybe the equity was not life changing
| but you're now in a bigco at a higher level than you'd
| otherwise be. The trap there is that many startup folks are
| not cut out for bigco life.
|
| But yeah if you were dreaming of sailing off into the
| sunset you need to be a founder (or remarkably lucky).
| That's one reason why there's so many startups.
| xandrius wrote:
| Are you talking about 1% and no pay or 1% and a pay?
|
| If I'm getting no pay, I'm definitely a co-founder, but I'm
| getting a pretty good salary from day 0, I don't think
| that's too bad.
|
| Say you get offered $200k/y +1%, if things go well, in 4
| years you got $800k in cash and your 1%. If things go
| south, you still got $800k, a cool title, worked on a
| hopefully interesting product with a nice team. Doesn't
| sound awful to me. No?
| segfaltnh wrote:
| Glad to see someone else say this. I feel like I'm crazy
| reading these replies about being ripped off. I've been
| working startups my whole career, earning salaries,
| working with good people and having fun at times.
| Sometimes the equity even pays out, but that's not my
| only financial "egg".
| newshackr wrote:
| Startup founders often take salaries too
| xandrius wrote:
| Only after they managed to raise any money, which is not
| as common as many people assume. And whatever you pay
| yourself as a founder initially eats into your runway, so
| that's always a tradeoff.
| openmajestic wrote:
| Here is a post with data from Carta -
| https://www.linkedin.com/posts/peterjameswalker_cartadata-st...
| ajhit406 wrote:
| 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.)
| dang wrote:
| That's actually a lot more common than people assume it is, and
| comments like "I can't believe there are X points but only Y
| comments" are more common than you'd think they'd be as well!
|
| My theory is that it's a sign of a good article, because more
| energy is going into reading it than into posting quick
| comments (which are usually less valuable comments). But I
| don't have the data.
|
| Edit: well... we _have_ the data (to test this), but it would
| be enough of a pain to do the analysis that other things will
| probably take precedence forever.
| wiradikusuma wrote:
| I'm one of those people who upvoted without commenting. I think
| it's just a way of saying, "I found this article interesting /
| I agree with the content, but I don't have anything of value to
| add".
|
| But hey I just commented :)
| kortilla wrote:
| It's a vote bait title. (Type of thing people upvote without
| reading the article)
| bigiain wrote:
| I wonder if that's something the algorithm can detect?
|
| Measure the time between when someone clicks a link to the
| article and when they upvote it, compare that to one of the
| "estimated reading time" metrics of the linked page...
|
| (Which, of course won't work, because at least some people
| (ie me) open a bunch of tabs for everything that looks
| interesting on the homepage, then spend a few minutes at a
| time over the entire morning choosing a tab and
| reading/voting...)
| neilv wrote:
| The usual problem of late on HN is people commenting without
| upvoting, even if they like the article.
|
| On this post, I started reading, then paused to hurry back and
| upvote on HN, to do my part to keep it from falling off the
| front page, before I returned to finish reading.
| JumpCrisscross wrote:
| Hmm, I'll be controversial. Twinned secondaries, _i.e._
| secondaries tied to a primary, are almost always a give away to
| senior management and the buyer. (They're frequently syndicated
| at double-digit spreads.)
|
| If the company sucks, senior management gets cash back first
| while the investor gets top-of-stack liquidation preferences. If
| the company is doing great, the investor gets to buy stock at a
| price almost always lower than market.
|
| They're common in Silicon Valley, because they're good for
| founders and the Board members. But they're rare in public
| markets. The closest thing I can come up with is the current
| clusterfuck with Shari Redstone.
| s17n wrote:
| > They're frequently syndicated at double-digit spreads
|
| What does this mean?
| JumpCrisscross wrote:
| > _What does this mean?_
|
| Fund buys stock at X and simultaneously solicits LPs at 1.2X
| (whether by straight mark-up or, more commonly, by adding
| management fees, research fees, expense reserves and carry.)
|
| It's why tenders have a few weeks between end of sellers
| submitting requests, confirmation of quantities and finally
| funding.
| josh2600 wrote:
| The best startups have a concept which is summed up thusly:
|
| "We all go to the pay window at the same time."
|
| It's ok for founders to take a little bit of money off of the
| table if they extend that to their employees as well. Asymmetry
| is where things get weird.
|
| I've seen many founders who got deep into the fundraising cycles
| without ever realizing they could take a cent out. VCs will
| constantly tell you to let it all ride, and sometimes that works
| out, but for most people, having a little bit of financial
| security while you're trying to change the world is necessary.
|
| The best startups figure out how to manage liquidity through
| financing in a way that aligns incentives, keeps the goalposts at
| the mission, while allowing their teams to thrive.
|
| It's about alignment. If everyone is pulling in the same
| direction you're going to execute the vision. Whether you win in
| the startup lottery is up to the threads of fate, but alignment
| is the straightest path towards a result.
| kneath wrote:
| I have seen a lot of companies, a lot of rounds. I have known
| zero founders who have turned down an option to take money off
| the table (and zero A raises that offered that to employees). I
| love the idea of your universe, though.
| sashank_1509 wrote:
| The very first startup I joined after grad school allowed all
| employees to cash out significant chunks of their stock in
| the Series A round.
|
| Also Elon famously put 200 million of his own money into
| Tesla and SpaceX to keep it afloat, which is the opposite of
| cashing out early.
| romwell wrote:
| > to keep it afloat
|
| Can't "cash out" (early or not) if your company is
| _sinking_.
| eru wrote:
| You totally can. That's what investor money is for.
| gorbachev wrote:
| Private equity firms do exactly this.
| phlo wrote:
| Adam Neumann begs to differ.
| mapt wrote:
| If you have 200 million "of your own money" to spare, you
| are no longer just a person for the purposes of this
| conversation, you're a walking VC fund, and you're not
| really risking a substantial change to your quality of life
| going from 250M to 50M net worth. Your living expenses are
| already generously compensated for by the large salary that
| you, the VC fund pays you, the person, out of your personal
| bank account, and they will be paying you those expenses
| until the end of your natural life. This isn't "risk" in
| the same sense as somebody who jumps to supplement their
| $150k salary with $450k of founder liquidity because it
| dramatically changes the material security of their life.
| throwbigdata wrote:
| Life is very different at $50M v $250M
| Tepix wrote:
| Is it?
| BoorishBears wrote:
| It's not really compared to an average person's life, but
| in SV tradition never let the chance to subtly flaunt a
| wealth gap pass by freely
|
| (This is the part where you say "Yes, having lived both
| <insert revelation>")
| shermantanktop wrote:
| Has 50M: wishes they had 250M
|
| Has 250M: wishes they had 1B
| gafferongames wrote:
| Tres Commas
| fooker wrote:
| 50m is the upper echelons of private chaffeur money, 250m
| is the lower echelons of private jet money.
| rmbyrro wrote:
| You may dislike Elon, but it's pretty absurd to say that
| what he did is trivial.
| llamaimperative wrote:
| GP didn't
| forgot-im-old wrote:
| Elon had most of SpaceX money fronted by Mike Griffin: ht
| tps://historycollection.jsc.nasa.gov/JSCHistoryPortal/his
| t....
|
| He was the key guy in the recent nuclear war connection
| for SpaceX, https://www.reddit.com/r/WikiLeaks/comments/1
| dc0m9s/elon_mus...
| robertlagrant wrote:
| > If you have 200 million "of your own money" to spare,
| you are no longer just a person for the purposes of this
| conversation, you're a walking VC fund, and you're not
| really risking a substantial change to your quality of
| life going from 250M to 50M net worth.
|
| Is that what happened? I thought he had $200m, and put in
| $200m.
| oblio wrote:
| Do we know this story from any credible source or are we
| just trusting Musk's (a famous liar) word about it?
| robertlagrant wrote:
| It's true that that's what I thought, which is my
| statement. And it's better caveated than the previous
| one, which implied uncaveated that he still had $50m, but
| hasn't attracted the eye of any budding skeptics.
| KennyBlanken wrote:
| ...while he was getting loaned $200,000 a _month_ for
| personal expenses by his billionaire buddies.
|
| https://www.cnbc.com/2017/04/27/the-crucial-decision-
| teslas-...
|
| Also, that may have kept tesla and spacex 'afloat' but what
| really saved both companies was billions upon billions of
| dollars in government contracts, subsidies, preferential
| loans, and tax breaks. Nevada alone gave nearly _two
| billion dollars_ to Tesla.
| petesergeant wrote:
| The government is expecting something in return for these
| breaks rather than them being some kind of gift, though.
| nick7376182 wrote:
| And the government got it, in the form of a cost
| effective usa-based launch solution.
| oblio wrote:
| The government is not monolithic and politicians might
| except other things than what their constituents want.
| It's a bad test of the value of an investment.
| petesergeant wrote:
| For sure, and it may well have been a terrible investment
| with terrible returns, but selling to the government and
| responding to government incentives is an entirely
| legitimate thing to do, rather than some kind of inherent
| weakness in a company's model. A company being "saved" by
| a government contract is a company being saved by making
| sales to its largest customer.
| smallnamespace wrote:
| VCs will go along with or sometimes even encourage founders
| to take a little bit out, but employees rarely don't have the
| same level of bargaining power.
| imadj wrote:
| A: I've seen many founders who got deep into the fundraising
| cycles without ever realizing they could take a cent out.
| B: I have known zero founders who have turned down an option
| to take money off the table [...] I love the idea of your
| universe, though.
|
| Fortunately, our universe is massive with varied different
| views. Even OP implied that they have experienced both sides
| firsthand.
| rKarpinski wrote:
| > I have known zero founders who have turned down an option
| to take money off the table (and zero A raises that offered
| that to employees).
|
| Have seen companies offer this to employee's
|
| And companies that let employee's take money off the table at
| series A are also likely to be generous with meaningless
| titles; that is they will let early employee's call
| themselves founders.
| adastra22 wrote:
| At a Series A?!?
|
| That's insane to me. We're talking about the first priced
| funding round for the company, right?
| fire_lake wrote:
| These days there is typically an institutional seed round
| before that.
| adastra22 wrote:
| How long is typical for the seed round? Both my prior
| startups only spent a few months in the seed stage.
| quartesixte wrote:
| I have witnessed small liquidity events at Series A and
| Series B that allowed for some small percentage of all
| total equity vested (around 3-5% ish, depending on the
| terms of your specific options grant) to be cashed out at
| some multiple of the FMV price. AFAIK the founders held
| themselves to the same restrictions (5% total, I
| believe?) to keep it relatively "fair".
|
| Pre-Seed, Seed, and some really really early Series A
| employees got to cash out fairly significant chunks of
| equity. Not as much as a founders' 1-2 million, enough
| for downpayments on homes or slick new cars all cash. The
| founders apparently were incredibly generous to Seed
| stage employees.
|
| Still doesn't compare to a Founders' equity, as this
| article implies.
| lmeyerov wrote:
| is this zero-interest rate phenomena in action?
| meheleventyone wrote:
| Nope! Although the availability of funding obviously
| plays a role so the wider investment environment affects
| it.
| rKarpinski wrote:
| > At a Series A?!?
|
| Yeah, at Series A.
| muzani wrote:
| Why is it insane? Some founders take zero salary since
| the start, and part of the reason for raising funds is
| that they have to eat too. Anyone who is an "early
| employee" usually get lower salary than market, and some
| stock. It's only fair they get to cash out a little early
| on, or hold on if they're liquid and think it's worth a
| lot more.
|
| It also works well for everyone involved if they're
| selling their shares to the investors for Series A -
| investors get shares for cheaper, founders get paid based
| around the value of those shares, more cash & runway in
| the bank.
| owlstuffing wrote:
| Correct answer
| adastra22 wrote:
| In my industry the series A occurs in the first year of
| operation, and before the company has really achieved
| anything. A founder taking money off the table then is
| ludicrous.
| criddell wrote:
| Founders who have no need for money in the first year or
| two are fortunate people who are either already wealthy
| or have a spouse or family supporting them. Surely those
| aren't the only types of people worth backing.
| muzani wrote:
| I see. Here, the first stage is seed, which is around the
| level of YC and then Series A, which is around the level
| of getting money from YC's Demo Day investors.
|
| We also see pre-seed, where the goal is to get into an
| accelerator. It's like $2000 for 3%. Enough for a domain
| name, a laptop, a babysitter, something that gives you
| the space to do a proof of concept, but not a full MVP.
|
| Here where VC funding is dry, we also have some stage
| between seed and Series A, where the startup raises from
| friends, angels, crowdfunding. It's not really given a
| name because it's a signal that the company has already
| burned through seed and yet hasn't done enough to raise
| Series A from proper "professionals".
|
| But here, by the time you've raised Series A, you're
| expected to be #1 in a market - best language app, best
| tax app, etc. And Series A is just to prove it works in
| other markets. Worst case I've seen was a guy raising
| US$500k seed (not Series A), but they had to prove they
| could be #1 in five countries.
|
| US is a market of 300M people and even top companies like
| Amazon don't have to go far, but many countries have both
| low population and low spending, and investment is still
| US-centric.
| sponaugle wrote:
| "> I have known zero founders who have turned down an
| option to take money off the table (and zero A raises that
| offered that to employees)."
|
| Nice to meet you. Now you know one. :)
| extragood wrote:
| It happens.
|
| I was offered the option to liquidate up to 20% of my vested
| shares at my last company's Series A. It was restricted by
| tenure though (3 years), so it wasn't available to everyone.
| In retrospect, I should have liquidated the full amount, but
| it was a new concept to me at the time and I was more
| conservative with the amount.
|
| I more recently interviewed with a pre-series A company and
| they said that they'd include me in a liquidity event when I
| brought up compensation.
| anonymousDan wrote:
| 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.
| dmurray wrote:
| Doing this by tenure seems like a fairer way to distribute
| the liquidity. The founders still get preferential access
| to it, but because they really have taken more risk (bigger
| stake for a longer time period), not just because they have
| a better individual negotiating position.
| KingMob wrote:
| Tenure/cliffs/etc should already take care of that by
| gating access to shares/options/etc in the first place.
| No need to add an extra tenure complication to liquidity
| as well.
| hackerlight wrote:
| > The founders still get preferential access to it, but
| because they really have taken more risk
|
| It's not related to risk, at least not directly. It's
| related to the supply of entrepreneurship as a factor of
| production. Entrepreneurship is scarce, so founders have
| leverage in any bargaining situation against early
| employees, who are more numerous and therefore less
| valuable and less powerful. If 10x the number of people
| tried to become founders, then founders would hold less
| leverage and the equity terms would become more "fair"
| because they'd have no choice but to give generous terms
| if they wished to hire people.
| chollida1 wrote:
| > I was offered the option to liquidate up to 20% of my
| vested shares at my last company's Series A. It was
| restricted by tenure though (3 years), so it wasn't
| available to everyone. In retrospect, I should have
| liquidated the full amount, but it was a new concept to me
| at the time and I was more conservative with the amount.f
|
| Oh wow, how many companies have a series A after 3 years?
| How did your company survive without any raises for 3 years
| and what made your company finally decide to raise money
| after going 3 year without doing so?
| extragood wrote:
| That policy was actually one of the major reasons I liked
| that company and stuck with them for so long. Their goal
| early on was to avoid raising money if at all possible,
| and they managed that for a long time by mostly being
| cash-flow positive/profitable. The trade off is slower,
| but sustainable growth.
|
| We hit an inflection point in the early pandemic where
| money was cheap and we had a ton of new customers coming
| in, so we were able to secure very favorable terms for
| the Series A and used that money to expand the business.
| Things continued to go in the right direction for the
| next ~2 years and we ended up doing a Series B round, and
| that in retrospect was a mistake. We over-hired in 2022
| and couldn't back that up with increased business. And
| because we had given up so much control to investors in
| the previous rounds, we were unable to return to the
| sustainable-growth strategy that had worked for us in the
| past, and had to adopt faster growth strategies, none of
| which panned out and ultimately hurt the company and led
| to many rounds of lay-offs.
| chatmasta wrote:
| This assumes that the founders are aware of, or offered, the
| option. If anything this is an argument for why founders
| should be represented by a banker or lawyer at the closing of
| every investment round. Let the founders do the negotiating,
| but once it comes time to sign the papers, bring in the
| sharks.
| newswasboring wrote:
| That's not common? I was under the impression that everyone
| hires at least a lawyer to get through the paper work.
| _heimdall wrote:
| Honestly if a founder isn't pulling in finance or legal
| experts prior to signing a funding round they really have
| no business being in position to begin with. They have to
| know VCs are leaning on their own financial experts and
| lawyers, why would you _not_ have your own to protect your
| own interests?
| bradleyjg wrote:
| All you're saying is that in the contemporary context it's
| exceedingly foolish to be an employee at an early startup.
| The VCs and founders have optimized away all the incentive.
| Eventually the message will reach even naive 22 year olds.
| lupire wrote:
| There's a sucker born every September.
|
| You can find your comment in the HN archives as far back as
| 2010.
| smeej wrote:
| I'd tweak this slightly: "It's exceedingly foolish to be an
| employee at an early startup _for the money._ "
|
| I think there are a lot of us who struggle to fit the
| larger corporate mold who pretty much _only_ thrive in the
| startup world. I can 't speak for all of them, but I've
| been very willing to take the balance of lower cash
| compensation and a fistful of lottery tickets _and not
| having 12 layers of middle management breathing down my
| neck_ over more liquidity.
|
| I guess I'm also blessed with inexpensive tastes, which
| helps, but I'm still able to live somewhere I love and do
| all the things I care to do, so it works out.
| p1esk wrote:
| Why does everyone thinks startups don't pay well? I have
| worked for various startups all my life, most of them
| well funded, and competing for talent with faangs. Yes, I
| could probably make more at Google but I don't feel like
| I'm underpaid. At the last 3 startups my base salary was
| above 250k. I work remotely and I rarely work more than
| 30 hours a week.
| bradleyjg wrote:
| Early startup is the part you seem to be overlooking. A
| well funded startup with few or no runway concerns is a
| different calculation.
| bradlys wrote:
| I'd say you're uncommon. I've never seen anyone who is a
| typical engineer making $250k/yr at a startup that's
| below $1B valuation. Same for the amount of work you're
| doing and that it's remote with that compensation.
|
| It's possible you'd be making $700k+/yr if you were at
| google. About triple what you are now.
| gen220 wrote:
| 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 off against equity grants.
| whiplash451 wrote:
| I would revisit that calculation assuming you are drained
| at 45 instead of 60, including taxes and the opportunity
| cost of 500K x a few years at 3% rate for the next 15
| years.
| gen220 wrote:
| That's pretty much exactly the calculation I'm positing.
| But actually with an even earlier terminus (late 30s or
| 40 at most).
|
| Assume an "effective" average pay (i.e. "net" pay +
| retirement and other deductions, inflation-adjusted to
| today's dollars and averaged over the course of your
| career) of $120k/year.
|
| From age 22 to 40, you've earned $2.16mm in inflation-
| adjusted-to-today dollars as a single earner. With a not-
| unreasonable average savings rate of 30%, not accounting
| for tax-advantaged growth or any growth at all, you'll
| come out with $650k of inflation-adjusted-to-today
| capital in savings.
|
| Realistically, this should end up invested in some kind
| of equity (housing, stocks, bonds, whatever). If you
| finance the purchase of a house at 30, you're only 10
| years into a traditional 30-year mortgage at this point,
| for reference. So you're roughly 1/3rd of your way to
| owning all the equity in your home. That's fairly
| comfortably a $1mm home (home equity being 30% of your
| assets at 40).
|
| Of course, if you're DCA-ing into something that yields a
| modest average of 5%/year in inflation-adjusted returns,
| that $650k is closer to $1mm inflation-adjusted-to-today
| capital. And you still have 25 years at that point for
| your retirement savings to compound. And you can work
| part-time in something more fulfilling until retirement
| to supplement your income.
|
| YMMV, but the marginal utility of money beyond $1mm in
| equity at 40 and $6k/month in expendable (on rental
| housing, food, travel, social events) income during your
| 20s and 30s is pretty small for most people. If you add a
| partner with any kind of income to the mix, it makes the
| marginal stress of earning more money even less
| appealing.
|
| Edit: the main thing you ought to avoid like the plague
| is lifestyle creep. Spending money on things with zero or
| vanishingly-small happiness ROI. Read this story every
| year or two, or whenever you get a raise at work.
| https://www.marxists.org/archive/tolstoy/1886/how-much-
| land-...
| p1esk wrote:
| What many people don't seem to realize is there are a lot
| of early stage but already well funded (10M+) startups
| who are desperately looking for top quality people. Once
| I was approached by a founder who offered 500k base
| salary (wasn't a good fit for my area of expertise).
| shortrounddev2 wrote:
| It's a difficult trade off I've found. Large tech
| companies are boring and slow and you deal with a lot of
| red tape and BS, and you feel utterly powerless in the
| security of your own job as economic tidal waves direct
| the momentum of layoffs and not your personal
| contribution.
|
| At a startup you have more autonomy and power over your
| personal position. I wrote 90% of the code that is
| generating company growth, released 2 months after a
| layoff. If I had taken longer to release that code or if
| my code didn't work the company would be in a worse
| financial position.
|
| But that also means a lot of personal stress. There
| aren't 4 layers of middle management to catch flak for
| you. If you fuck something up, you are directly
| responsible and depending on the environment that can
| result in some heated conversations. I also work way
| harder at a startup than I ever did for a big company
| smeej wrote:
| Those are the factors that make the tradeoff easy for me.
| I would _vastly_ prefer direct accountability for my own
| fuckups, because that means I have the agency to do
| something to fix it.
|
| What makes me want to put my head through a wall is when
| I fuck up, and four layers of people above me are the
| only ones allowed to fix the thing, but they don't, so I
| keep catching flak for my fuckup without any way to stop
| it and fix the thing. I have many more heated
| conversations with those managers, which typically leads
| to the door.
|
| When I fuck something up, rarely is anyone more upset
| about that than I am. Nobody's dumping more heat on me
| than I am on myself, so bring on the heat-- _as long as I
| have the agency to fix the problem._
| ethagnawl wrote:
| > All you're saying is that in the contemporary context
| it's exceedingly foolish to be an employee at an early
| startup.
|
| As a rule, it is and always has been. For every unicorn
| pinata stuffed with winning lottery tickets, there are
| hundreds/thousands? of others whose employees walk away
| with nothing or less (debt, strained relationships, mental
| health issues, etc.) at worst or a job at AcquiHireCo at
| best.
| bradleyjg wrote:
| There was always very high risk, so it was only ever for
| certain people. But in earlier iterations of SV it was
| possible to become generationally rich as an early
| employee. The VCs and founders have fixed the glitch.
|
| To put it another way: early employee equity was always a
| lotto but now the payout is like some lame scratch off
| instead of the powerball jackpot.
| est31 wrote:
| The startups where employees get really rich still exist.
| I'm pretty sure the early employees of OpenAI are
| generationally rich for example.
|
| It's just that these companies very often are the
| darlings since their inception, get constantly talked
| about. Everyone wants to to invest in them and everyone
| wants to join them. So they have the ability to pick out
| the best talent, in other words, it's unlikely you'll be
| able to join that specific startup.
|
| But even 20 years ago, try getting into early Google.
| From what I heard they had extremely high bars for hiring
| as well and only lowered them once they got so large that
| the pool was exhausted.
|
| I'd argue that the total comp at the established
| companies for engineers has increased precisely because
| of competition from startups: to make the startup not be
| the better option.
|
| Does that mean that VCs are not taking a bigger slice
| than they used to? Absolutely not, but I wouldn't put the
| blame solely on them.
| bradleyjg wrote:
| Re: openAI
|
| We'll see when it happens. If I had to name a company
| most likely to have massive landmines buried in front of
| common stock cashing out, it would be at the top of the
| list.
| comp_throw7 wrote:
| Notwithstanding the gross non-disparagement stuff,
| they've already had 3 tender offers, so not sure what
| you're waiting for.
| mbesto wrote:
| > All you're saying is that in the contemporary context
| it's exceedingly foolish to be an employee at an early
| startup.
|
| As long as naive 22 year olds think have that one friend
| that stuck around long enough to cash out on an IPO, then
| yes. On a risk-adjusted basis, this has basically always
| been the case - you're better off working at FAANG.
| shmel wrote:
| If you only care about money, sure. I have plenty of
| friends working in FAANG. For some mysterious reason any
| time I ask them about work, they say something along the
| lines "ehh... it's fiiiine. Paycheck is pretty good
| though". Okay, not all, but perhaps 95%. And half of them
| work massive overtime on regular basis. I can get behind
| working weekends when you hope to change the world. They
| often say things like: "yeah, I have to work 60-70h per
| week because I don't want my boss to yell at me". Those who
| work normal hours say: "there is not much work to do
| really, we literally have meetings about meetings to fill
| the day. I wish I had some real work to do". I truly hope
| that higher TC compensates for that.
| closeparen wrote:
| The Bay Area housing market is too competitive for this.
| If you're renting a room in your early 20s then sure just
| have fun, any tech job should cover it. If you want to
| own a place to raise a family in by your 30s, and you
| don't have some exogenous source of wealth, you're going
| to need every dollar of liquid compensation you can
| possibly get.
| shmel wrote:
| Or you can just live somewhere else. The world doesn't
| end at Bay Area.
| closeparen wrote:
| Sure but this thread is about technology startups. The
| jobs you can get anywhere are business IT departments.
| tivert wrote:
| > All you're saying is that in the contemporary context
| it's exceedingly foolish to be an employee at an early
| startup. The VCs and founders have optimized away all the
| incentive. Eventually the message will reach even naive 22
| year olds.
|
| My startup idea is a firm that uses generative AI to flood
| the internet with pro-startup, pro-VC, pro-founder
| propaganda, so that message will never reach the naive 22
| year olds. Personally, I think it's like saving the
| environment, since naive 22 year olds are precious resource
| we cannot allow to be destroyed.
| darth_avocado wrote:
| It's like trading windows and blackout periods for employee
| RSUs, but equity selloff on a schedule for the c suite.
| hackitup7 wrote:
| That's not quite how it works. Certain people are required
| (or strongly encouraged) to sell on a 10b5-1 plan. These
| plans can trade outside of open trading windows, but they
| have a meaningful cooldown period before they go into effect
| and can only be entered into during open trading windows. So
| it's not necessarily "better."
| jahewson wrote:
| That's really about not falling foul of insider trading laws.
| Regular employees are free to set up limit orders within
| their trading windows (eg sell if stock hits $200) if they
| want. Can't subsequently cancel it though! It makes way more
| sense to just sell on the day of vesting and then trade
| shares that you're not restricted from trading. No tax or
| other reason not to do this.
| throwbigdata wrote:
| I've never worked at a public company that allowed limit
| orders to survive blackout periods.
| nick7376182 wrote:
| I believe they are referring to a 10b5-1 plan that
| includes price-based sale triggers.
| lupire wrote:
| Regular employees can also make scheduled trading plans. ETP.
| vonmoltke wrote:
| We couldn't at Twitter, which is the only company I've
| worked at that had a blanket trading blackout policy. The
| closest we could do was elect to sell all RSUs as soon as
| they vested (even if outside an open window).
| xbmcuser wrote:
| It's not in the interest of the VC that the founders have
| financial security. Well at least the type of VC's that have
| come up in since the dot com boom where it was not about
| building viable businesses but getting sold to the highest
| bidder when the founder is under financial pressure to sell
| they can strong arm him into easily compared to a founder that
| is financially secure and interested in building and running a
| business
| wrs wrote:
| It's not binary. Enough financial security that they don't
| care what their investors think, no. Enough that they're
| thinking of how to grow the company rather than how they're
| going to pay their mortgage, yes.
| zenlikethat wrote:
| It's literally the opposite to what you suggest. Someone who
| hasn't eaten for days isn't thinking about eating healthy
| when they walk by a McDonalds.
| nytesky wrote:
| I'm sorry, I think the era of "change the world" motivation in
| tech was eclipsed by "make 42 tons of money" about a decade
| ago.
|
| Along that line, I would be very surprised that there are
| founders who don't seek an opportunity to set aside their nest
| egg to "de-risk".
|
| You say you have seen such guileless dedication to the founding
| first hand, can you share what industry or type of company?
| Perhaps I'm just exposed to the wrong crowd.
| gadders wrote:
| >>It's ok for founders to take a little bit of money off of the
| table if they extend that to their employees as well. Asymmetry
| is where things get weird.
|
| Yeah, if the founders don't do this I wouldn't want to work for
| them (not that I'm the target demographic anyway).
| TimPC wrote:
| Assymetry makes a certain amount of sense. Employees don't take
| $0 for a long time and generally aren't having as large a pay
| cut as founders afterwards. Most of the founders I've worked
| with have had the seniority to justify the top salary in the
| company and have typically had pay at or near the bottom.
| Someone operating at that extreme getting to trade equity
| doesn't necessarily mean that everyone should get to.
| fidotron wrote:
| I agree with the core of your point, and would extend it to any
| post-IPO lock in periods.
| rytill wrote:
| Only a small percentage of tech companies raise a series A or
| beyond.
|
| To me, this just seems like a capital-efficient alternative to
| the founder increasing their salary that could be negotiated. I
| had no such perception that this was some "secret" thing, I
| assumed it happened since you can do whatever you want if the
| investors and founders agree that it makes sense.
| adastra22 wrote:
| This whole thread is leaving me very confused. Series A is the
| first priced round. You're saying only a small percentage of
| tech companies raise a priced round?
| mtremsal wrote:
| A significant portion of startups that raise a Seed round (or
| equivalent) never get to a Series A. Maybe 30 to 50% fail at
| this stage.
| adastra22 wrote:
| Are we talking about just YC-style internet/app startups?
| Two of my startups have been deep tech where you can't do
| shit without a Series A, and the third was crypto in the
| start of that boom where VCs were begging to lead your
| Series A. So maybe I just work in a vastly different field.
| quartesixte wrote:
| Yeah deep-tech (which I am also in) plays on a different
| scale when it comes to funding rounds, simply because of
| how expensive hardware is and how big the headcount gets
| to just make MVPs.
|
| My friends in software startups balk at the sheer burn
| rate and funding rounds at mine. $100mm for a Series A is
| unheard of in software.
|
| Thank you Thiel for setting the bar so high (the famous,
| "you need $1billion in total capital to successfully pull
| off hardware startups" quote).
| mtremsal wrote:
| > $100mm for a Series A is unheard of in software.
|
| Peak 2020: https://www.wiz.io/blog/wiz-comes-out-of-
| stealth-with-100m-s...
| throwaway2037 wrote:
| What is "deep tech"? Like, not a CRUD web app? Hardware?
| AI/ML?
| adastra22 wrote:
| Fusion, fabs, manufacturing, defense, etc.
| rytill wrote:
| As you noted below, it depends on the industry.
|
| But for software, and my impression is that it is even more
| like this in most other industries, a huge amount of tech
| ventures never receive any funding. Many of these are never
| even properly incorporated and may not be included in
| datasets. Then, for the ones that do raise seed money,
| usually with SAFEs, 50-60% of them would fail before raising
| a significant priced round (series A).
|
| The overall point being, there's a lot of risk between
| starting a company and raising a sizeable priced round for
| most people.
| DandyDev wrote:
| The company I work for raised a $1M pre-seed round, $10M seed
| and $25M series A
|
| I imagine other companies went through a similar scenario but
| failed before series A
| cbsmith wrote:
| It is a bit funny how founders get the special access at a lot
| of companies. Not all places work like that, but it seems
| disingenuous.
| dmitrygr wrote:
| The title of the article is mostly clickbait. Anyone who's lived
| in SV for a decade or so knows this well. Startups are a scam
| unless you are a founder. They are a meat grinder that runs on
| naive young new college grads who buy into the bullshit that
| their options are worth anything.
| iwontberude wrote:
| Even founders get shafted in later rounds where they are
| diluted out of their voting rights because they can't raise the
| capital to maintain their share. The only people not getting
| scammed regularly are the VC.
| dmitrygr wrote:
| Founders have control of how things go, and have many ways to
| make money along the way (one such way documented by this
| article). How often do the first 2-5 engineers get any such
| chances?
| bigiain wrote:
| > The only people not getting scammed regularly are the VC.
|
| Not to want to sound like I'm standing up for Vulture
| Capital, but while it's not "getting scammed" as such - I
| suspect most VCs lose money on most startups they invest in.
| And not all VCs land enough 100x exits to make up for all
| those losses. (The "successful" VCs are the ones who make all
| the losses end up in pension fund balance sheets, while
| ensuring most of the profits land in their friends and their
| own pockets.)
| babl-yc wrote:
| Founders cashing out early may be more of an "open secret" but
| it warrants more discussion. I don't find the title overly
| clickbait-y.
|
| And a counterpoint to your perspective, I joined a startup a
| couple years out of college, had the most fun of my career, and
| the options were very much worth something. Working for a well-
| funded start-up is something I'd especially recommend early in
| your career when you can take more risk even if the equity
| doesn't always work out.
|
| If anything, I'd discourage becoming a founder as a new grad
| more than SV typically discusses. I really appreciated taking
| time to build up my savings and get experience before taking a
| shot at that.
| EternalFury wrote:
| You get Founder Liquidity because you managed to convince people
| who do just as much work that they couldn't do just as much work
| without you. LOL I am so cynical.
| its_ethan wrote:
| To be fair, there is a skill in getting people to believe your
| vision and to take the risk to work for you. They also need to
| convince VC's of that vision to get the money to pay you in the
| first place.
|
| Generally they make more decisions that directly effect the
| odds of the company existing 6 months or a year down the line
| than the average employee does (with some exceptions
| obviously).
|
| You can still be cynical, I think all employees should be given
| the ability to get liquidity early, but it's not like it's
| totally unjustifiable.
| iEchoic wrote:
| Making less money isn't really the risky part about founding a
| startup. The risky part is missing out on years of other life
| experiences, stressing (or losing) your closest personal
| relationships, failing and feeling personally responsible for
| disappointing everyone you convinced to believe in you, and
| developing an anxiety disorder (or worse) from chronic long-term
| stress.
|
| Author's suggestion that they could have taken a "similar level
| of risk" as an early employee by taking secondaries as a founder
| is way off, IME.
| beambot wrote:
| Perfectly illustrated by this statement:
|
| > I have been an early or first engineer at five different
| companies and have had three liquidity events in a 9-year
| career.
|
| A "big" success is a 10+ year journey. For an early employee,
| it is perfectly acceptable to give a few weeks' notice and move
| on to the next lotto ticket. This doesn't work for a key
| founder-exec -- they're likely going to commit to a decade
| working on one big problem, and investors want to incentivize
| them to shoot for the moon & stick with it for the long haul.
|
| It's definitively not the same for an early employee.
| jmward01 wrote:
| Having been employee #10 a couple times now, there is a lot of
| that even when you aren't a founder. It would be nice if the
| 'de-risk your life' stuff this article describes for founders
| was also available for early employees.
| toomuchtodo wrote:
| Work a high salary job and buy lottery tickets or 0DTE
| options instead. Half joking. Look at the success rate of
| outlier comp through liquidity as an early startup employee.
| If professional stock pickers can't pick better than index
| funds, what makes you think you can do better picking
| startups, spending non renewable time, working for years
| vesting common shares that you _might_ get liquidity for
| eventually, assuming they have any positive value.
|
| If you want to get wealthy, there are more efficient, less
| effort ways. If you want to suffer with low chances of
| success based on all available data, well, help yourself to
| the firehose of startup jobs.
| bjt wrote:
| You're not just "picking a startup". That early, you're
| also a big factor in whether it succeeds. Betting on
| yourself is different than buying a lottery ticket. (Maybe
| just as irrational for a lot of people, but still.)
| toomuchtodo wrote:
| You (not "you", but the persona for this discussion) are
| not special and will likely fail, based on startup
| failure rates. Certainly, you will put effort forth, but
| that is only tangential to odds of success. If you enjoy
| the experience and don't need monetary resources, sure,
| knock yourself out. Just recognize the opportunity cost,
| that the odds are stacked against you, and if you
| succeed, you were as lucky as you were skilled.
|
| I'll take the lottery ticket over me any day, not because
| I suck, but because I am human. Even exceptional humans
| fail. I don't drink the exceptionalism koolaid.
| skeeter2020 wrote:
| People, especially sw devs, love this narative but it's
| just not true. It's not all luck like the lottery but the
| combination of things outside your control might as well
| make it so for early employees at a startup. But hey, you
| did get that vp of whatever title...
| freddie_mercury wrote:
| Advanced sports stats have the notion of "contribution
| above replacement value", the idea being it isn't just
| what you do, it's what you do relative to whoever they
| could (relatively easily) replace you with.
|
| The startup failure/success rate already have some level
| of "smart, motivated staff" baked in. So you're really
| making a bet on how much better you are than the average
| early stage startup employee.
| ivalm wrote:
| When you work for a startup you have a ton of insider
| information not available to outsiders, even investors. If
| you think your startup won't be successful then obviously
| just find a different job.
| patmorgan23 wrote:
| When you work for a start up you can have a material impact
| on the company's success (or failure).
| AnarchismIsCool wrote:
| Having been a key early employee at a failed startup,
| horseshit.
|
| The employees bear the burden too, if they're working their
| asses off at an early stage startup they believe in the cause
| just as much. Viewing founders as somehow magically special is
| a symptom of the broader misguided hero worship the US has
| right now.
| bps4484 wrote:
| I'm sorry this isn't true. Your name wasn't on the line when
| you took the investment, and the OP pointed out with his "5
| startups in 10 years" line, it's very easy for early
| employees to walk away. That isn't as available to founders.
| There is much more burden (reputational, financial,
| emotional) on the founders.
|
| I've been a founder, and I've been a key early employee. It
| is very different.
| dsign wrote:
| We are talking SV here, and that's very different from my
| European experience. I've known of founders in Scandinavia who
| walked out from startups that weren't doing so bad and that could
| have gone for another round of investment because they were
| earning as much as a bus driver, had zero savings, and were
| experiencing burn out after almost a decade of work. Maybe that
| bit of SV culture that lets founders be on par with a highly paid
| engineer at a big company is up to something. Maybe if it were
| more of a thing in other parts of the world, we would be more
| competitive.
| givemeethekeys wrote:
| Having cofounded both bootstrapped and funded startups, I can
| say that in each case there was a deadline associated with
| success: for bootstrapped, we set hard targets in terms of
| maximum spending and time in order to test our hypothesis. This
| allowed us to fail fast in our own way and go back to a better
| paying day job.
|
| For funded startups - at least with a healthy seed round, the
| investors expected us to burn fast and hard in order to prove
| our hypothesis or fail trying as quickly as possible, but they
| also expected us to not pay ourselves very much. As we found
| product-market fit and raised Series rounds, it was understood
| that we would pay ourselves competitive salaries.
|
| Being stuck at the seed stage for 10 years is not healthy -
| neither in Europe, nor in Silicon Valley.
| ilrwbwrkhv wrote:
| Yes and that is why we call them Europoor out here.
| keeptrying wrote:
| Founder liquidity doesn't make up for much in the average
| situation.
|
| Making $400k after making $100k for 4 years doesn't really change
| much.
|
| It gets you upto junior engineer level.
|
| The underestimated play is becoming a cofounder to a great CEO
| 2nd time founder.
| parentheses wrote:
| This assumes how much of the founders' shares they sell and the
| size of the raise. The $400k figure is just arbitrary here. I
| imagine when companies are raising Series B or later, founders
| are walking away with millions.
| keeptrying wrote:
| $1-$2M after 6 years of working at $100k isn't really much
| either in the Bay. (Which is the only place you'd get that.)
|
| Even that averages to a senior Eng salary for the very very
| few founders who get there.
|
| This has to be tempered by other realities - no social life -
| working 80 hours a week easily - risking personal finances -
| health problems - good chance of divorce / no deep
| relationships
|
| Starting a company is no joke.
|
| Very few get to series B/C.
| newshackr wrote:
| That may be true, but it is also true of early employees
| who stick it out for similar amounts of time and get
| nothing. $1-2 million may be the total amount they would
| get after a billion dollar exit.
| Sytten wrote:
| Getting out of the SV bubble this is an insane amount of money.
| I boostrap my business and I make 40k a year. Most senior SWE
| around here make less than 100k.
| hn_throwaway_99 wrote:
| Obviously everything is local. 40k is about $20/hr, which
| where I live is just a tad above what new fast food workers
| make. Fresh CS grads make more than $100k (or at least they
| did, obviously the past year and a half has been brutal).
| This is not in SV.
| adastra22 wrote:
| In most of the world (even just considering developed
| nations) fresh CS grads do _not_ make more than $100k.
| Senior software engineers don 't even make that much
| anywhere in Europe or most of Canada.
| selestify wrote:
| Why the disparity? Especially with Canada - no language
| barrier and no time zone differences. Why doesn't the
| free market equalize Canadian dev wages with American
| ones?
| adastra22 wrote:
| The better question is why doesn't the free market lower
| Silicon Valley pay to be comparable to the rest of the
| world. SV is the outlier. Even other forms of engineering
| don't pay compensation anywhere near what SV software
| devs get.
| hn_throwaway_99 wrote:
| In winner-take-nearly-all industries, it makes sense to
| pay top dollar for talent if that gives you a better
| chance of being "the winner".
| jahewson wrote:
| How much do Canadian tech companies earn per employee?
| There's your answer.
| PeterisP wrote:
| So many of the companies are global, or at least have
| offices both in USA and Canada. Why do they hire devs in
| USA instead of Canada?
| hn_throwaway_99 wrote:
| In my experience the best Canadian devs came to the US
| specifically because they could make so much more. Not
| sure if that's changed much over the past 5 years given
| the explosion of remote work.
| extragood wrote:
| I am convinced that the WFH movement is responsible for
| the recent offshoring trend.
|
| Before 2020, it was fairly uncommon to work remotely and
| most employees were expected to physically come to the
| office. You would relocate if you got a job in another
| state, and employers had to go through a painful visa
| process to access foreign workers or set up expensive
| international satellite offices.
|
| The great WFH experiment kicked off by the pandemic
| concluded that no productivity was lost, so many
| employers realized that they did not actually need to
| hire domestically at all. Everyone can be remote and work
| from wherever. LCOL in the US is still extravagant
| compared to many other regions, so a top engineer can now
| be hired for pennies on the dollar. I think there's a
| very good chance that tech salaries in the US have begun
| to and will continue to equalize with the rest of the
| world as a result.
| keeptrying wrote:
| True. WFH was the real trial of offshoring especially to
| similar time zones.
|
| Also it took the risk off the CEO plate that remote might
| fail. Further the market is rewarding them for it now.
| hn_throwaway_99 wrote:
| I definitely agree with this. In addition to WFH,
| consumer-grade Zoom/Meet/etc. got good enough right
| around the pandemic (just before really) where it made
| off shoring really feasible. I've especially seen an
| explosion of offshoring to Latin American and Eastern
| Europe. The time zones make things much more workable
| than, say, India or China.
| extragood wrote:
| Yep. My previous company almost exclusively hires in
| Latin and South America now. The interesting thing to me
| is that it hasn't affected the executives themselves yet.
| If employees from one region work just as well as
| employees from another for other roles (or at least cost
| to performance is favorable), then it seems hypocritical
| and counterproductive for them to insist on US-based
| execs. The vindictive part of me hopes that it catches up
| with them next.
| FactKnower69 wrote:
| This is not speculation, it is what multiple Canadians
| I've tried to poach have told me: they don't want to move
| to a country where one medical emergency can put them in
| 6 figures of debt
| Sytten wrote:
| Not that our health care system is going that well these
| days but true. Also being called a freaking non-resident
| "alien" is so demeaning, sorry I am human.
| hn_throwaway_99 wrote:
| None of those reasons make any sense to me. The US health
| care system _is_ truly fucked, but nearly all the
| companies paying well for SWEs also provide good health
| care plans. It sucks that things are so complicated
| (deductibles, copays, coinsurance, in-network, out-of-
| network, etc.), but people with good health insurance
| aren 't getting bankrupted by health care costs. And I've
| seen plenty of colleagues with super-expensive conditions
| in my lifetime ("million-dollar babies", cancer, losing
| limbs in car accidents, etc.)
|
| And bitching about bureaucratic terms like non-resident
| alien? All countries have silly bureaucratic language and
| words can have multiple meanings. Nobody thinks "alien"
| in this context means you're a little green man from
| Mars.
| Sytten wrote:
| Sure until you lose your job, I think having your health
| insurance tied to employment is really scary for a lot of
| people (me included). Not everybody has the same
| tolerance to risk. Our safety net isn't what they have in
| europe, but it is still better than the US.
|
| No offense but it is spoken like a true American. I have
| dealt with European immigration and it was
| pleasant/painless for the most part. In the US they make
| you feel unwelcome and they drown you in paperwork. Not
| that Canada is much better these days, but I am a citizen
| so don't need to deal with it.
| hn_throwaway_99 wrote:
| > Sure until you lose your job, I think having your
| health insurance tied to employment is really scary for a
| lot of people (me included)... Our safety net isn't what
| they have in europe, but it is still better than the US.
|
| 100% agree, but we weren't talking about which system is
| better, we were talking about why Canadians may be
| reluctant to relocate to the US. It's not like Canadians
| who come to work in the US give up their citizenship.
| Worse comes to worst and you lose your job and health
| care and have a major medical issue, the Canadian safety
| net is still there for you.
| Sytten wrote:
| Yes and no, you lose access to it 6 months after you
| leave and to have access to it again to need to wait
| another 6 months while being in the Province. But I get
| your point, when you are a fresh grad it makes sense to
| spend a few years in the US. Though less relevant now
| with remote work, you can get a US salary here its just a
| bit harder.
| jahewson wrote:
| They definitely do, take a look at how much big US tech
| companies pay in London.
| adastra22 wrote:
| > take a look at how much *big US tech companies* pay in
| London
| dubbel wrote:
| Senior software developers definitely can make that much
| in parts of Europe, and not just at banks or the big 5.
| But also 100k USD isn't what it was 5 years ago.
| seattle_spring wrote:
| Where is "around here"? No way it's any city in the US.
| randunel wrote:
| They're Canadian.
| mapasj wrote:
| How common is this? How many founders that raise series A are
| liquidating? What are the amounts typically?
| parentheses wrote:
| It's fairly arbitrary, but there is at least one constraint on
| how much you can liquidate: You cannot liquidate much more than
| 10%, because you're taking money from the company and investors
| would not appreciate that.
| blobbers wrote:
| 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.
| khazhoux wrote:
| 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 stuff, the
| early engineers build and launch the full product, and if all
| goes well, the founders fly private the rest of their lives
| while early engineers make good progress towards a down
| payment.
| pojzon wrote:
| And what happens in case it does not work out well ?
| temp90210 wrote:
| Employee gets fired and founder may get something or
| nothing but get "fired" last and turn off the lights on the
| way out I would guess.
| khazhoux wrote:
| If startup goes to zero, then everyone goes home with
| nothing. The founders typically don't lose any money of
| their own -- that cost is shouldered by angel and series-A
| investors.
|
| Often though, the startup has a "soft landing" where it's
| acquihired by a larger company, and then the founders
| typically get executive or very senior roles (with large
| bonuses, etc) meanwhile the non-founders get standard
| employee packages.
| s17n wrote:
| I think most employees are mostly well aware that founders take a
| money off the table in every round, and I think that it
| absolutely does negatively affect morale.
| Joel_Mckay wrote:
| "Silicon Valley's [worst] kept secret: [Loyalty will not be
| rewarded]"
|
| The fact remains that sweat-equity deals rarely work out in a
| founding employees favor.
|
| i. IP selloff to umbrella firm for $10
|
| ii. contract restructuring or share dilution
|
| iii. jettisoned from a company months before an IPO
|
| Most techs have seen all of these events unfold... if you are
| around long enough.
|
| People always have their own strategic truths once significant
| money is on the table. Even moderate success can destroy peoples
| memory, and anything not legally watertight is just hot air.
|
| Best of luck, =3
| ilrwbwrkhv wrote:
| This is another reason why American companies beat out Canadian
| and many other companies by so much.
|
| In Canada even at Series A Canadian VCs will not offer you
| liquidity while at the same time allotting pennies in the first
| place. Absolutely conservative poor people.
|
| If things are working, derisking the founder so that they can
| focus all in on the problem is the best thing you can do as a VC.
| librish wrote:
| My guess would be that it has to do with the amounts involved. In
| a typical series A/B only the founders have enough equity (they
| have larger share, plus they've been at the company the longest
| so they've vested the most) to be worth the transaction cost of a
| secondary sale.
| blackeyeblitzar wrote:
| > Why is it a secret that founders get liquidity in many venture
| rounds? Because it undermines the narrative of the founder who is
| "all-in." The story of the founder who mortgaged their house and
| lived on ramen noodles for years is compelling.
|
| A lot of startup compensation seems to rely on people not having
| transparency and honesty. The founders, investors, etc. all have
| very different risk and reward situations compared to typical
| employees and even non-founder executives. But for most it seems
| like a raw deal compared to working at a big tech company, unless
| you're lucky and strike gold at a place like OpenAI or whatever.
|
| Another area where there is a lot of obscure but important detail
| is in the cap table, stock plan documents, and so forth. If
| company financials and cap tables were transparent, and if it was
| clear the various ways in which a company could screw over
| employees through various clauses deep in their documents, no one
| would take those jobs.
| jslakro wrote:
| This is a solid argument to motivate startups to build
| confidence on employees through any of the captable solutions
| available out there
| throwaway-blaze wrote:
| I must be an idiot, I've been a cofounder or first hire in 6
| startups (2 successful) over the last 25 years and have literally
| never been offered secondary during a Seed or Series A or B.
| askafriend wrote:
| How has your time in startups panned out? Were those 2
| successes worth the failures?
| damezumari wrote:
| It depends a lot on the startup. I have similar number of
| startup experiences, and only one had early stage secondary
| sales ( but those were even for non founders ). Mainly money
| comes from IPO or other exit.
| xyzzy4747 wrote:
| You don't necessarily get offered it, you demand it as a term.
| If it's a "hot startup" you pick and choose your investors so
| if some don't like it they can walk.
| jkelleyrtp wrote:
| Secondaries have become more popular over the past few (5?)
| years but you need to know to ask.
| Finbarr wrote:
| Secondary at Series A is very rare. Part of the reason more early
| employees don't get included in secondary sales is because of the
| Securities Exchange Act of 1934 14e-2. If you have more than 10
| sellers involved, the transaction can be considered a tender
| offer, which triggers additional regulatory requirements and
| disclosures.
|
| > As of 4 months ago I left a very successful stealth startup
| (which grew to 40M in ARR in two years) to become a founder and
| that is when it clicked - I expected to feel stressed, pressured,
| and the weight of all of the risk I was taking.
|
| Please let us all know how that's working out for you in 5-10
| years. 4 months in and no stress? Must be easy riding from here!
| Finbarr wrote:
| The bigger secret is that stock sold in secondary sales by
| founders and employees is usually common stock, and the
| purchasers will often get the right to convert this to
| preferred stock. This means that the company is instantly
| encumbered with a greater liquidation preference, without the
| increase in balance sheet to offset it.
| laser wrote:
| How is that legal and not considered self-dealing and unjust
| enrichment? If I was a minority common stock owner in a
| business I assume I would have standing to sue for damages if
| a majority owner or officer made my position materially worse
| while enriching themselves in such a manner? Are you sure
| such a right is typically granted? I mean even the gap
| between 409A valuations and preferred valuations, as well as
| a huge amount of precedent, give a different material value
| to preferred and common stock. Giving that right out of thin
| air in a sale by an insider is effectively theft from common
| holders and I have trouble believing what you're saying as
| I'm not sure how that could be kosher, if perhaps
| infrequently litigated. But is it really standard like you
| make it sound? That would be a very dirty secret and I expect
| would and should lead to litigation.
| lancewiggs wrote:
| Flip it around - it becomes a condition of the deal
| happening imposed by investors, who themselves are
| motivated to present the best deal to founders, and to have
| founders less economically stressed. No secondaries - no
| deal, and that doesn't help anyone.
| KingMob wrote:
| IANAL, but if you only have options, and not stock, do you
| still have standing to sue?
| mountainb wrote:
| Who has the cause of action? The majority shareholders. Who
| authorized the stock sale? The majority shareholders. Are
| they really likely to sue the founder for something that
| the shareholders authorized?
|
| Only in some states would minority shareholders have a
| cause of action. So there are some states in which the
| courts agree with you. As you might imagine, startups do
| not typically incorporate in those states.
| Finbarr wrote:
| It is very common and usually a condition of closing.
| Investors know that preferred is way better than common.
| They are buying highly speculative assets and want strong
| downside protection.
| red-iron-pine wrote:
| > How is that legal and not considered self-dealing and
| unjust enrichment?
|
| because, ultimately, Capital writes the rules, and they
| chose to allow this
| anxman wrote:
| 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 by a relatively trivial amount to
| the overall funding size.
| Finbarr wrote:
| Yes, as I mentioned it only applies when you have 10
| sellers.
| throwaway-blaze wrote:
| Founders never have preferred shares, at least not the same
| class of preferred (with the same preferences) as
| investors.
| janjongboom wrote:
| Not never. E.g. all the capital we as founders put in the
| business before we raised our seed round was converted
| into Series Seed Preferred shares at the same rights as
| angels / seed VC. Small portion of total equity but
| still.
| colordrops wrote:
| I often hear about these SEC rules that explain why individual
| contributors get fucked, as if that's a good excuse. Either the
| requirements and disclosures should be fulfilled and more than
| 10 sellers allowed, or the rules should change, or both.
| llamaimperative wrote:
| It sounds like they could've fulfilled the requirements and
| had more than 10 sellers but chose not to.
| Finbarr wrote:
| I didn't comment on whether it was a good reason or not. My
| comment was just highlighting some of the complexities in
| what the blog author was hoping to achieve.
| sneak wrote:
| Where would the stress come from? You get a paycheck and there
| is no personal downside except opportunity cost (and perhaps
| reputation). You don't lose any money if your startup fails.
| angio wrote:
| A lot of people (esp people that performed extremely well in
| school and in corporate environment) find "failing" and
| "losing reputation" very stressful.
| sneak wrote:
| Landlords and supermarkets dgaf. There is no real risk, and
| if they stress over it, that's more a founder's own
| psychological failing than anything else.
|
| If you care what other people think that much, you probably
| don't have sufficient quantities of the oft-cited "grit"
| that founders supposedly require.
| zztop44 wrote:
| I think if the idea of your company failing doesn't cause
| you at least some stress then you probably shouldn't be
| running a company?
| FactKnower69 wrote:
| I guess harden the fuck up?
| SOVIETIC-BOSS88 wrote:
| Thank God someone said this. Of course it is stressfull,
| there is no free lunch. If you can't take the heat just
| dont enter into a such top-heavy game.
| smeej wrote:
| Exactly. Or just don't do it.
|
| I am sure enough that I would crumble under that specific
| kind of pressure that I don't put myself in situations
| where I would experience that specific kind of pressure.
| Works great!
| epolanski wrote:
| Maybe risky ventures aren't for them.
| rohansingh wrote:
| I think for a lot of founders, there is significant financial
| cost or opportunity cost upfront. Especially if you are
| bootstrapping.
| lettergram wrote:
| Starting a company myself, I took 6 months with no salary.
| After we raised, my salary was massively cut from where it
| was (30-40% of what I made the year prior). Then you have the
| fact I gave up guaranteed raises & promotions (to the tune of
| hundreds of thousands in RSUs).
|
| There's a pretty large risk to family security. By year two
| of the startup I have made 15-20% the cash I could have made
| elsewhere. I have stock that I trust will be worth more in
| the future (so imo worth it). However, I can see liquidity
| events being useful if you're tight on cash after that run
| erikerikson wrote:
| Investors do it so that the founder can better focus on
| increasing the value of the company. Having financial
| stress on top of everything else reduces the probability of
| liquidity events.
| throwaway98797 wrote:
| cause if you fail you have to let people go
|
| cause if you fail you have to tell your investors you lost
| money
|
| cause if you fail is a thought that's always running through
| your head as you live it
| shortrounddev2 wrote:
| My primary motivation as an employee of a startup is fear
| of personal financial ruin. That the company won't be able
| to make payroll and I won't be able to pay my rent, that
| I'll be evicted eventually or that if the company goes
| under I won't be able to find a new job. There is no
| mission or any other soft carrot that I care about. I also
| don't have any faith in stock options.
|
| I can't imagine caring about reputational damage with rich
| people unless that reputation is in service of not starving
| in the streets.
| sashank_1509 wrote:
| Perhaps you shouldn't be working in a startup because
| your lifestyle is unaffordable, or your company is paying
| you peanuts.
|
| I have worked in startups in Silicon Valley and have had
| many friends working for them. Most startups pay a base
| salary of around 200k$ I reckon (for new grads, perhaps
| 150k). This might come down to 9-10k after taxes per
| month. A good 2 bedroom house to rent in a location like
| San Jose would be 3k$ per month, which leaves you 6k for
| other expenses. Assuming 1k for car, you should still
| have 5k in savings per month, in a year of working you
| will have saved up 20 months of rent, maybe 12 months of
| living without a job. I find it hard to believe anyone in
| SV startups, is in risk of "personal financial ruin", or
| "starving in the streets" just because they lost a few
| months of paychecks while searching for another job. That
| may be true in another country, in another market, but
| all tech workers in the Bay Area are living well above
| subsistence and acting like they are living paycheck to
| paycheck is a fantasy. There is a cost to working in
| startups, and it is an opportunity cost of not working in
| a big tech company and cashing out your 200k+ RSU over 4
| years and instead receiving paper money stock options
| that can be worth 0.
| yard2010 wrote:
| This is not a real risk you're talking about, but small
| inconveniences. A risk is losing your house for example, or
| losing the ability to rent.
|
| Inconveniences are part of life anyway. Being the first
| engineer means you get all these inconveniences (tell your
| wife and your kids) plus real risks as above (taking a loan
| to buy the options and losing it)
| naravara wrote:
| "Letting people go" is taking on the risk of all of those
| people being let go losing the ability to rent or pay
| their mortgages. That seems like more than an
| inconvenience to me if you take one of the
| responsibilities of being an employer at all seriously.
| sneak wrote:
| If you are working a tech job and know how to program
| computers and have no savings slash the loss of a job
| costs you your house, you have deep and fundamental
| problems far beyond the loss of one job and it isn't your
| former employer's fault that your life is mismanaged.
| zdragnar wrote:
| No employee should join a startup with the expectation
| that the company will be around forever.
|
| Compare startups to restaurants- their failure rate is
| absolutely massive. Working for a new company is simply
| always a risk for everyone involved, there's no getting
| around that.
| throwaway98797 wrote:
| far easier _for me_ to layoff people at megacorp then
| when your the founder
|
| at megacorp, you shrug and look them in the eye and they
| know you can't do much
|
| your in the same boat
|
| as a founder every layoff is YOUR failure
| LargeWu wrote:
| "cause if you fail you have to let people go"
|
| This isn't the founder's risk. It's the employee's risk.
| And it has the added bonus of, if there is a liquidity
| event, the employee's don't get the upside.
|
| I was like engineer #3 at a company that eventually was
| acquired for ~$250MM. My payout was $60,000, after 5 years
| of employment there. I could have made more by going and
| contracting at megacorp for a single year. There was never
| any upside for me.
| earnesti wrote:
| > There was never any upside for me.
|
| That was because you negotiated and accepted a shitty
| deal. Unless someone scammed you into believing something
| that isnt' true, which I doubt. Founders can be overly
| optimistic, but it isn't same as scamming.
|
| Startups are a difficult game. Everyone gotta watch for
| themselves. Don't blame on others if you accepted a
| suckers deal.
| throwaway98797 wrote:
| laying off people who joined you on your dream is highly
| unpleasant
|
| financially you are correct, but being a leader is mostly
| about the human stuff
| neilv wrote:
| I tend to have large stress in startups, more than in
| established companies. I won't get into some of the
| occasional toxic-element sources that can happen anywhere,
| but some reasons that happen more in startups:
|
| 1. Caring about the mission -- the real-world positive impact
| -- and potentially able to make or break that. Not just
| taking a shot at making money, for some opportunity cost that
| I could evaluate quantitatively on a napkin, and walk away
| from as soon as an option with a higher expected dollars
| number came along.
|
| 2. Livelihoods and investments of time&effort by colleagues
| hinge to a large degree on decisions I make, ideas I have,
| and things I have to pull off, and not wanting to let them
| down. (A bit similar with money investors, but I care more
| about personal connections, and involvements where it's not
| just someone buying lots of lottery tickets.)
|
| 3. Low "paychecks" for my HCOLA, at that startup and earlier,
| so personally needing a big win financial exit, and the
| startup is what I decided to invest my time&energy into. If
| that fails, it's starting over, and a lot of wading through
| various startup ickiness to get another good opportunity (or
| doing FAANG interview BS, and then their promotion-chasing
| BS).
| Finbarr wrote:
| Hiring, firing, layoffs, making the wrong decisions with
| limited information and not finding out they were wrong until
| years later, huge shifts in the tech market around you
| undermining your business, competitor actions wrecking your
| business, pressure from investors, pressure from your family
| to earn more money, uncertainty about whether the business
| will ever succeed, and an endless list of other things.
|
| > You don't lose any money if your startup fails.
|
| Except all the money you lost by not having a proper job
| along the way. Also it's not uncommon for founders to float
| the company at early stage until investment is raised, and
| they don't always get a refund for this.
| jboggan wrote:
| Exactly. I quit Google in 2017 to work on a promising
| start-up idea (generative AI chatbot for coding, a tad
| early on that one) and ended up raising barely any money,
| running up massive CC debt to finance cost of living and
| GPUs, and taking a huge compounding opportunity cost to not
| continue growing as a FAANG SWE (not to mention missing out
| on the stock market run with the extra money I didn't
| have). I spent the last several years paying off that debt
| instead of buying a house or investing, etc. I'm massively
| behind in earnings and net worth compared to my colleagues
| who talk about their future startup idea but never struck
| out on their own.
|
| But I'm finally debt free and ready to risk my future yet
| again on another startup.
| boringg wrote:
| I mean if you don't care about the company mission (if it's
| mission based), you don't compare about your employees, your
| word, you don't care about your time or care that you sold
| people that you were going to take their money to build
| something... then yes there might be no "personal" downside.
|
| Though if you don't care about anything in the first place
| what are you doing trying to build a company?
| burutthrow1234 wrote:
| > Please let us all know how that's working out for you in 5-10
| years. 4 months in and no stress? Must be easy riding from
| here!
|
| Honestly VC-funded startups seem like a cake walk compared to
| actually starting a small business. Your biggest challenge is
| walking into a room full of rich dudes and schmoozing for your
| pay cheque. If you fail you get acquired and get golden
| handcuffs.
|
| If you start a real business you can expect to take on debt,
| and you'll be personally guaranteeing it because nobody cares
| about equity in your boutique ice cream parlour. Plus a 5-year
| lease (which you will also personally guarantee).
| p_l wrote:
| Running with VC funds? Oh god, that would be cakewalk
| compared to even just figuring out how to ensure there's food
| if you spend money on some necessities for prototype...
| joenot443 wrote:
| The most common endgame for a startup is slowly running into
| the ground until the money runs out and you eventually shut
| the doors. Failing your way into a happy acquisition isn't
| really something to expect as a contingency, I don't think.
| BeFlatXIII wrote:
| Then use those five years to enjoy the fanciest office
| equipment VC money can buy. Don't cry because it's over;
| smile because it happened.
| tmpz22 wrote:
| The contingency isn't golden handcuffs its using one of the
| hundreds of C-level connections you made as a Founder doing
| sales and networking (and accelerator programs) to get you
| a cushy gig as a Product Lead, Operations Lead, or similar
| title with a strong paycheck and immediate authority.
| WarOnPrivacy wrote:
| > Honestly VC-funded startups seem like a cake walk compared
| to actually starting a small business.
|
| Make this about any brick/mortar businesses and the stresses
| multiply by another factor. If they're in a federally
| regulated biz (compliance) or an insurance dominated state
| (rates, inspections), then multiply again.
| burutthrow1234 wrote:
| This is a comment about brick and mortar businesses, I
| literally talked about having to personally guarantee a
| multi-year lease in the post.
|
| And yes, some businesses are even harder due to regulatory
| requirements
| mrkurt wrote:
| Not that people with VC need defending, but:
|
| Sure, if you magic up a startup with VC funds you suddenly
| have it easier than a small, bootstrapped business.
|
| Startups almost never start with a round of VC though. There
| are almost always months or years of the same experience as a
| bootstrapped business (ie: extreme uncertainty, no money to
| pay yourself, etc).
|
| Most startups don't manage to raise VC, and most startups
| that raise VC fail with no acquihire.
| boringg wrote:
| I don't know why you are trying to make this a me vs them
| situation. Both situations are difficult in different ways
| and they are all real businesses.
|
| "Your biggest challenge is walking into a room full of rich
| dudes and schmoozing for your pay cheque." - Sounds like you
| are trolling or alternatively incredibly naive.
|
| "If you start a real business you can expect to take on
| debt". ... Real business? Come on.
|
| No one in this thread is saying starting a business is easy -
| ice cream business is debt funded because you have a very
| definitive range of outcomes. Venture funding is completely
| different animal - failing to see that limits the value of
| your comment significantly.
| owlstuffing wrote:
| > I don't know why you are trying to make this a me vs them
| situation.
|
| In terms of economic disparity it _is_ very much an us vs
| them situation.
|
| Consider the optics over the last 20+ years. The middle
| class and their small businesses have been decimated while
| former VC funded companies hoover up their futures on Wall
| Street.
|
| The level of risk involved starting an average small
| business is much closer to home compared with a startup
| seeking VC funding. The former can literally lose his
| shirt, the latter has to settle for a high six figure
| salary somewhere else.
|
| Failing to see that limits the value of your comment
| significantly.
| boringg wrote:
| This isn't a me vs them. Who is hoovering up the ice
| cream futures? Different business model, different
| businesses. Both are difficult. Being a founder of a VC
| based company is difficult and being a builder of a
| retail brick and mortar is difficult. It isn't zero sum
| and both can exist in the same economy trying to make
| this a Me Vs Them narrative is totally BS.
|
| Making a wedge where there isn't one is disingenuous.
| 6510 wrote:
| I one time tried to do a normal startup with 20-30 owners all
| financially liable. There are other challenges tho.
| onlyrealcuzzo wrote:
| 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 want. You might have
| foregone your shot at a partner to build a company to mostly
| profit someone else who did nothing but write you a check. If
| you do have kids, you'll be old as hell raising them. All
| you'll have is extra stuff hardly anyone cares about - except
| maybe you - if you're the type of person chasing down a
| decimillion net worth.
|
| I hope these people truly enjoy their boats and their third
| homes in Aspen! It sure is a lot of work to get them.
| whynotminot wrote:
| It's a shame you were forced to take on this burden and not
| allowed to be a regular engineer like your peers.
| Finbarr wrote:
| Nobody is forced to become a founder. A lot of people are
| naive to the sheer level of stress involved, and think it's
| going to be easier than it actually is. You don't find out
| just how stressful it is until you're already super
| committed, have raised money, have employees, and there's
| no easy way out without screwing a whole bunch of people
| over.
|
| Founders tend to only talk about the good things happening
| at their companies, and tech press tends to focus on the
| successes. These things contribute to more people starting
| companies.
| ipaddr wrote:
| If you can't stomach screwing people over you shouldn't
| be a CEO.
| boringg wrote:
| "Sure, you've got a decent chance to rocket past them in
| wealth."
|
| I might rephrase that as you have a non-zero chance. Odds are
| not that high and certainly not decent.
| icedchai wrote:
| Or, based on examples I've witnessed, 5 years down the road
| you own 20% of a $1M company because your forecasts were off
| by an order of magnitude. You've gone through a couple down
| rounds, where investors took at least 20% each time. You feel
| obligated to your investors and employees, while there is
| almost zero chance of walking away with anything.
| htrp wrote:
| One thing that is underappreciated in the startup mythos is
| just closing up shop and trying again.
| moneywoes wrote:
| do investors allow that
| tomrod wrote:
| They don't control it.
| Finbarr wrote:
| That very much depends on the stage of the company and
| how much control has been given up at different points.
| Do you think the management team of a public company
| could just decide to shut it down? As you raise
| consecutive rounds, your control is eroded.
| nlh wrote:
| One of the greatest quotes I've ever heard from a founder
| buddy was when his startup was going through a
| particularly dark moment and struggling: One of the
| investors said to him "Maybe you should seriously think
| about shutting down and giving us our money back", to
| which he replied:
|
| "It's not your money anymore."
| icedchai wrote:
| Yeah, then the investors call a board meeting and bring
| in a new CEO to provide adult supervision after a 2/3rds
| vote. The give that guy more equity than you to keep the
| ship afloat. "It's not your company anymore."
| Finbarr wrote:
| Your daily reminder of the importance of maintaining
| board control.
| flyinglizard wrote:
| Not realistic to maintain control past A unless you built
| a real rocketship. The board doesn't usually want to run
| your company - they have enough other companies, some
| evidently better than yours as they don't require this
| intervention.
| Finbarr wrote:
| > some evidently better than yours as they don't require
| this intervention.
|
| I'm not sure where that's coming from.
|
| Also plenty of companies out there have control past the
| A.
| FreakLegion wrote:
| Most have voting control, subject to certain investor
| veto powers, after the A. Very few have it after the B.
| ishan0304__ wrote:
| Can never happen, the guy who says that this ain't ur
| money no more has made sure that investors know their
| place on board, they r afterall just passive investors
| who r spreading risks around, even wework a company that
| has fucked up financials had to give their founder close
| to a billion dollars just for stepping down, as long as
| the founder is a majority stakeholder, he will always
| remain in control
| icedchai wrote:
| I'm skeptical. It is rare for founders to maintain
| majority control past series A. Unless you are very
| successful, it doesn't happen.
| golergka wrote:
| Reputation is a thing. You might need investors in your
| next startup.
| throaway893 wrote:
| >5 years down the road you own 20% of a $1M
|
| What a horrible fate. They only got five years of salary
| plus 200k extra. I'll include them in my prayers (just
| kidding, I don't pray).
| wordpad25 wrote:
| They also probably worked many 100 hour weeks while they
| could've earned more and worked a lot less with less
| stress
| rbranson wrote:
| That's how risk works. The FAANG employee friends have
| exactly a 0% chance at a 9-figure outcome. They'll easily
| be at top decile if they pull a nominal $10M+ post-tax in
| 20 years.
| icedchai wrote:
| Except the "$200K" is purely paper, and has an expected
| value of closer to zero. Remember, common shareholders
| are the last ones to get paid. Investors have preferences
| and get paid back first (often with interest.)
|
| Also realize you were probably forced to take a pay cut
| and have a below average salary due to cost-cutting
| measures from the board. We'll ignore the non-financial
| problems, like tons of stress, complaining employees
| demanding more equity because you couldn't give them
| raises...
|
| No, it's not a good situation.
| foobarian wrote:
| > making ~$1M per year working 6 hour days at FAANG
|
| Can you say more on this? I didn't realize FAANG TCO was
| quite that high. Maybe it's time to swallow some pride and
| take the adtech money after all...
| onlyrealcuzzo wrote:
| The average SUCCESSFUL founder is in their earlier 30s. At
| that point - you should be at least L4 (probably L5) at
| FAANG. Salaries are about ~$450k at that level and age.
|
| In 5 years, if you work even a fraction of as hard as you
| need to be a successful founder, you should be L7 -
| salaries are usually >$800k at that point.
|
| No, it is not like any average slacker straight out of
| college in 5 years can get to a $1M salary at FAANG. But if
| you're the type of person that could successfully grow a
| company to a multi hundred million valuation in 5 years -
| you can make $1M at FAANG.
| kolbe wrote:
| Those aren't entirely overlapping skills. There are
| plenty of founders whose attitudes and generalist skill
| sets make them unhireable in the management ranks of
| FAANG.
| dclowd9901 wrote:
| Big caveats on these numbers:
|
| 1. You'll have to be located in SF or Seattle.
|
| 2. Going from L5-L7 is _not_ trivial. It requires a
| somewhat miraculous combination of being on a productive
| team with a good boss, a lot of opportunities for showy
| work and your own gamesmanship around corporate politics.
|
| Is it possible? Sure. But in my short stint at Amazon, I
| met a lot of people who should have been higher level and
| were simply not due to missing one of these factors.
| onlyrealcuzzo wrote:
| > Going from L5-L7 is _not_ trivial
|
| It is trivial compared to growing a company successfully
| from $10M valuation to $100M valuation + an exit.
| dclowd9901 wrote:
| [citation needed]
|
| Frankly, many more aspects of trying to grow your career
| from l5-l7 are out of your hands than they are when
| you're at a startup.
| onlyrealcuzzo wrote:
| The vast majority of startup success is luck...
|
| There are literally thousands of people going from L5-L7
| at the major tech companies per founder successfully
| exiting a >$100M company.
| sandclock wrote:
| Thousands, you say? [source missing]
| smcin wrote:
| > _2. Going from L5-L7 ... a lot of opportunities for
| showy work and your own gamesmanship around corporate
| politics._
|
| Can you say more about that?
| dclowd9901 wrote:
| A lot of the FAANG companies (all?) have promotion
| processes that are basically a combination of both peers
| and managers strongly pulling for your promotion. It
| often takes a few years just to end up on people's
| radars, and that's a few years of delivering lots of high
| visibility work and doing lots of tech talks and other
| sort of corpo-social tasks to get your name out. In a lot
| of ways, it's like you're constantly applying for a new
| job.
| smcin wrote:
| I meant say more about the gaming the politics part, not
| so much the showmanship and self-promotion part. Say
| there are several people who meet the criteria to get
| promoted, which ones tend to get it and which not, based
| on which political behavior?
| dclowd9901 wrote:
| Tends to be the one with more friends. That's pretty much
| it. That's the politicking.
| smcin wrote:
| Allies, not friends. In that sort of environment, what
| sort of things get you allies? other than what you
| mentioned. For example when you say gaming the process,
| how to approach reviews?
| Thorrez wrote:
| levels.fyi says Google L4 in the Bay Area is 306k total
| comp on average.
|
| https://www.levels.fyi/companies/google/salaries/software
| -en...
| foooorsyth wrote:
| >you should be L7
|
| The distribution of the ladder is logarithmic. Most never
| make L6. L5 is often terminal level IC without any "up or
| out" obligations. Lots of people spend a long time at L5
| and retire.
| Xcelerate wrote:
| > But if you're the type of person that could
| successfully grow a company to a multi hundred million
| valuation in 5 years - you can make $1M at FAANG.
|
| Disagree. Totally different skill sets. Not saying there
| is no correlation at all, but probably less than one
| might think.
| hector_vasquez wrote:
| The average L5 SWE salary at Google in the SF Bay Area is
| $215,000 [1].
|
| 1. https://www.levels.fyi/companies/google/salaries/softw
| are-en...
| kilbuz wrote:
| You don't start there, but you can get there as you level
| up. A lot of that would be because the stock on your RSU
| grants goes up while you work there though. I don't think
| many SWE have 7 figure targeted comp (highest levels, yes).
| But plenty get there with refreshers and stock
| appreciation.
| kolbe wrote:
| Explain the math on leveling up. Each year, Meta hires
| more Jrs than there exist L7+'s at the entire company.
| throwaway-blaze wrote:
| Many people top out at a lower level because they don't
| play corporate politics games or because the L7s aren't
| moving on, so there's no real room for promotion among
| the L5s and 6s.
|
| Microsoft in the Ballmer years (early/mid 2000s) had this
| problem. Promising L65/L66/L67 (probably equiv to L5/6 at
| AMZN) would leave because the next step was full. All the
| "partners" were hanging around and not making room for
| the next gen of leaders.
| gopher2000 wrote:
| See levels.fyi. The pay levels for FAANG companies are
| fairly accurate. But you'd have to be something like L7/E7
| level at a Meta/Google to break $1M.
|
| Also note that some comp numbers get heavily inflated by
| people incorporating stock value increasing between the
| equity was first issued and the stock actually vested.
| dasil003 wrote:
| Yeah I feel like successful founders natural ambition and
| optimism is sort of weaponized against them by the VC
| industry here. From a VC perspective it's worth playing the
| odds for moonshots. As a founder though, if you can create a
| $100M company that you own 30% of, you can probably create a
| $20M company you own 70% of with a much more realistic and
| sustainable growth targets.
|
| I can't help but feel this would be better for the founders,
| the employees and the customers of the company. It just
| doesn't make as much sense for the investors.
| throaway893 wrote:
| You are completely detached from the real world. Even in
| super rich countries like the US there are a lot of people
| without savings, living paycheck to paycheck. Most/all
| software engineers outside the US can only dream of ever
| earning that much money. And yet here you are, worrying that
| you'll end up only slightly richer than people earning ~$1M
| per year.
| RhodesianHunter wrote:
| I don't think you fully understand the context in which
| this was written, but you probably should before passing so
| much judgement.
| Thorrez wrote:
| >And yet here you are, worrying that you'll end up only
| slightly richer than people earning ~$1M per year.
|
| onlyrealcuzzo is comparing 2 things:
|
| * Being a founder and working mega hours and having no life
| (e.g. no spouse or kids) and having a decent chance of
| losing most of your money as the company fails.
|
| * Working at FAANG and making a lot of money while not
| having to work too much.
|
| onlyrealcuzzo is saying the second option is better.
| chinchilla2020 wrote:
| You're saying joining a startup is going to result in
| success?
|
| Talk about detached from reality.
|
| A 30k job at a local dev shop in Poland is going to reward
| you more than most startups in the US.
| dclowd9901 wrote:
| Ok, please argue in good faith here. Maybe 1 or 2 people who
| aren't executives are pulling in that kind of money from
| FAANGs.
| wordpad25 wrote:
| If you're CEO at a $100MM company, your peers ARE
| executives at FAANG
| rbranson wrote:
| Incorrect. See: https://www.levels.fyi/companies/facebook/s
| alaries/software-...
| dclowd9901 wrote:
| I was under the impression we were talking about ICs here
| -- your link shows that an upper-middle IC that you'd
| expect to be choosing between early startup or FAANG will
| see something around 450 a year, which tracks much closer
| to what I'd expect.
| gopher2000 wrote:
| You said 1 or 2 people who aren't executives. There's way
| more than 1-2 E7s at Meta, as an example.
| chucksmash wrote:
| s/deci/deka/
| seansmccullough wrote:
| > 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.
| Thorrez wrote:
| >while your peers are all making ~$1M per year working 6 hour
| days at FAANG
|
| I highly doubt ALL your peers are making that much. And I
| think the people making $1M per year at FAANG tend to work
| much more than 6 hour days. You have to be very productive to
| get $1M per year.
| smokel wrote:
| The "Four Yorkeshiremen" sketch by Monty Python always
| lightens my mood when this kind of bragging comes up.
| algobro wrote:
| Sir if you live in USA and do not take a dip into the VC
| money swimming pool, you are stupid, because crazy people
| with stupid ideas routinely get to $100 Million valuations,
| like no other place on earth.
|
| Its like going to Disney Land and saying "Oh i'll just sit at
| the coffee shop". Some people are here for the ride. Some
| people like the 9 to 5. Like you, obviously. Why dont you go
| start corporate-drone-news.org, this board is for hackers and
| founders.
| alexvitkov wrote:
| I don't mind the shit take, but please don't use
| underscores in your domains.
| algobro wrote:
| Good catch, fixed.
| ditonal wrote:
| You're obviously overstating the FAANG SWE lifestyle.
|
| But beyond that, it's interesting you picked FAANG SWE and
| not startup SWE as the basis of your comparison.
|
| The whole premise of the article is that startup employees
| are often sold a bag of goods about equity and upside that's
| simply a terrible deal. Not terrible in the sense that it's
| highly risky, but that it doesn't even come close to
| compensating for that risk premium. Its sold as FAANG is low
| risk medium upside but startup SWE is high risks high upside
| but really its extreme risk and almost no upside because VCs
| find dozens of ways to carve it out. And people will say
| startups pay "market" compensation but they almost always
| mean base salary only, and the equity is such a horrible
| deal, it's borderline fraudulent scam on the part of founders
| to sell startup employees on the equity as a fair deal.
|
| As an aside, when people think SWEs don't need unions/
| professional associations, they think of teachers unions or
| autoworker unions where pay is standardized on seniority.
| Instead, we could have something where our lawyers in our
| camp could review equity terms and we could collectively
| advocate for things like liquidity deals. That will never
| ever happen if you only trust the deals the VCs and founders
| offer.
| Finbarr wrote:
| Let's not forget that FAANG companies were all startups at
| one point. Early employees at those companies experienced
| significant upside. Startups can be very high risk, and in
| rare cases, extreme upside.
| ditonal wrote:
| This is the "startup myth" that lets the scam perpetuate.
|
| The world has changed. Google IPOed just a few years
| after it founded. Now Stripe, objectively one of the most
| successful startups ever, still hasn't IPOed after 15
| years.
|
| Liquidity preference Dilution
|
| Even the F in FAANG had a major movie made about early
| employees getting shafted by dilution!
|
| FAANG is 5 companies founded a long time ago. Since then
| VCs have completely rewritten the rules of the game. But
| they'll still point to extreme outliers in the old rules.
| The fairy tale of the Google masseuse has probably cost
| tens of thousands of engineers millions in compensation.
|
| You need to get things in writing and do the math and
| startups make it as difficult as possible to do that and
| then the math never adds up. So they resort to fairy
| tales.
| Finbarr wrote:
| Many huge private companies, like Stripe, have found ways
| to provide liquidity to their employees without going
| public, e.g., through tender offers. Some more recent
| examples of companies where early employees did very well
| would be AirBnB, Coinbase and DoorDash.
| ditonal wrote:
| 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
| company. Except unlike any other company you bet 220k on,
| you won't get a board seat, you won't get access to key
| metrics, your influence will be dominated by "real"
| investor's influence.
|
| If your NW is less than 10M, which presumably it is,
| anyone who's heard even heard of the words "Kelly
| Criterion" would tell you your nuts for betting 220k a
| year on one startup. And yet, you get treated like "an
| employee" and not like "an investor" for taking that
| insane risk.
|
| So YC has invested in 5000 companies, and you can name 3
| that had top-notch outcomes, thats 0.06% success - and
| you had to work like a dog to realize it! And that money
| was locked up. Those same early employees could have
| taken that $220k/ year, put it on Bitcoin or Apple stock,
| and retired off that. And Bitcoin and Apple were much
| easier "picks" than an given startup.
|
| The math simply does not add up and the whole system runs
| off mystique and naivety. And I've worked at startups
| that gave me a hard time about asking about outstanding
| shares, about asking about the cap table, about asking
| about liquidation preference. This is _critical_
| information before you invest a significant portion of
| your life and net worth on a company and that they're
| guarded about and it should raise the ultimate alarm
| bells that they don't fall over themselves to explain
| every part of it.
|
| There's a bunch of propaganda out there "Explaining ISOs,
| written by a16z" that's a smoke screen of the truth. The
| math does not add up.
|
| The dream startup employee is really really good at
| Transformer architectures and really really bad at
| personal finance. Fortunately for startups, a shocking
| amount of these people exist. But it doesn't change that
| if sharp financiers looked at employee equity packages at
| startups objectively, every single one would agree it's a
| scam deal.
| Finbarr wrote:
| First of all, we're on the same page about the risk
| profile of working for larger companies being better for
| employees. But the reality is there aren't enough of
| those jobs for every single startup employee out there to
| get one. Some people also like the startup environment -
| move fast and break things, etc.
|
| Your denominator (5000) is _all_ investments that YC has
| made. You need to look at investments of a certain
| vintage, e.g., 10 years or more. You also need to include
| all the other companies of that vintage where employees
| did well (way more companies in that cohort have sold or
| gone public). The result is 0.06% is a gross
| understimation of the success rate (where success is
| defined as successful enough for early employees to make
| a lot of money).
| earnesti wrote:
| If you can get that 400k FAANG job, take it, for ducks
| sake. Not everyone can, and for some of them the startup
| deal can be quite OK.
|
| People who can get 400k job at FAANG should be smart
| enough to avoid shitty startups. Looks like they aren't,
| based on these comments.
| wbl wrote:
| Ex ante it's hard to tell what's shitty and what isn't.
| Remember some VCs also got fooled by it!
| whiplash451 wrote:
| Can you please explain in what way VCs have completely
| rewritten the rules? Asking genuinely.
| JakeTheAndroid wrote:
| I don't agree it's a myth. Is it an extreme risk? Yes, of
| course. Do people view the risks to be way too low? Yes.
| But I worked at Cloudflare pre-IPO, got shares at 1.73,
| and at one point CF was at 200 a share. That was more or
| less what I was "promised" from the equity.
|
| Stripe is one example of a successful startup not going
| public, but there are tons of startups that are going
| public. And there are many startups that wish they could
| go public, but they simply don't have the finances or
| business to do so.
|
| I don't think VCs changed much from when Google went
| public until COVID. We were seeing massive overvaluations
| of tech companies for years. Once through 2020, VCs got
| scared and now the landscape is a bit different. But the
| AI craze has started to get VCs back out of their shells
| taking bets on risky projects.
|
| So, yeah, idk what I agree with this assessment. At least
| it's not been my experience in tech over the last 8+
| years.
| gopher2000 wrote:
| The argument that a startup _could_ be the next FAANG is
| anchored in lottery-like odds.
| chinchilla2020 wrote:
| The expected value of startup equity is far, far, far
| below a casino. The ON bet at a craps table is 50% odds.
| Less than 1% of startups survive.
|
| You might as well go to the casino. You will save years
| of sweat, heartache, and stress-induced mental decline.
|
| Instead at a casino you get to blow your money quickly,
| enjoy fun, free drinks, and still have the upside
| potential to become super rich if you are in the 0.000001
| luck percentile.
| Finbarr wrote:
| At an early startup, your execution has a meaningful
| impact on the outcome. This isn't true for craps. It may
| be for poker, though.
| jakjak123 wrote:
| This 100%. Really the only reason to work at a startup as
| an engineer is if you really want to, because everyone pays
| low and the tiny bit of equity is essentially worthless in
| 99% of cases, which gives it a very low value.
| nirvdrum wrote:
| 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 out -- you had less money
| to exercise the options and because you couldn't, the
| option portion of your compensation was effectively
| clawed back.
|
| I very much appreciate the startups pushing to extend the
| exercise window out to 5 - 10 years, but that's far from
| the norm. 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, but that's certainly not
| the case when folks are laid off. And we commonly discuss
| people thriving in one particular phase of a company. If
| you're not in that phase, it's no good for either the
| company or the employee to continue the relationship just
| to defer having to exercise options.
| Finbarr wrote:
| The 90 day exercise window is the most obviously broken
| thing about startup equity in my opinion. We changed this
| to 5 years at Shogun.
| earnesti wrote:
| > high risks high upside but really its extreme risk and
| almost no upside
|
| Extreme risk? Some startups pay fair salaries.
|
| I don't think startups are that risky (unless you start
| putting money into them, that is a suckers deal). Or if you
| work for free, what you naturally should not do. Not
| everyone can get a FAANG job so it is not very clear
| alternative.
|
| If you get paid a slightly below market rate and get some
| worthless equity, what's the big deal? You can always quit
| any time and change to a corporate career. It is not an end
| of the world.
| slashdave wrote:
| > there's a decent chance you'll walk away with very little
|
| Well, some founders care about their employees and their
| idea, and the idea of the start up failing is much more than
| just money.
| Oras wrote:
| Your comment suggests people making 1M in FAANG and somehow a
| stable job. Did you hear about the thousands of layoffs in
| recent years?
| mgfist wrote:
| Yes but that's still better than early employees who share a
| lot of the stress and responsibility of company building,
| with at best 10% of the upside, but more likely around 0.1% -
| 1% of the upside that the founder has.
| dclowd9901 wrote:
| Correct me if I'm wrong, but my perception of most startups at
| series A is that they're not usually more than ten-ish
| employees, and even then, you'd expect more balanced comp
| packages for employee number 11+, no?
| jmward01 wrote:
| I was mentally, physically and emotionally worn out when I left
| my previous startup after being an early employee. Despite that I
| really wanted to stay and be part of what my friends and I were
| building. Had I had the chance to 'de-risk my life' with some
| equity to replenish my empty bank account, which was empty from
| taking an early employee salary, I may have been able to stay but
| in the end I had to get out.
|
| Getting out for an early employee after funding rounds is
| expensive because buying options can hit you with massive tax
| bills on top of the cost of buying the options. Worse, the stats
| aren't great for a chance on return. Your lotto ticket gets
| expensive and risky as soon as you decide to leave.
|
| Articles like this one hammer home more and more to me how little
| VCs actually value early employees. Paying out founders to stay
| is a strategic move. Keeping them is worth it because they are
| the face of the company and turmoil at that level hurts their
| payout. Burning out early employees is not a concern because you
| can just swap them without drama. In fact, with the way options
| are structured and the 'industry wisdom' to hold off purchasing,
| it feels like a strategic move to burn out early employees since
| many employees that are forced out often can't even buy their
| options. They are left with nothing after all that work and risk.
| From a purely cynical view this is a great thing for VCs since
| now the company got all the benefit of an early employee and just
| lost all the costs.
|
| I don't know about the other three points, but I can guarantee
| you point 1 of 'right sizing perceptions' is wrong.
| FlyingSnake wrote:
| I'm really sorry to hear about your burnout, I hope you've made
| a recovery and are at a better place now.
|
| I thought it was the prevailing wisdom here on HN that being
| the first employee almost always is bad for the employee.
| You're right, the cards are stacked against them
| jmward01 wrote:
| Much better now actually, thank you.
| CalChris wrote:
| If you were early, why didn't you purchase your options and
| file an 83b?
| yieldcrv wrote:
| requires having cash to tie up indefinitely, privilege alert
|
| we did this on our crypto token grants though. once we
| realized we can play with the prices much more than with
| securities and that vesting isn't standardized by any law, we
| granted ourselves deeply discounted tokens in a vesting
| schedule of like 3 months, the whole grant being a couple
| hundred dollars and launched the token the next day. mailing
| the IRS the election was beautiful.
| novok wrote:
| If your early enough (like seed stage), it's like $300 for
| %5.
| throwawaythekey wrote:
| I'm not the GP but was one of the first engineering hires in
| a startup. In my case I got caught in the cross-fire of one
| of the co-founders backstabbing the other which meant that by
| the time we closed the series A I had been diluted by 80%. To
| 'make this up to me' the company gave me a new grant that
| would counter the dilution. The downsides were that this
| restarted the vesting clock and the new options would cost a
| year worth of savings to exercise - this was much more than
| the few hundred dollars my original grant cost.
|
| Fast forward four years of toil with multiple cycles of
| doubling and then halving headcount as well as endless
| leadership changes. We are now on our fourth CTO in as many
| years. On the upside things are starting to look up! The
| newest sales team have worked out how to sell the original
| product we built, not the bells and whistles we pivoted to on
| the wisdom of the overpaid CPO. We can now celebrate as we
| have about a year's worth of runway and can confidently
| project being cash flow positive in about six months.
|
| The new ex-FAANG CTO earning three times as much as anyone in
| the original team has great news! As a result of the positive
| development we are now able to hire an extra development team
| in South America! This shouldn't cost us too much and they
| can start on the next greenfield effort. The existing
| developers need not worry about being replaced as the
| existing team has all of the experience with the money making
| side of the business, and besides the new devs will be
| working on a parallel offering anyway.
|
| Four weeks later and we've onboarded two offshore devs. The
| VCs have demanded we cut our burn rate and my position is
| being made redundant. I have 90 days to exercise but my
| options are underwater, both when compared to the funds we
| raised a few months ago and also the FMV. Essentially to buy
| them now I would be worse off than someone walking straight
| off the street.
| lumost wrote:
| This is the model, you can see a lot of early stage founders
| looking for a "founding engineer" which is really just an
| excuse to pay founder salaries for 1% of the company rather
| than 50%. If the founding engineer quits without buying their
| options, then the founding team recoups the 1% equity. Its a
| recipe for the founding engineer to be burned out and pushed
| out.
| xandrius wrote:
| What if they give 1-2% and good market rate salary (~200k/y)
| to a founding engineer? Is that still a bad deal?
| halgir wrote:
| If the salary is market rate for that person, I suppose
| it's by definition a fair deal. I've seen startups hire
| "founding xyz" two years after they started. Looks to be a
| vanity title in many cases.
| dchftcs wrote:
| Total comp needs to be market rate, not just salary. And
| non-preferred shares should be valued lower than
| preferred stock. Lumping non-preferred shares with
| prefereed shares is one of the bigger lies startups tell
| employees.
| jonathankoren wrote:
| Yes. Because you're literally the same as the founder, but
| getting waaaay less equity.
|
| First employee is always a sucker
| xandrius wrote:
| But you're getting paid a good salary for many while they
| probably might not. Also I'd be sleeping well at night as
| I can jump ship the second I'm not happy, my reputation
| won't be tarnished by that.
|
| So I am not sure it's that easy.
|
| Of course, the idea is to keep the same work/life balance
| one would have at a more established company.
| jonathankoren wrote:
| It is that easy. Employee 1 is getting paid below market.
| That's why they offer 0.9% equity. Meanwhile, the
| founders are also getting paid. No one is working for
| free. One of the first things VCs tell you is to make
| yourself comfortable so you can concentrate on the
| company. That's literally one of the reasons why VCs tell
| founders to sell equity early, to make up for lost
| income, while Employees 1+ has to ride the rocket into
| the ground.
|
| It's Baby's First Labor Exploitation.
| nevir wrote:
| Having been in this exact position multiple times now (once
| quite successful, others not), you should probably consider
| it a wash.
|
| Unless the company hits unicorn AND your shares become
| liquid (secondaries don't count--you generally won't be
| able to sell enough shares to make a meaningful dent),
| you'd make just as much or more at a FAANG firm with way
| less risk.
|
| Of course, I say this while not at a FAANG firm, because I
| prefer startup type work.
| xandrius wrote:
| Yeah but I don't think it's fair to compare salaries to
| FAANG firms, as they are extreme outliers (and not really
| good companies).
|
| So you would get paid like at another company but get
| equity on top and it's not a good deal? How comes?
| jjav wrote:
| > So you would get paid like at another company but get
| equity on top and it's not a good deal? How comes?
|
| If it were truly market rate (total comp not just base
| salary) then sure, it's a good deal. How likely are you
| to find that in an early startup? It must be pretty close
| to zero percent chance. But if you find it, sure, it's
| good.
|
| You'll still work harder and be more stressed but it'll
| be a different learning experience which is always nice.
| eschneider wrote:
| A lot of it comes down to management/team quality. Do you
| want to spend an awful lot of time with these folks? Do
| you think you'll learn from each other? Do these folks
| seem to know what they're doing and are the building a
| product that interests you? If you can say yes to most
| (all?) of those questions, then all-in-all, it's probably
| a wash. If not, run.
| zaptheimpaler wrote:
| Depends on the options available to the candidate.
| Typically someone joining a startup very early probably
| has the skill to get FAANG salaries with less stress and
| more free time. There are also hundreds or thousands of
| mid size companies that pay very well nowadays, its not
| just FAANG.
| xandrius wrote:
| Yeah but smaller startups might be more open to non-US
| applicants, FAANG and other more established companies
| don't seem to be interested in hiring abroad.
|
| That's what makes the early startup scene the only thing
| available for some.
| cherryteastain wrote:
| How come? Most large companies have big legal/HR
| departments that are very efficient at the whole visa
| application process. A small company won't have that
| expertise/staff. I mostly see startups being more
| concerned about the visa status of applicants.
| xandrius wrote:
| Remote + non-US is not as welcoming, so the hurdles are
| way higher as it's not fitting the usual way. While
| startups have no prior experience anyway, so it's easier
| to convince 1-2 people instead of changing a whole system
| (I believe).
| lumost wrote:
| Most early stage companies turn out to be poor companies
| for employees. Long hours, toxic leadership, unclear
| roadmaps etc. Working at a small firm doesn't guarantee
| high quality.
| petesergeant wrote:
| Market salary with stock upside plus the chance to level up
| a job title has potential to be a great deal
| xandrius wrote:
| Yeah, that's my thought too. Many companies give ~$200/y
| for way less upward mobility, impact and voice, and
| without any equity.
|
| Maybe you'd lose our on some tiny perk/benefit but that's
| not always the case.
|
| So I'm not seeing what's wrong with this deal with the
| only caveat that the engineer has the experience not to
| overwork/burn out.
| lumost wrote:
| It depends on the role and company, if you want to get
| paid 200k per year for the opportunity to do X - then
| sure. In practice, you may end up doing basic work at a
| lower quality than a large firm. Such experience doesn't
| translate the up-leveled title to a more standard
| position.
| geepeeyoudata wrote:
| >> So I'm not seeing what's wrong with this deal with the
| only caveat that the engineer has the experience not to
| overwork/burn out.
|
| The startup can go bankrupt any moment, thats a big deal.
| You get crappy perks, often poor benefits.
| cruffle_duffle wrote:
| And at a large corp you can get laid off just as easily.
| Any business can toss you out at a moments notice. It's
| not unique to startups.
|
| At least with a startup you are going into it knowing
| that you have a higher probability of thing going south
| financially. With a big company, you might not get any
| warning at all.
| closeparen wrote:
| Leveling up seems like a good reason for someone who's
| stagnating at a bigger company. My experience is startup
| people want to recruit their most respected former
| colleagues, who by virtue of being respected are also
| getting promoted in place.
|
| Titles obviously don't transfer back to big companies, we
| had plenty of ex-cofounders and CTOs hired into the same
| junior roles as anyone else who could LeetCode.
| extr wrote:
| I was recently faced with this exact offer at seed stage vs
| a series B with a similar salary. YMMV but what I found
| when I ran the numbers is the series B offer had a lottery
| ticket with a similar risk/reward profile to the seed
| stage. Of course I got less total equity, but it was way
| more likely to ever actually materialize. Plus being
| employee 80 at a Series B is a lot easier.
| geepeeyoudata wrote:
| >> What if they give 1-2% and good market rate salary
| (~200k/y) to a founding engineer? Is that still a bad deal?
|
| OR....you could just become a founding engineer by actually
| founding and keep 90% of the equity. You can get that
| salary with an equity raise, its worth not being the low-
| person on the totem pole.
| xandrius wrote:
| That's forgetting what a founder actually has to do and
| worry about.
| blitzar wrote:
| Advertise for a founding CEO and offer them 1-2%.
| matthewsinclair wrote:
| This reminds me of how I have seen a few asks lately for
| roles where a company is looking for a CTO for their "AI
| startup". How an "AI startup" (whatever that might actually
| mean) can _start up_ without a CTO is beyond me, and raises
| some very big red flags about what that company might be up
| to.
| rimeice wrote:
| Founding "CTO" might be more suited to a "Head of Research"
| role as the company grows beyond a few engineers.
| dcow wrote:
| It's not necessarily a red flag. Sometimes the founder/CEO
| is technical and decides to solo it with hired engineers
| until not having a real CTO is a flight risk, or until
| they're too busy to be contributing code anymore, or both.
| matthewsinclair wrote:
| That is fair, assuming the CEO is technical, or technical
| _enough_. However, I see a lot of non-tech CEOs trying
| this on and in those cases, it is a red flag for me.
| p1esk wrote:
| With cofounders it's fairly typical for one to be
| technical and the other business savvy.
| captaincaveman wrote:
| Mostly someone has a Phd and convinced people to give them
| money to 'change the world', then need someone who has
| actually built things beyond a script in a python notebook.
| matthewsinclair wrote:
| Gosh. So much this! The difference between the "average"
| PhD graduate in data science and the "average" software
| engineer with genuine experience delivering production
| software that people use at scale is quite something. I
| have nothing against data scientists, but in the same way
| that I wouldn't get a software engineer to build a
| complex model (above a certain level of complexity),
| neither would I get a data scientist to build a
| production app (above a certain level of scale). Both of
| these things are specialist activities that require a lot
| of experience, wisdom, and nuance to get right. Being
| good at one does not (necessarily) mean you will be good
| at the other.
| throwAGIway wrote:
| That's simple - they find a CTO.
|
| The really hard thing is marketing and closing big clients.
| matthewsinclair wrote:
| This is true, but it also depends.
|
| There are a lot of "tech businesses" that are actually
| using pretty pedestrian tech. What they are _actually_
| doing is business model innovation with an underlying
| tech platform. Often, that tech platform can be commodity
| or relatively simple tech. There are other startup
| propositions, though, where the tech _is_ the thing, and
| if you get the tech right, then some of those other
| things end up being secondary (not irrelevant, of course)
| just not primary. This is assuming that you really have
| punched a hole thru the door with some amazing deep tech
| breakthrough, which not every company is doing, contrary
| to what they may claim.
|
| There is a YouTube video [0] (which goes back to 2019)
| that does a pretty good job of making this point. Well,
| much better than I can.
|
| To be fair to your original point: you're right that
| marketing and sales are hard. I'm just adding the
| subtlety that there are some tech businesses where the
| tech is _also_ hard, and perhaps even harder.
|
| [0]: https://www.youtube.com/watch?v=C1DlZWfI6rk&ab_chann
| el=YComb...
| throwAGIway wrote:
| I don't think we disagree. There are definitely deep tech
| businesses that are very hard to pull off.
|
| My point is - asking "how did they do it without a CTO"
| is weird, they are hiring a CTO to do it, and they're
| bringing their business experience and funding - valuable
| stuff that a tech guy probably finds annoying. The number
| one suggestion on this forum is to sell before building
| and when somebody does it, users get wide eyes?
| matthewsinclair wrote:
| I guess it comes down to what "it" is. My sense (and this
| is just a personal orientation) is that if a CEO came to
| me and said, "Hey, I need a CTO for this new business I'm
| building", the very _next_ thing they say is really
| important.
|
| If it is a) "Right, I've had this braingasm, and you need
| to build it, and for the privilege, you get 5% of the
| company!" versus b) "Right, I've had this idea, done some
| market validation, lined up our first 3 customers, and
| now we need to do some technical feasibility and put a
| team together to build this, and as CTO, I need a 50/50
| founder, what do you say?" then I will pick b) over a)
| every time.
|
| To be fair, those scenarios are cartoons on purpose, but
| I just wanted to make the point by highlighting the
| extreme cases.
|
| As far as "sell before you build" goes, I think that
| really does depend on the problem you're solving. If it's
| a tech-powered business model innovation (where the tech
| is a commodity), then we are in 100% agreement. If the
| tech is a bit trickier and you need to show something
| special before funding (let alone clients), then I take a
| slightly different tack.
|
| I'm not sure I get the last point about wide eyes, but I
| suspect it's immaterial to the bigger point.
| sponaugle wrote:
| 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,
| market, sales strategy' that will be perfect, and the
| work is finding out where those ideas are wrong and
| fixing them. The lessons from my successes and failures
| says it is only worth doing that as a founder, because
| the failure risks are both high and unpredictable. Time
| is expensive, so spend it where there is both risk and
| reward, not just risk.
| closeparen wrote:
| The AI technology consists of templating out ChatGPT
| prompts.
| extr wrote:
| I recently applied to a seed stage YC company that was
| offering me 1.5% equity for a founding eng role which they
| felt was generous. So basically I get to do all the work for
| like 1/50th of what the founder has? Get real lol. I even
| pointed this out to them and they said "it's totally normal,
| that's the way it's done". Like oh okay, as long as everyone
| else is getting ripped off too.
| titanomachy wrote:
| I went through exactly the same discussion in my last job
| search, and was assured that the offer was in line with
| industry standards. Even if this tiny company somehow
| became worth a billion dollars, I'd still make less money
| than if I'd worked as a senior engineer at Google or
| wherever. I liked the team and I think it would have been a
| fun job, but not quite fun enough to work nearly for free.
| I don't think I'll ever work for an early startup as an
| employee.
| throwaway98797 wrote:
| you should work at google
|
| startups are about the work
| sleepingreset wrote:
| OP wants to get PAID for their work and rewarded for the
| all-in effort they'd put in. re-read their comment
| throwaway98797 wrote:
| > Even if this tiny company somehow became worth a
| billion dollars, I'd still make less money than if I'd
| worked as a senior engineer at Google or wherever
|
| this is why they don't belong in start up land
|
| running and working in a start up requires a certain type
| of insanity
|
| this individual is not a fit
| lumost wrote:
| I recall a discussion where a founder kept insisting that
| a 10% offer for a pre-funding startup was beyond standard
| and that I should be lucky to get such an offer.. the
| experience left a bad taste in my mouth.
|
| Ultimately, this individual needed someone to shape and
| build the core of their product and the net of a series B
| would have been at most a wash compared to current
| employment.
| romanhn wrote:
| They're not wrong though? 10% is more late cofounder
| territory, you won't find anyone giving up so much equity
| for an early employee.
| lumost wrote:
| A pitch deck in ppt does not make a company. It really
| wouldn't/couldn't have been an employee type of
| relationship.
| pilingual wrote:
| What amount of equity would be fair?
| tinco wrote:
| In my opinion, you should take the difference between
| their market salary and the salary they're being offered,
| and consider that an investment by the employee at the
| upcoming (not past) valuation.
|
| For example if they're in SF and they're hiring a senior
| first engineer that would maybe make 250k elsewhere, and
| they're offering them 125k, and they would take the
| classic 7% for 125k, then 7% is a good starting point.
| (Of course if they already have the YC investment, then
| that would go down dramatically)
|
| If that equity vests over 4 years, then frankly maybe 28%
| is a better starting point.
|
| But what's fair isn't really relevant. What's relevant is
| what the market demand and supply is. If there's some
| dolt who would happily take 1.5% as a first engineer
| ("founding engineer") for a $125k salary cut, then the
| founders would be idiots not to take that deal. And
| frankly, if that $125k salary cut gets them their dream
| job, then maybe they're not even dumb for doing it.
| etothepii wrote:
| I think what you are actually describing is that you
| should value equity at zero. If to work at a startup you
| would need 28% equity you are describing a founder.
| That's fine but there is an enormous difference between
| these two things. There is also the question of where the
| $125k comes from to pay your base.
| tinco wrote:
| Value equity at zero? I am not sure what you mean by
| that. If an employee sacrifices $500k to work at your
| company, then it would make sense to compensate them with
| $500k worth of equity is my point. The 28% is tongue in
| cheek, if you're so early that the amount of equity
| needed to compensate your first hire adequately is 28%,
| your company hasn't really started yet, and maybe you
| should just consider them a founder.
| nkohari wrote:
| > So basically I get to do all the work for like 1/50th of
| what the founder has?
|
| Who raised the money that the company is using to pay
| salaries? When investors put money into a seed company,
| they're largely betting on the founders' perceived skillset
| and previous experience (or other bona fides like
| education).
|
| One thing that most people don't realize is that being a
| founder means that you're inextricably tied to the company
| for its lifespan. Losing a founder is terrible optics and
| can be a death sentence for a startup. Regardless of the
| actual reason, every subsequent investor conversation will
| involve an explanation of what happened.
|
| If you want more equity, you should ask for it! And you
| definitely shouldn't take a job where you'd feel under-
| compensated! But realistically, if you want a "founder-
| level" equity, you have to start your own company.
| blitzar wrote:
| > a lot of early stage founders looking for a "founding
| engineer"
|
| I always just assumed that the Entrepreneur, Founder & CEO
| had come up with an amazing idea like "build an startup (Ai
| probably) that makes a lot of money" and got some funding -
| but don't know what software is, don't know how to code and
| isn't really sure what Ai is does or can be used for; so need
| someone to put the pieces together to execute their vision
| with (for) them.
|
| Opportunity to get in the ground floor with a future Unicorn
| - must have 25 years experience, Salary $25,000, 2% equity
| with 5 year lock-in.
| jahewson wrote:
| 90 day exercise window is a big part of the problem here.
| gafferongames wrote:
| If you're certain the stock is worth something, just take
| some risk and exercise.
| chermanowicz wrote:
| I can also guarantee you points 2 & 3 are pretty wrong as well.
| Funny (and also sad) how different peoples realities can be. I
| have been worn out sitting on both sides of the table to tell
| you the truth. (One thing I will say is that within VC, the
| vast majority of the folks actually doing the work are
| sympathetic and helpful to companies, working with early/senior
| employees, but it gets lost up the food chain so to speak and
| there's usually just one or two people making decisions at the
| end of the day about a particular deal or a whole portfolio-
| and these people are generally very self-interested.)
| inhumantsar wrote:
| the lottery ticket analogy doesn't quite hit the mark imho.
|
| I've been seeing really shitty vesting schedules more often
| these days. a year in an early stage startup is often more
| intense than years in larger companies, yet they feel the need
| to push vesting schedules like 5/15/30/50 on people.
|
| even if you do stick it out and exercise those options and eat
| the tax burden, those shares can still be ignored in an
| acquisition or diluted into oblivion in an IPO if the
| agreements are structured to allow that.
|
| with a fat carrot dangling at the end of year four and the
| promise of an IPO Soon(tm), a lot of people will be more than
| happy to ignore important parts of their lives and financial
| well being for the chance of maybe, just maybe, getting access
| to that lottery ticket.
|
| I think a better analogy might be like gambling in a casino.
| investors get to write the rules and hold all the leverage. the
| worst places are mobbed up, the rest might be legit but either
| they have every incentive to keep selling you the dream of
| winning big. in all likelihood, if you keep making that bet
| you'll walk out worse off than you were when you walked in.
|
| if a startup or VC truly gave a shit about anyone outside the
| c-suite, they'd have an employee ownership program of some form
| and assign actual equity, not just options. I've yet to see
| many of them do this though because founders are the most
| likely ones to be gambling in those kinds of casinos.
| xandrius wrote:
| What would you suggest to someone who wants to work at
| interesting (non-evil) companies, wants a decent comp
| ($200k+) and doesn't mind being one of the first to lay the
| foundation with the possibility of upward mobility in the
| future?
| inhumantsar wrote:
| be a founder or a consultant, not a founding engineer.
| build up a set of specialized skills in something you love
| doing, network your face off, keep lifestyle inflation
| under control, and keep a large amount of your savings
| liquid(ish). if the right people and opportunity comes
| along, be ready to tap those savings and live off them for
| at least a year while you build the company or be selective
| about your next consulting job. like the old cliche says,
| luck is where opportunity meets preparation.
|
| if you're not that ambitious and simply want to live
| comfortably, then go to those early stage startups and
| negotiate for higher cash comp and a smaller slice of the
| options.
|
| you can make great money as a SWE, but there's a massive
| leap between that rung on the income ladder and the ones
| above it. it takes a dedicated effort to get there.
| torginus wrote:
| Sorry I'm a total dumbo when it comes to startups, but what
| do you 'vest'? I thought vesting is for stock options (maybe
| stake?). And your startup is not on the stock market, and
| won't ever be unless it gets a billion-dollar valuation.
|
| Even stake might be worthless, if the company fails, despite
| you building a kickass backend for it.
| munchbunny wrote:
| Yes, you vest stock options, and given that risk for
| startups is very much front-loaded, vesting schedules that
| are back-loaded are a big red flag for incentive
| misalignment. And that's ignoring all of the problems with
| stock options as opposed to RSU's.
|
| The baseline is something like a 4-year vesting schedule
| with a 1 year cliff and monthly after that, uniform
| distribution. Anything more back-loaded or worse than that
| is a red flag.
| inhumantsar wrote:
| most startups don't offer actual equity even though that's
| what everyone calls it. they offer options. the idea is
| that the options you'll receive will have a strike price
| much lower than what the stock will be worth in future
| funding rounds or when the company is acquired or IPOs. the
| vesting schedule defines when you can start to exercise
| those. typically you'll receive 25% of your options after
| the first year, then the other 75% will vest every month
| after.
|
| and yes, liquidity in a private company is always going to
| be an issue.
|
| all of this is why I tell everyone that their options are
| worthless right up until they're not. anyone who's burned
| out or looking at a new opportunity shouldn't include them
| in their decision making process.
| jjav wrote:
| > Getting out for an early employee after funding rounds is
| expensive
|
| Early exercise and 83(b) is a must, or forget about it.
|
| When considering joining an early startup ask if they will
| allow you to early exercise as soon as you start (well, it'll
| be after board approval but as soon as that happens).
|
| If they don't allow that or if the price is too high for your
| comfort level, don't join that startup.
| deepGem wrote:
| Every startup CEO must demystify 83(b) for their employees.
|
| If you don't have cash on hand to pay for early taxes, the
| company can pay a signing bonus or something for those who
| elect 83(b) to pay for the upfront taxes.
|
| OR
|
| Just pay market salaries and leave the choice to employees to
| do whatever they want with cash. You want to buy our company
| stock great here's the grant. You want to put your money in
| S&P index go ahead.
|
| The employee equity part needs a lot more simplification. I
| don't know why it is not as simple as
|
| Here are 2 options for you
|
| Salary 200K OR Salary 100K Equity 100K If equity 100K
| exercise 83(b) - pay taxes at 200K income OR defer taxes for
| the subsequent exercise dates. (Could land a huge tax bill)
| OR defer the exercise date for a liquidity event/secondary
| sale.
|
| Those who value risk will take the last option and those who
| don't will stick to full salary. 83(b) exercise, when
| presented like this, doesn't seem all that rosy.
|
| There could be some legalities that I am unaware of, but
| broadly this should work.
| onion2k wrote:
| The irony of being an early engineering employee (and any
| engineer really) is that the better job you do the _easier_ it
| is to replace you with someone who can maintain what you built.
| Accepting a below market salary and then doing a great job is a
| _huge_ risk.
| repomies69 wrote:
| > Accepting a below market salary and then doing a great job
| is a huge risk.
|
| By doing bad quality work on purpose will not make you learn
| anything. Better idea is to leave your underpaid position,
| start your own startup or join another that has better salary
| and compensation.
| aorloff wrote:
| Sure, in startups that don't grow.
|
| In startups that experience internet growth, you find
| yourself trying to build systems so fast and hire people that
| you aren't so worried about someone replacing the job you
| used to have because the nature of your job is changing as
| the company scales.
|
| And if the startup is not growing, you can stop worrying
| about the equity package
| ZhadruOmjar wrote:
| In my experience there has never been a good time to be a
| founding engineer even in companies that have later made it.
| It's much better to join the company 1-3 years prior to
| IPO/Sale where you get many of the benefits but significantly
| less stress. If I had worked at startups I would have been
| taking a 30-40% pay cut compared to the roles I did work and
| none of those startups have gone anywhere with most crashing
| and burning.
| bambataa wrote:
| I've heard this a few times. Could you elaborate why? Surely
| at that point, less you are hired to a very senior role, you
| are going to get a very small equity % and a lot of the
| capitalisation growth has already been priced in? In exchange
| it is far less risky.
|
| Do you just go for the market salary and treat the equity as
| a minor plus?
| palata wrote:
| > how little VCs actually value early employees
|
| Do they even pretend that they care about anything other than
| money? Like... ever? Maybe to family and friends (not even
| sure), but I mean professionally?
| albroland wrote:
| 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 were earlier events, but I had joined in 2015.
|
| That isn't to say things were roses; I know many early employees
| who, in the lead up to IPO, exercised their options and took
| enormous loans to pay AMT and were left in a terrible situation.
| tompetry wrote:
| The single data point here is Adam Neuman, so I have a hard time
| taking this seriously.
|
| I have raised 6 equity rounds as a founder of 2 companies. Never
| took a dime off the table, was never offered it, never asked for
| it. We actually did have early employees ask about it, and we
| encouraged them to not sell.
|
| Why would you, especially at early stage valuations? You're
| either bad at math, or you know you're about to fail. And who is
| buying these secondary shares? I don't know a VC or angel who
| would "de-risk" an early founder like this; it's not aligned with
| their model. It also complicates QSBS status if I recall
| correctly.
| adastra22 wrote:
| > Never took a dime off the table, was never offered it, never
| asked for it
|
| Well they certainly wouldn't volunteer the offer without you
| asking for it.
| tompetry wrote:
| > The founder in this scenario was offered $400,000 of
| liquidity at Series A and $750,000 at Series B and encouraged
| to do so by their board of investors to de-risk their own
| life.
|
| This is from the article. I would tend to agree with you.
| adastra22 wrote:
| I straight up don't believe the article. (Edit: not saying
| author is lying, but that they're extrapolating from bad
| data.) I've worked as employee #3 at one startup, co-
| founded another which achieved >$3bn valuation, and am now
| solo-founding a third. I've networked with lots of other
| founders. I've never, _ever_ heard of a secondary liquidity
| offer in a Series A.
|
| I think the paragraph above that quote explains it. They're
| talking about founders that "mortgaged their house and
| lived on ramen noodles for years." It actually sounds like
| they got screwed out of some equity. Rather than pay
| themselves a reasonable salary to support their lifestyle
| as they build the company, they instead traded equity for a
| one-time payment. That's a shitty deal, and I want to know
| who this predatory VC is so I make sure I never take money
| from them.
| ivalm wrote:
| This so much. So many folks in this thread are talking
| about series B+ and only paying themselves under 100k/yr
| and that's just a scam. Once you have institutional money
| you can just start paying yourself enough to live
| ~comfortably.
| varenc wrote:
| I always thought there was another reason for VCs encouraging
| founders to sell shares: giving them a taste of wealth. If you're
| a founder that sold 2M in stock a year ago and a 200M acquisition
| offer comes along, you'd be less tempted now that you appreciate
| the difference between small millions and big millions.
|
| If you thought you had a real chance of going much bigger, having
| cash already makes you more willing to take that risk. And since
| VCs tend to make most of their money off a couple very big wins,
| it's worth it to have founders that won't settle for less than
| billions.
| JumpCrisscross wrote:
| > _another reason for VCs encouraging founders to sell shares:
| giving them a taste of wealth_
|
| VCs are wealthy. Some of them weren't born wealthy. The best
| among them recognise that removing the worry about _e.g._
| paying rent will make a better CEO.
| repomies69 wrote:
| It is about aligning risk preferences. Being "all-in" is not
| likely a good thing for a founder. The founder prefers to
| take less risk which results to mediocre exit for the
| investor. The investor would rather have bigger exit or
| nothing, and giving the founder some money is helping to
| aling the risk preferences a bit towards the same direction.
|
| As for employees? They are typically not calling the shots
| about company direction. I don't see a reason why investors
| would care about employees.
| mezyt wrote:
| > As for employees? They are typically not calling the
| shots about company direction.
|
| They can be motivated or not, knowing that the founder made
| big bucks and they made nothing is bound to lower
| motivation. Thus the title of the article, founder's
| liquidity is a well guarded secret.
| blitzar wrote:
| > removing the worry about e.g. paying rent
|
| Only once the startup has matured at least a little, too much
| money too early and your hungry founders become lazy.
| aaronbrethorst wrote:
| _If employees realize they are taking more risk than the
| founders, maybe they 'll ask for more compensation, maybe they'll
| congratulate the founders and move on with their day, maybe
| they'll start yelling: "I'M TAKING SO MUCH RISK, IT'S SO HARD TO
| BUILD A COMPANY, I DON'T EVEN HAVE ACCESS TO LIQUIDITY!!!". And
| maybe they're right._
|
| This is why I think the term "Founding Engineer" is often just a
| fancy way of saying 'sucker.'
| carliton wrote:
| Many companies don't get to Series A and very few companies get
| to Series B. Even if they do get to Series A or B, they won't be
| able to raise the amounts you see in the news and have heavy
| dilution.
|
| Very few founders have double digits percent ownership by Series
| B and Series C.
|
| Liquidity of $400k or more is a lot and isn't available for many
| founders.
|
| All of this after 7 to 10 years of working 80+ hours week, no
| social life, loosing family, sacrificing health, taking less than
| $100k/year salary, constant worry of failure, dealing with ups
| and downs of employees, being a support system of everyone in the
| company while not being one for their own families, and no
| guarantee of success. All of this for seeing their dream come
| true because failure would be worse.
|
| I think the OP should work on his company for more than 4 months
| and have more than 10 employees for at least a year to truly
| understand what it is to be a founder.
|
| Also 20% option pool and exercising options up to 10 years are
| not uncommon.
|
| Source: 2nd time founder.
| ivalm wrote:
| > All of this after 7 to 10 years of working 80+ hours week, no
| social life, loosing family, sacrificing health, taking less
| than $100k/year salary
|
| If you are taking less than $100k/year salary for 7 to 10 years
| while also absolutely no-lifing then that's on you.
|
| It's true that early on you prob take ramen salary, but that's
| for one or two years. You can prob scale to 200k by year 3 if
| your thing is viable. No-lifing when your startup is in year 5
| is just a personal choice. If by year 5 you aren't on a path of
| unicorn then prob it's time to evaluate if it's worth so much
| sacrifice or if you should run it as a lifestyle business (or
| just go do something else).
| ZhadruOmjar wrote:
| If the product isn't making enough money to pay people by
| year 5 you're not a startup founder you're just unemployed
| with a side project.
| joeblubaugh wrote:
| After the Series B for my last company the three founders owned
| something like 45% of the outstanding shares, and when they
| sold took out something like 40% of the price. What were the
| rounds like that led to less than 10% after 3ish rounds?
| sokoloff wrote:
| I read GP as very few founders _individually_ have double-
| digit ownership, not collectively.
| sunk1st wrote:
| 45 divided by three is 15 is double digit.
| gitfan86 wrote:
| I don't the the author is saying that founders don't deserve
| 400k after 7 years of hard work.
|
| He is saying that it is sketchy that this is hidden from
| employees.
| elzbardico wrote:
| No. the author is not saying that.
| palata wrote:
| > I think the OP should work on his company for more than 4
| months and have more than 10 employees for at least a year to
| truly understand what it is to be a founder.
|
| Have you been an employee in a startup? Because in my
| experience it has a lot of the downs of the founder, but none
| of the ups.
| gafferongames wrote:
| So start your own company then.
| palata wrote:
| Maybe I should, so that I could abuse from the employees
| and then explain how I deserve to get rich if _MY_ startup
| succeeds but my employees don 't (because it is _MY_
| startup, you see? I don 't need them).
| che_shirecat wrote:
| Good luck with this! Let us know how it goes.
|
| Founders have leverage, because they started the company.
| If you don't like it, start your own and don't join
| someone else's.
| palata wrote:
| Where I come from, that's an ultra-liberal point of view.
| "Instead of saying that Elon Musk does not deserve 68b as
| a salary (because no human does), then maybe you should
| become ultra-rich yourself".
|
| Sure. You just completely missed my point.
| nkohari wrote:
| > Have you been an employee in a startup? Because in my
| experience it has a lot of the downs of the founder, but none
| of the ups.
|
| Have you been a founder? If not, I'm not sure you fully
| realize what goes into the job. Everyone wants to be a
| founder, but nobody wants to _be_ a founder.
| palata wrote:
| > I'm not sure you fully realize what goes into the job.
|
| Can it be a lot worse than working as many hours as
| possible and burning out? Because startup employees do
| that, without the compensation the founders get.
| gen220 wrote:
| I often think about how if more people understood the median
| cap table life cycle from Seed to Acquisition/Shut-down/IPO,
| there'd be half as many VC-funded companies and twice as many
| bootstrapped companies every year. Thank you for sharing your
| experience towards that goal.
|
| Unless you're doing some niche b2b thing where you have no
| personal connections (in which case, why are you doing it at
| all?), the differential financial returns of going with VC are
| often negative, if not neutral. The main diff is you can "fail
| up" into the investor class if you prove your worth but the
| business goes sideways. But even that is a dissatisfying career
| for most founder-type people.
|
| To whoever needs to read this: start your own company, avoid
| raising money.
| knappe wrote:
| Look, I've worked for 5 companies, 1 of which I knew would never
| sell and I had inklings that one other probably wasn't going to
| sell and instead was a lifestyle business for the founders, and
| the other 3 had successful exits. I won the lottery 3 times but I
| quit the game because I was tired of making VCs and founders rich
| while taking home breadcrumbs, comparatively.
|
| My first startup I walked with a paltry sum and the owners
| suddenly went from being doctors with a side hustle to private
| investors. That was my first warning sign and really drove home
| the need to invest in myself because it certainly wasn't going to
| be someone else doing it, despite the talk of changing the world.
| It was really, really obvious that the payouts were stacked in
| one direction and it certainly wasn't on the side of employees,
| early or not. I still enjoy working for small companies, but the
| hype and bullshit are really tiring and so very cultish. I'd
| really suggest treating the startup life like a scratch lottery
| ticket, because that is all it is. If you win, you're gonna get
| paid but it won't be life altering money, just like a scratch
| lottery ticket. Plan around it being worth zero and go in eyes
| wide open.
| throwaway2037 wrote:
| > Plan around it being worth zero and go in eyes wide open.
|
| This is the best advice I have seen on HN about start-ups.
| Note: I have seen it repeated multiple times.
| _heimdall wrote:
| I've joined two startups now as the 2nd and 4th engineer. I
| went into both expecting nothing from options or shares, and
| knowingly accepted a lower than market salary because I liked
| the teams and projects.
|
| I couldn't be happier. Neither panned out for me with regards
| to stocks, and I definitely didn't get rich in the process,
| but I very much enjoyed the jobs and when I decided to leave
| it was only because the business direction wasn't a fit for
| what I wanted to spend my time on.
|
| It sure sounds like a privledged position, but it more came
| down to us living cheaply compared to our income and having
| the breathing room to trade a higher salary for work that I
| really enjoyed. I hope more people can make that tradeoff,
| it's much more fulfilling in my opinion
| user_7832 wrote:
| > the owners suddenly went from being doctors with a side
| hustle to private investors.
|
| Did the owners sell the company or get some sort of payout? I'd
| imagine if they were making decent money they'd have kept the
| business alive, right? Would you be okay sharing the name of
| the place?
| paulddraper wrote:
| IDK how secret this is.
|
| But the reason for founder equity -- as with anything in a free
| market system -- has nothing to do with _deserve_ and everything
| to do with demand /supply.
|
| There are many more we early employees willing to take 1% equity
| than founders willing to offer it.
| golly_ned wrote:
| I wish I had known so much more about this before joining a hot
| AI startup a few years ago. It raised its Series C at $850MM
| valuation. The business was doing terribly; investment was
| exclusively speculative with no business success to speak of.
|
| The founders made tons of cash. Layoffs ensued. They're still
| kicking; they've pivoted to Gen AI which has given them new life.
| I had no idea how terrible the deal was. I regret so much about
| that time and the opportunity cost of joining that place.
| classified wrote:
| I couldn't care less. They can keep their secret and stick it
| where the sun doesn't shine.
| saulrh wrote:
| The founders I've known were already wealthy when they decided to
| do a startup. They aren't at risk because even if the startup
| falls through without making a cent they have enough money in
| their bank account to withdraw $200k/year for thirty years.
| There's no risk there.
| bux93 wrote:
| Most can even file for personal bankruptcy and then lounge
| around in their parent's home for a bit. (Or a house in the
| name of their spouse-with-a-prenup.) My parents didn't have a
| garage for me to found a business in.
|
| When people helpfully suggest, why don't you start your own
| business, they usually have a substantially bigger than average
| support network and liquidity to begin with. I never get those
| suggestions from people who've actually experienced hardship
| due to job loss or financial stress.
| FactKnower69 wrote:
| Why, simply pawn some of Father's apartheid emeralds to
| Tiffany's, why didn't any of you lazy imbeciles ever think of
| that?
| throrway12 wrote:
| 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 told us
| Saturday that he wanted it built by Monday (with 3 total devs).
|
| - Founders message you 24 x 7. If you don't reply, there's a
| "serious discussion" to be had next time.
|
| - Non Accomodating of anything because "It's a startup".
|
| I left the place after 10 weeks. I saw 3 people leaving the 6
| person company in these 10 weeks. The ones who stayed were under
| heavy financial stress or had drank the kool aid.
| throwaway2037 wrote:
| This is a great post. No need for the throwaway account!
| > Founders message you 24 x 7. If you don't reply, there's a
| "serious discussion" to be had next time.
|
| That one is my favourite.
| blitzar wrote:
| > Founders message you 24 x 7. If you don't reply, there's a
| "serious discussion" to be had next time.
|
| You drop them a bunch of messages to get signoff for the
| thing that absolutely had to go live on Thrusday and dont
| hear from them till Sunday because they are tripping on
| Ayahuasca in the desert.
|
| There's a "serious discussion" to be had next time about your
| work ethic.
| shoo wrote:
| it's important to figure out where to set your own boundaries.
| people out to exploit you will seek to see how far they can
| push. congratulations for leaving.
|
| one thing that catches out some junior folks is that they may
| believe this kind of behaviour from bosses is normal and
| unavoidable as they have only worked for exploitative bosses at
| places with toxic cultures. you can do better, you're worth it.
| get out. find a more mature company with professional managers,
| where it's normal to leave the office on time and turn off all
| your work comms and leave all work-related messages unanswered
| until you're back in the office and getting paid to think about
| work again.
| grvdrm wrote:
| I think this is the right point, but it's tough.
|
| People don't like to say "no" or "can't do it in that
| timeline" and other permutations of these statements. If you
| can't even challenge or disagree with anything, then you're
| doing something wrong, or you're in the wrong environment, or
| both.
|
| 20 years into my career and still practicing this.
|
| One hack: I can't respond when I'm asleep! So, I head to bed
| pretty early (9:30-10 EST).
| grvdrm wrote:
| 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?
| Spoom wrote:
| There are many reasons that startups tend to have young
| employees.
|
| As someone in a similar place in my life, I'd never take a
| job like that either.
| grvdrm wrote:
| Yeah - financial risks aside. It just seems difficult to do
| this without major disruptions to family life as I am a
| part of it. Of course, you can hire as many people as you
| need (if you have the means) to resolve the logistical
| problem. But my absense isn't replaceable like that.
| torginus wrote:
| Sorry if founders already raised a huge valuation, why didn't
| they hire more devs?
|
| I'm sure what can be done with 996 style slave labor with 3
| devs can be done with 6 devs working 9 to 5. It's not like they
| couldn't afford the salaries (and you mentioned they weren't
| paying that much anyways).
| throrway12 wrote:
| because they are cheap ass people. Pivoted 3 times since 2021
| to the latest hype, currently building another generic AI
| app. They still have 5-6 years of runway left with current
| burn-rate.
|
| If they go all out in 12 months, they would actually be
| considered a winner/failure. Purgatory is comfortable.
| surfingdino wrote:
| This and my own experience with employee stock options led me to
| reject any work for startups that offer stock options. It is a
| way to make you work hard and allow to be treated like dirt for
| less money. The lowest point was having to walk across town to
| the office to eat energy bars from the office kitchenette,
| because I could not afford a bus fare or food as my pay was
| delayed by a week over Christmas. Meanwhile, the founder was
| holidaying in Dubai, driving a BMW X7 to work, and showing off a
| house with a small park and a pond bought in leafy Berkshire.
| Employee #1 treated the rest of us like dirt. I got laid off in a
| round of cuts just before my options kicked in and thought it was
| unjust, but a year later the company was sold to a competitor and
| the investors got a nice return, the founder got another pot of
| gold, and the employees with stock options got nothing, because
| it was a private sale and not an IPO. Employee # 1 was in a bit
| of a shock allegedly.
| segfaltnh wrote:
| I don't believe a private sale entitles one to ignore a stock
| options legal rights. What are the relevant details here I'm
| missing?
| surfingdino wrote:
| It was 10+ years ago. I don't have the details, but the
| riches they were underpaid for never came true. The founder
| made out like a bandit.
| throwawaythekey wrote:
| 1) The common stock that employees get via options is the
| last in line for the pot of gold.
|
| 2) There's plenty of bullshit that can be used to cheat an
| employee out of their options. One example here [1].
|
| [1] https://techcrunch.com/2011/06/26/skypes-worthless-
| employee-...
| hmottestad wrote:
| Maybe if the founder has a majority they can sell their
| shares to someone and the company keeps on running. If the
| new owners don't intend to ever do an IPO I guess the
| existing employees end up with options to buy stock in a
| company that they will never be able to sell. Only upside
| would be if new owners take out a dividend, since that would
| assumably be a fixed amount per stock regardless of who owns
| the stock, unless of course the new owners are able to
| circumvent that by doing an unequal dividend payout that only
| goes to certain owners.
| hylaride wrote:
| For IPO sales, all options can eventually be converted into
| common shares then sold (often after various lockup periods
| giving other investors chances to cash out first).
|
| For private sales, which can be structured in a variety of
| ways, there's a bucket order that can vary depending on the
| share structure (remember options aren't shares until
| converted). Most VCs have terms that they get paid out first
| to recoup their investment (and often then some) before
| common or option holders get paid out.
|
| So for a simple example (I'm making these numbers and
| percentages up): Say if VCs invested $10m for 30% of a
| startup with a guarantee of first rights to get that back and
| 50%, then a founder class of shares owns a percentage, say
| 50%, and then there's a class of common shares/options that
| are in theory 20% of the company. So in thoery, the investors
| own 30%, employees on 20%, and founder(s) 50%.
|
| Let's say then that the company then sells for $20m. The
| investors get their $10m back, plus $5m for their 50% return
| guarantee. The founder class of shares has rights to 50% of
| the company, but all that's remaining is the $5m left over
| which is 25%; they get it all. Everybody else gets shit
| unless the buyers want to retain any employees and give them
| anything extra (this can happen).
|
| Things like this happen a lot. I knew people that worked at
| 500px (the photo site) and eventually the investors forced a
| sale after the business stagnated that even the founders got
| nothing in the end.
| benjaminwootton wrote:
| I think it's entirely reasonable for a founder to take money off
| the table.
|
| The founder possibly walks away from a 6-7 figure opportunity
| cost working for a big corporate or FAANG. In return they take
| zero salary.
|
| All of the money that begins to come in is then used to pay
| employees.
|
| Maybe they raise some funds and pay themselves a below market
| salary for years.
|
| A few years later they are over $1 million in opportunity cost
| and still owning a lottery ticket.
|
| By this time they are a bit older, have a family, want to buy a
| house etc.
|
| They are also massively wedded to the project for as long as it
| takes, so strapped in for the long haul.
|
| The founder should be able de-risk at the next funding round and
| not continuing to roll it all for the benefit of VCs.
|
| The same is probably true of early employees, but a lot of the
| factors above are dialled down. They didn't work for zero, salary
| wasn't under market by such a degree and they haven't had such a
| high opportunity cost.
| xandrius wrote:
| In what world 6-7 figures at FAANG is something a founder is
| actually "walking away" from?
|
| First of all, it assumes everyone wants to work for those
| companies and assumes all founders could get such high paying
| jobs with a snap of the finger.
| benjaminwootton wrote:
| Not everyone can but most founders I know could be earning a
| very high salary in industry.
| gafferongames wrote:
| ^--- This
| wafriedemann wrote:
| The question I am most interested in is: How do people even get
| funding (or in other words: Who gets funding)
|
| I'd assume it's 'references', i.e. which school you went to,
| which university you went you, who you know/who knows you
|
| Where are early employees from? Are they still from the same
| elite circles?
| Terretta wrote:
| > _How do people even get funding (or in other words: Who gets
| funding)_
|
| Second question first, early employees are from anywhere, just
| make sure they are hungry to ship. You want devs able to self-
| organize and self-manage amid ambiguity and pivots, and filled
| with an urgency to get working software in the hands of users
| to get feedback to iterate, and you want sales/product able to
| listen and drive focus on product that users believe could be
| 10x better than however they meet their need today.
|
| Answering your first question, this answer sounds cynical, but
| this is how the math usually has to work for VC to give
| outsized returns to pools of investors in VC funds:
|
| You need to have a 20% to 5% chance at 2x - 10x annualized
| growth generating high cash flow and high margins reinvestable
| in the business with ability to switch modes and cash out or
| IPO in 5 years to let investors exit by year 7.
|
| In other words, don't aim for a solid dependable low risk
| business plan. Aim for a unicorn business plan. To get funding,
| your business plan should be so compelling that in a funding
| round of 10 startups, yours is the one delivering returns that
| make up for the other 9 blowing up, and _still_ giving the
| investors in the venture fund returns that are a multiple of
| the stock market.
|
| Remember VC have customers too, their investors. Their
| investors want a basket of startups that handily beat just
| parking their money in a market-beating ETF of Apple, Meta,
| Tesla, Nvidia, Netflix, Alphabet, Microsoft ...
|
| In practical terms, your business plan must convincingly show
| that the startup can grow exponentially (not just "up and to
| the right" but a curve) and overcome inherent risks (show
| you're risk aware, and already planning to beat the risks).
| Investors are looking for ideas that can stand out in a
| portfolio where the rare successes can de-risk returns that
| _far_ outweigh the more common failures, for their portfolio to
| generate overall profitable returns.
|
| To get funding, position your startup as a standout gem for a
| portfolio.
| jensneuse wrote:
| As a founder with multiple years of experience I can say that
| this post and a lot of other comments are coming from people who
| don't understand the life of a founder. It's not so much about
| risk. My peers earn 5-10x my salary. I'm paying my employees more
| than myself. I have to provide for 3 kids and we have a lot of
| debt on the house. I'm working day and night, 24/7. I don't like
| the phrase "taking money off the table". If I can sell some
| equity, this is none of your business. I started this company
| with my co-founders. Start your own company and try reaching
| Series A. It's almost impossible. Most people are not capable of
| getting there.
| colordrops wrote:
| To be frank that's your call to work 24/7 with 3 kids and not
| the business of your employees. They are free to negotiate how
| they please and we are free to take issue with certain founder
| behaviors. It's all business and it's a free world.
| erremerre wrote:
| So you either you are neglecting your kids, or you are calling
| work at building legos with your kids?
| defrost wrote:
| Be kind. Don't be snarky.
| https://news.ycombinator.com/newsguidelines.html
| erremerre wrote:
| My point is that he is not working 24/7 as he says. He just
| have a business to run, that does not mean they work all
| the time, as they try the rest to convince us.
|
| Neither working all the time should be rewarded with a
| status in which they can't be critised, but even if such
| reward shall exist, he aint working that much.
| tock wrote:
| Aren't most early employees also working very long hours for
| 1/4th the pay and maybe 1% equity? A lot of them also have kids
| and debt. The life of a "founder" is not really that different
| from how most people in the world make ends meet. Heck most
| small businesses run on loans not VC money and are a ton more
| stressful.
| throwaway2037 wrote:
| It's sad this post was so downvoted. You speak the truth from
| your view. We need more of that here. > My
| peers earn 5-10x my salary.
|
| I need to troll a little bit here. So... their package sounds
| much better. Way lower risk. Are you shooting for the moon
| (want to be 1B+?)... or what?
| benreesman wrote:
| Silicon Valley's best kept secret is how Altman made his first
| few bucks.
|
| Everyone just buys that someone with a failed startup has capital
| that better founders lacked.
|
| Invested in X with what Y bro?
| sneak wrote:
| > _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.
| logicallee wrote:
| Wouldn't most 9-5 employees stop working if they had a sizable
| liquidity event?
| KaiserPro wrote:
| As an early stage engineer that was bought out by a FAANG, I can
| assure you that most of the hype surrounding buyouts is mostly an
| exaggeration.
|
| Sure some people get millions, but most people do not, even early
| stage engineers.
|
| Think about it, you as an engineer, have deliberately avoided
| working at $bigCorp, and are about to be given $5m in shares.
| Would you continue working at $bigCorp? no, you'd take the money
| and fuck right off.
|
| Ok Ok you say, but look at the headline buyout figures Google
| buys a company for "450 million" that startup having raised 65m
| in capital for a valuation of x.
|
| so, you as an employee have an option for 0.1%. Awesome, you're
| gonna get 450k right?
|
| No.
|
| The 450M is the headline figure, The PR figure. Its not actually
| how much the company is bought for (well it rarely is)
|
| Google will pay off the 65M from investors, plus some amount,
| maybe give some shares. This will value the company at say
| 85-100M in terms of cash paid for actual shares.
|
| oh sweet, so you'll get 0.1% of 100M right? well not always.
| There is debt seniority and weird structures that mean that
| certain investors are paid more per share than others.
|
| So it might mean that the pool of employee money would be 10M or
| 1M. or even none. The structure is normally bespoke and
| deliberately opaque.
|
| Ok, so fuck, not that much money.
|
| If you are lucky, you'll get a job offer from google. This is
| where the head line figure comes in. Say Google pays 100M for the
| actual company, in actual cash, the rest of that headline figure
| comes from share offerings.
|
| That is, if you join google, you'll get the standard level of
| pay, plus the normal share offer. However you'll then get an
| additional share offer from the headline figure. This could be
| double, or many multiples of the normal share offering.
|
| TL;DR:
|
| The headline buyout figure for startups is mostly fiction. You'll
| only get lots of money, if you are part of the 0.01% that IPO and
| stay long enough to get the full offering, even then thats not a
| given. The second best outcome is getting bought out and serving
| your golden handcuff period.
| moss2 wrote:
| It is too bad it is up to the founders themselves to offer
| liquidity to employees. Founders are financially incentivized to
| not offer anything, so you're counting on their sense of justice
| and morals to overcome their sense of personal gain. This should
| be regulated.
|
| (Yes, this is a political opinion. No, I am not American.)
| bux93 wrote:
| I thought "founder liquidity" would refer to the supply and
| fungibility of founders. I've heard that, although ZIRP is over,
| there is still a large supply of capital, which implies that
| there's not enough good idead / founders to go around?
| ergocoder wrote:
| Supply and fungibility is more for kpop idols
| nikisweeting wrote:
| Wait wtf founders are taking liquidity in second rounds?!
|
| Had I known this was possible I would have totally changed my
| strategy years ago.
|
| I've founded 3 startups and always thought I could only take out
| whatever ramen salary I could defend to the most scrutinizing
| investors. I've given a heck of a lot more in employee bonuses
| than I've ever taken directly out of the investor pot, where was
| this "de-risk your own life" essay all those years ago!
| tempusalaria wrote:
| One under appreciated dynamic that has changed is that companies
| with limited revenue/PMF are raising more money at higher
| valuations. This mean that more early employees are being hired
| into less certain, less profitable situations, and the equity
| they are getting is a smaller percentage behind more liquidity
| preferences.
|
| E.g. There are numerous AI startups I've spoken to in the past
| year with negative gross margins, 8 figure raises, and >100x ARR
| multiples. $1mln in paper equity in such a company is probably
| intrinsically worth <$100k.
|
| Being an early employee at a startup right now is a really bad
| financial decision imo
| not_a_dane wrote:
| The entire system seems like a scam. Thankfully, the COVID-19
| pandemic and the Ukraine war have deflated startup valuations a
| bit. I believe another crisis is looming in the near future, and
| once it passes, we should be in a better place for the next 5-10
| years.
| franciscop wrote:
| I feel like the article contradicts itself in this point:
|
| > Investors and founders both tend to think that if employees
| knew founders were getting liquidity that that would negatively
| impact employee morale (it wouldn't)
|
| > If employees realize they are taking more risk than the
| founders, [...] maybe they'll start yelling: "I'M TAKING SO MUCH
| RISK, IT'S SO HARD TO BUILD A COMPANY, I DON'T EVEN HAVE ACCESS
| TO LIQUIDITY!!!". And maybe they're right.
|
| How is "not impact morale" and giving an example of employees
| shouting as a possible outcome when they find out not contradict
| each other?
| dumbfounder wrote:
| 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 on hold, and undergo outsized stress
| that is largely alleviated by the liquidity event, enabling them
| to plow forward and shoot for the moon. There are outliers that
| are insane, but you can't throw the baby out with the bath water.
| KingMob wrote:
| ...? Much of what you described applies to early employees,
| too.
| doodda wrote:
| 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.
| mattgreenrocks wrote:
| The mark of a good post!
| matsemann wrote:
| It also reminded me about another post I read here, probably a
| few years ago, that outlined how stuff works. And my takeaway
| from that one, was yet another way that early employees get
| shafted, as they get diluted a lot, and other employees being
| brought on later end up with a better exit in the end. But I
| can't remember the details or find it.
| blitzar wrote:
| You managed to make both parties sound like absolute tools.
| JonChesterfield wrote:
| Not the founders clearing life altering capital returns from
| the pre-revenue company seeking product market fit. They're
| winning.
| arolihas wrote:
| How does the employee sound like a tool here?
| reportgunner wrote:
| Oh yes it's time to shoot the messenger.
| rk06 wrote:
| Yeah, this one lives up to headline!
| largbae wrote:
| If I hadn't found your comment I was going to say this is the
| best HN I've seen in months.
| boringg wrote:
| Good point. Its interesting to see the comment thread here.
|
| The part to me that I see as surprising is dismissal of the
| stress of taking VC money and being a founder. It is a job
| thats incredibly demanding. Which is eye opening to me that
| that's how people see it.
|
| If it was so easy why aren't there more of them and more
| companies?
|
| Early employee is tough - unless the company is on a
| significant trajectory the options should be valued at zero.
| That said being an early employee has other benefits such as
| being part of an interesting team and work problem. Definitely
| not a cushy job though (and nor is a founder) - both are
| significantly hard and for a certain personality type.
|
| Everyone else go join a FANGG and get paid if thats what you
| are looking for comfy life benefits.
| peter422 wrote:
| The main advantage of being an early employee is that you can
| leave.
|
| Founders generally need to go down with the ship, early
| employees do not. If the growth trajectory starts to falter
| after 1.5-3 years, just get out of there and try another
| company. Let the founders clean it up (and you have equity in
| case they do).
| pydry wrote:
| >The part to me that I see as surprising is dismissal of the
| stress of taking VC money and being a founder. It is a job
| thats incredibly demanding.
|
| Sounds like you're dismissing the idea that being an early
| employee is hard.
| boringg wrote:
| >>"Early employee is tough".
|
| ^^ Literally in my comment.
| pydry wrote:
| Yes and the people dismissing how hard it was to be a
| founder were comparing it to being an early employee.
|
| So, you're saying that it's hard but "not that hard
| actually".
| boringg wrote:
| Its a different risk profile and a different level set of
| responsibility. Founder has the entirety of the company
| on their shoulders. Early employee has a lot - but they
| can leave and join another firm if they want.
|
| However my original comment was pushback about how easy
| it is to take VC money (comments I have seen) and how
| low-risk being a founder is - which is patently false.
| slashdave wrote:
| > If it was so easy why aren't there more of them and more
| companies?
|
| Wait, is this a serious question? The limiting factor is VC
| money, of course.
| steveBK123 wrote:
| I was aware something along these lines was going on when a
| profitless not-quite-unicorn (and still private & profitless 6
| years later) startup founder bought the nicest penthouse
| apartment in my building some years ago... and then spent more
| money gut renovating it.
|
| It wasn't Adam Neumann sized liquidity but certainly mid single
| digit millions at least. His company meanwhile has floundered
| with wave after wave of layoffs post ZIRP era.
| koalaman wrote:
| 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. Depending on how hot your
| startup is that can be a lot of money.
|
| Anyway that ended in tears, but I got what I was looking for from
| it. A look under the covers of the hot VC backed startup roller
| coaster. I may be getting old and cynical, but it looked
| considerably more exploitative than what I saw at Google.
| Obviously depends on the character of the founders and leaders,
| but the structure seems to be setup for toxicity.
| palata wrote:
| I have been working in multiple startups, I've come to think
| that it's a Ponzi scheme for the founders.
|
| Generally underpaid and quickly toxic. It is an experience, but
| it's important to know it.
| RhodesianHunter wrote:
| It's a Ponzi scheme for VC and other investors.
|
| Founders just get greased palms along the way if they're
| successful.
| koalaman wrote:
| Yeah agreed to both of you. I had the same thought.
| geepeeyoudata wrote:
| 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 table, so you dont know what
| the denominator is. 30,000 shares of What!? No one would tell
| you. You should run.
|
| Third, the VCs installed a buddy from SV as CEO who was
| creative with revenue. Great -- so they make their bonuses
| based on creative revenue, but the company gets saddled with VC
| rounds they have to dig out of w/o showing real revenue growth.
| Once you get SV insiders being placed into the company, often
| with their entourage of cousins and neighbors' kids as Director
| of HR or Director of Finance -- RUN FAST. The company is being
| strip-mined for cash, while Engineers slave away trying to code
| their way out of the wreckage left by locusts.
|
| The C-Suite operated in a separate tier of the company with a
| heads-i-win-tails-you-lose setup. You could tell -- no way you
| are all driving Tesla Plaid on a "startup salary" -- the
| "startup salary" was for suckers, engineers, and those not in
| the VC-back-scratch loop.
|
| My advice to everyone -- if you want risk, be a founder. Not
| Engineer #1 or #10. If you want balanced risk, go to a Series C
| or D company where you dont have the risk of fake accounting.
| If you want money, go to a public company with real accounting
| rules, visible revenue, visible liabilities, and more
| accountability.
| djbusby wrote:
| If you are early and they not sharing the cap-table it's a
| red-flag.
| pragma_x wrote:
| > 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, or already has been, made
| elsewhere.
|
| What really steams my biscuits is when I figured out how the
| payout was worth less than the unpaid overtime (never more
| than 50 hours a week), weekend support time, and travel time
| spent in my years there.
| randerson wrote:
| 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 startup
| so that you have the cash reserves to take the risk.
| davedx wrote:
| Wait, you couldn't find the 10k cash to exercise 5m worth
| of options?
| xnx wrote:
| You typically don't know what they're worth when you
| exercise the options. Often it turns out to be nothing.
| randerson wrote:
| The paper value was far lower during the exercise window
| & no guarantee it would ever be liquid. The AMT would
| also have dwarfed the 10k.
| hylaride wrote:
| What they likely meant was that the options would
| eventually be worth $5m, but not when they left the
| company and could exercise them.
| sshconnection wrote:
| 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 income, and have to pay
| that off with early engineer salary and no liquidity on
| his equity.
| zenlikethat wrote:
| Even if you don't see the cap table, any company you talk to
| should be clear and consistent in disclosure of facts like
| number of shares outstanding, including viewing it in tools
| like Carta. You are basically describing the abusive version
| of a startup and then saying all startups are bad.
|
| I actually think going to a Series C or D is not the ideal
| play. It's better to join an early company, with good
| leadership, reasonable if not mind blowing salary and cheap
| shares. Then, work hard, but not brutally hard. Somewhere
| that you enjoy the people, the work/product, and you can
| level up a lot. The options are cheap, and you can bail to
| FAANG at any time if you burn out. Realistically, that's your
| shot at making 1% of $Xmm without completely hating your
| life. It will be a rare company so, yeah- be picky. I don't
| know why all startups get lumped into one when there's a lot
| out there for the discerning employee.
| e40 wrote:
| Spot on, and I say this as a founder of a company that didn't
| fuck over the employees. 40 years and still going, and most
| people have been with us for more than 25 years.
|
| I didn't get rich because I wanted to sleep at night, but
| people in my orbit (probably me in theirs?) advised me very
| differently.
| bagels wrote:
| My early engineer story is a lot different than this. 0.7%
| sold shares for ~1M at the end of 4 years. There is a bit of
| luck, and a bit of picking the right one to join. Don't join
| the ones that don't tell you what your equity share is and
| what the last valuation was to start with.
| carterklein13 wrote:
| I did a similar thing to you. However, I do feel like cutting
| your teeth as a "founding engineer" at an early startup has 2
| major benefits:
|
| 1. You get to see what it's like under the covers, as you said.
| It's not nearly as glamorous as it looks from the outside. And
| yes, as an early engineer, you share in a lot of the downside
| without nearly an equal share of the upside.
|
| 2. You get to leave. Unfortunately, the startup I joined
| entered a tailspin. But, my name wasn't attached to the
| company, and I didn't have a fiduciary obligation to our
| investors. I had a lot of "stake" myself after putting in years
| of 12-hour days, nights and weekends, but at a certain point I
| saw that my career was actively being harmed by staying. That
| "founding engineer" role on my resume got me the job I'm at
| now, at a level that skews higher than my YOE.
|
| Do those two points mean you should get a fraction of the
| equity (or rather, a fraction of the options) as the founder?
| Honestly... maybe. I've now seen a few founders fail. It can
| really be a career-killer.
| palata wrote:
| > Do those two points mean you should get a fraction of the
| equity (or rather, a fraction of the options) as the founder?
| Honestly... maybe. I've now seen a few founders fail. It can
| really be a career-killer.
|
| And I have seen a few founders fail and enter bigger
| companies at a pretty high position. Not sure I would relate
| that to how much money they should get in case their startup
| is one of the lucky ones.
| zenlikethat wrote:
| Getting to leave is so underrated. Nothing keeps your head
| above the doom and gloom like knowing you aren't shackled to
| the thing, and the world's your oyster if you need to move
| on. We live in a weird world if people don't think a gig with
| $160K salary, 2% of the company, where you can work hard but
| not 24/7, and _leave any time you want_ is a bad gig. That
| 0.25-0.5% after one year that you get is PERMANENTLY gone for
| them even if you just fuck off after a year. Years later it
| could be worth millions.
|
| But anyway, as founding engineer you get to set the systems,
| culture, language etc. maybe some people don't want the
| responsibility but for others it's an opportunity to build
| things out in our own image and learn a lot.
| sackfield wrote:
| As an engineer you really have a finite amount of good working
| years, and accepting startup salary vs big tech compensation is
| a bigger risk than founders are willing to generally admit.
| hliyan wrote:
| There was an oft-repeated response back in the day (but gladly
| rarer now) when you dig too deep into employee benefits at
| startups: "If you're offered a seat on a rocket ship, don't ask
| what seat!"
|
| To this, I usually reply "Unless the seat happens to be in a
| stage that gets jettisoned before reaching orbit".
| oblio wrote:
| 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 know if anything more recent has
| gotten to that level of widespread distribution of the riches.
|
| I kind of doubt it, such an event would probably be considered
| Communist by modern standards :-)
| kaiokendev wrote:
| Facebook, although it didn't have nearly as many employees
| upon its IPO
| ilamont wrote:
| _an estimated 12,000 millionaires_
|
| One of them is my neighbor, an early Microsoft employee. She
| basically retired in her 30s.
| o283j5o8j wrote:
| I did early employee several times because I didn't know any
| better, didn't have anyone around to tell me not to. I won't do
| that again. All the risk, none of the reward. 1% of $10-20M
| after 4+ years of 80hrs/wk is less than the difference between
| a startup salary and a good salary over that same time.
| jejeyyy77 wrote:
| most i know who work as eng #1 (non founder), are new grads who
| couldn't get into FANG. So mainly just looking for
| experience/inflated job title to boost their resume.
|
| So not like these startups are getting top senior talent who
| obv will want to get PAID.
| tmpz22 wrote:
| I went this route and now have a resume of inflated titles. I
| learned a lot and believe I can do some things in the top 10
| percentile, just not the things many companies are currently
| hiring for (top 10 percentile in a narrow development
| skillset such as ML, or a specific language, or algorithms).
|
| Im cynical and ultimately an rebuilding my dev career around
| a platform that will give me opportunities for
| entrepreneurship AND individual contributor work as an
| employee (Apple Ecosystem - iOS client development + product
| dev/mgn).
|
| If I were to do it over again I 100% would've avoided
| startups early in my career when I could lean on junior
| positions to grow in a more mainstream manner. I'd have more
| money in my pocket, less stress, and less cynicism.
|
| --
|
| The problem is there is objectively zero way for fresh grads
| to learn these lessons. Even with prominent threads like
| these being available to some, the bearish attitude in every
| other thread will be more appealing to a fresh grad.
| wnolens wrote:
| 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 about 5-7y.
|
| I was pretty excited about joining and would have been all-in.
| So I asked for 2-3% and was denied. Looking back, I'm glad
| because even 3% isn't worth it. Not when the founders are
| taking 10x.
| indymike wrote:
| > . 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.
|
| I see this a lot in failing startups:
|
| The CTO is a pure manager who can't do any actual
| engineering. The result is that the shares and salary that
| could have been traded for getting product to market faster &
| better ends up being burnt on an empty chair.
| bagels wrote:
| I completely disagree on the risk. What was the opportunity
| cost for you in founding? Are you taking a salary comparable to
| your FANG comp? Usually the early employees are getting paid a
| lot closer to their market rate than the founders are.
| demondemidi wrote:
| " Being a software engineer who has a strong preference for
| creativity, problem-solving, and autonomy"
|
| That's nearly every engineer or programmer I've ever met, not
| some rarity.
| gardenhedge wrote:
| The difference is: no founder === no company at all. no first
| employee === not a problem, hire another one.
| api wrote:
| It's all relative. Founders that actually make it to series A
| levels have options to take money off the table (usually) and
| often what most Americans would consider a great salary, but if
| you do the math vs getting a massively overpaid FAANG job and
| include the odds of the startup imploding founder is actually a
| tougher gig.
|
| I refer to dilemmas like this as "zeroeth world problems."
|
| Of course like I said... relative. It is nowhere near as tough a
| gig as schoolteacher or service industry worker, at least
| financially, though there can be a lot of stress and some mental
| health risks.
| MobileVet wrote:
| 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 famous founder that understands
| this and distributing gains well before his big win. [1]
|
| One piece of feedback on the terms, 3 month w/ 10 yr window is
| pretty rough for the company. You will end up with a bunch of
| random people on the cap table... people that didn't really
| contribute much in the overall picture. That is annoying as you
| raise and downright frustrating when you exit. I would suggest
| you go back to a 12 month cliff w quarterly going forward and
| maybe set the window at years served, rounding down. My 2 cents.
|
| [1] https://www.businessinsider.com/mark-cuban-employees-
| million...
| rasengan wrote:
| This is weird AF.
|
| I gave 20pct to my employees and didn't have to write a blog post
| about it.
| throwailearner wrote:
| 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 years in I'm considering quitting, for multiple reasons.
| I still believe there is a good chance of getting to an exit at
| some point, but I don't like the vibe and culture here, and
| honestly between cashing out 1.X% and cashing out 2% I don't see
| the point.
|
| If I had been given a much higher chunk (>5%) there is a good
| chance I would've stayed, so we'll see if they value me enough
| with a counteroffer when I give my notice.
|
| All in all, and reading through all of this I would never join a
| startup under these terms again, if I'm engineer #1 then I'm
| getting at least 10% and essentially being a cofounder. Otherwise
| I want a salary that's on par to a bigger company.
| sleepingreset wrote:
| out of college directly, would you recommend a similar
| position? looking for early career options
| shortrounddev2 wrote:
| I don't think you could get hired as engineer #1 straight out
| of college
| disgruntledphd2 wrote:
| And even if you could, you probably shouldn't. Go get
| experience with a bigger company first, so that the startup
| experience is more useful to you.
| djbusby wrote:
| I'd say take a startup. Those early companies don't have a
| lot of staff so you can try lots of things, wear lots of
| hats. Good experience. Take cash, don't get played by
| options/equity. When you find the hat you like move into a
| more stable role.
| aketchum wrote:
| i joined as founding engineer as my second job, 2 years after
| college. The founders were the same age which I think let
| them consider a young founding engineer. It worked out for me
| and I think if you have the opportunity then it is a great
| time to take the plunge. Knowing what I know now I would
| likely not take the same role at 30 due to lifestyle
| requirements (have wife and house now, back then I was paying
| very little for rent with roomates and had no issue with 12
| hour days. I think the risk can make sense early in your
| career but most founders probably dont want to risk it on an
| untested dev with sub 3 YoE.
| cosmic_quanta wrote:
| I've been thinking about the equity split amongst early
| employees. Our startup is reserving 20% of equity for early
| employees. How about a division by 2 every time? First employee
| gets 0.5 x 20%, second employee gets 0.25 * 20%, etc.
|
| Early employees are better rewarded for the risk, but later
| employees (e.g. #10) will get basically nothing. It's all about
| tradeoffs
| romanhn wrote:
| At 10 employees the company is still incredibly risky. With
| this scheme you'll never grow past that size.
| cosmic_quanta wrote:
| Well, the alternative (which appears to be the status quo)
| is to give lower % equity to the first ~50 employees.
|
| What do you think is the ideal breakdown of equity for
| early employees?
| zenlikethat wrote:
| people already do a variant of "earlier gets more, later
| gets less" that's a lot smoother/linear than your scheme
| and can be customized and adjusted to roles (engineers
| get more than salespeople as an example). With what you
| describe, offering some exec down the line 0.5% or
| whatever is impossible.
|
| You need flexibility because at any moment some killer
| candidate might come along that you need to juice the
| grant for. Just being earlier doesn't mean they
| contribute more to the company
| cosmic_quanta wrote:
| That makes sense, thanks
| RhodesianHunter wrote:
| > Just being earlier doesn't mean they contribute more to
| the company
|
| No, but being earlier does mean taking on more risk,
| which is the whole argument founders and seed investors
| make for their cuts.
| zenlikethat wrote:
| But you can leave easily. and in 2024 I think people
| should insist on getting a decent salary (FAANG is
| impossible, but for most of the country, "even just"
| $170K is eye watering), and work life balance (sure, you
| will have to put in extra hours sometimes, but if it's a
| 12 hours a day shop, don't join). Founder should work a
| lot more aggressively, live a lot more spartan, and
| obviously is shackled to the damn thing with no
| optionality.
| palata wrote:
| $200k? Do you live in a place where this is considered a bad
| salary?
| CSMastermind wrote:
| It's normally considered a bad salary in comparison to what
| you could be making. I won't speak for the poster but I left
| a ~$1m / year TC job ($300k base the rest RSUs) to join a
| startup. I have a good salary compared to the population at
| large but it's a fraction of what I could be making on the
| hope that my equity turns into something meaningful that
| makes up for it.
| palata wrote:
| I wish I knew how to get to $200k. Not even mentioning
| 1m/year, that seems absolutely insane to me.
| hedora wrote:
| The easiest way is to move to the SF area. However,
| you'll end up spending most of the after-tax pay on
| housing, food, etc. For example, rent on a 1 bedroom
| apartment in the suburbs is going to be $30-60K per year:
|
| https://www.zillow.com/santa-clara-
| ca/apartments/1-bedrooms/
|
| The cost of pretty much everything around here reflects
| that cost of living. Businesses have to pay workers
| enough to allow them to live in the area.
| BiteCode_dev wrote:
| It's not just a matter of place, but what you can have if you
| work for Google instead. I can make $200k as a freelancer in
| France, but much more as a Google employee.
| palata wrote:
| $200k is extremely high for France. Even half of that is
| high. I wish I could do that.
| lelandfe wrote:
| Levels.fyi has no Paris salaries @ Google >$292k (for a 12y
| tenure) https://www.levels.fyi/t/software-
| engineer/locations/greater...
| sashank_1509 wrote:
| 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 could match (unless
| you're in C suite)
|
| 2. The startup doesn't reach a large valuation but grows
| rapidly making you in charge of a large group. This too is
| useful, promotions in big tech have a very standard time
| schedule, it takes 8-9 years to reach staff (or never) and then
| 4-5 years for every subsequent promotion if it happens. With a
| startup, if as a founding engineer you gain experience leading
| a team of 50 people, you're scoped for staff and above in your
| next job hop. Of course you need to sell this in your
| interviews but I've seen this happen and it can be worth it, if
| you played your cards right.
|
| If none of this is possible, you should leave.
| darkwizard42 wrote:
| TC isn't TC if it will remain illiquid for a number of years.
| That is the issue described in the blog post. Founders get
| great secondary liquidation in each round which helps realize
| some of those gains. For you as the early employee you get
| stuck with a now more valuable potential lottery ticket, but
| no clarity on when it can be cashed in.
| user_7832 wrote:
| What seems weird/odd to me is (assuming I got it correct) OP
| seemed quite important/essential to the working of the
| company, if not the most important technical person. 10M is
| nothing to laugh at, but I'd much rather get 500k from a
| company valued at 5M than 10M from a 1B corp if I was the
| largest contributor.
| mrkurt wrote:
| This sounds like a bad job and you should find another.
|
| At some point you were happy with $200k and 2%. Now you aren't.
| I don't think there's a bump that they could give you at this
| point that would make you want to tolerate the shit that's bad
| about the job.
|
| Note that this is a bad job. Startups are more prone to
| creating bad jobs.
|
| The math for employee #1 at a startup is almost never ideal if
| you're being completely rational about expected value. That is,
| I think, a separate problem than you're dealing with.
| zenlikethat wrote:
| The ideal reason to be engineer number one tbh is if you want
| a playground (for lack of a better way of putting it) to
| build the system out the way you want. That will be of high
| value to specific people (Architects, not the LinkedIn kind)
| and low value to most of the population who just sees a job
| as a means to an end.
|
| But for some people, direct access to an AWS account and
| license to build as they please is intoxicating.
| stevesthrowaway wrote:
| throwaway acct here. I left a flagship tech company with $500k
| total comp and joined a startup as engineer #1 with 5% options
| over 4 years. My salary is current $120k and I'm losing money
| each month, although I've been promised that will changed as
| soon as we raise more.
|
| We are going to raise a Series A in the next few months. I know
| a little bit about this stuff, but not enough that I'm
| confident in exactly what to expect over the next few years,
| nor enough to know that I've negotiated properly (thought I did
| lol) and are protecting myself enough. This thread is scaring
| the shit out of me. I have a good relationship with the two
| founders and not afraid of being candid with them. Would
| appreciate any advice.
| moneywoes wrote:
| hate to blow your bubble but this sounds like a bad deal. do
| you even know the denominator on equity? look at liquidation
| gen220 wrote:
| You should be candid with them that you're uncomfortable with
| the cash portion of your comp.
|
| 5% is an unusually high % of equity, the founders likely
| assumed you were happy to trade-off cash for equity. Series A
| is usually a dilutive round and it's normal to grant people
| like yourself more options to compensate for the dilution
| (i.e. to keep you at 5% of the new cap table).
|
| My 2C/: I know people in your position who have ~$200k cash
| comp in addition to meaningful equity. Don't feel bad about
| asking for more cash, if your founders have a good
| relationship with you and you're providing value for the
| company, they'd rather invest the marginal cash in you and
| keep you happy + comfortable.
| RhodesianHunter wrote:
| > I know people in your position who have ~$200k cash comp
| in addition to meaningful equity.
|
| That's great, so long as its taken within the context of
| "200k is way more than the average US engineer makes
| without any equity"
| stevesthrowaway wrote:
| Thanks, I feel a little better about the situation. I
| pushed pretty hard for the equity. One of the founders knew
| me and sought me out, so I leveraged that a bit. When I
| signed on, the plan was to raise a new round within a 2
| months, which would be accompanied by a bump. But for
| reasons not worth getting into, we waited about 9 months. I
| padded my bank account in preparation, and I'm just about
| to tap into savings, which I really want to avoid.
|
| I just told them I need around 200 to be comfortable. And
| that's the truth. Response was good, and they can't match
| that now, but they will. I'm working for good people I
| trust. And we are building some pretty awesome tech that
| are much needed in our industry.
| aeyes wrote:
| What I don't get is that you are engineer #1 but you say the
| vibe and culture are bad.
|
| Why didn't you build a better culture? I very much doubt that
| the management team took all the hiring decisions on their own
| after they got you on board. I'd say the most important part of
| my job as #1 was to hire and build the team.
| moneywoes wrote:
| how much effort are you putting here wrt to your previous job
| zenlikethat wrote:
| Compensation wise, that's a great startup job, especially with
| such an insanely generous exercise window. Where I think you
| maybe went wrong is, if you are building everything, it's not a
| collaboration with the founders, which is half of the fun of
| everything.
|
| I suspect it's more about the culture than the numbers. You say
| on one hand, oh I'd probably stay for 3% more, yet, you don't
| see the point to earn another 1%. Your salary is pretty good
| man. Meanwhile they are burning $250K every month into smoke
|
| 10% is not realistic. That's the whole employee options pool. I
| mean imagine if at your current job, someone worked there for a
| year before you, then walked away with more than your entire
| current equity grant, never to be heard from again. That's what
| you're describing.
| VHRanger wrote:
| If you're building everything singlehandedly, then you have
| leverage over your employer and investors.
|
| You should use that leverage to renegotiate your pay. You'd
| lose nothing because you're considering quitting anyways.
| gafferongames wrote:
| Two words: opportunity cost.
| palata wrote:
| > Founders often feel guilty that they are getting liquidity
| (they shouldn't)
|
| Well they should not feel guilty that they are getting liquidity,
| but I think they should feel guilty that their employees get
| pretty much nothing in comparison.
|
| > 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)
|
| As an employee in multiple startups, I can tell you that I never
| thought that. One startup went well, the founders got rich and I
| did not even compensate the salary compared to being in an
| established company (and I'm not even talking FAANG). When the
| startup goes bad, then the employees are screwed as well.
|
| Employees actually have the risk of getting fired, of being lied
| about the finances of the company, etc.
| danw1979 wrote:
| > Investors and founders both tend to think that if employees
| knew founders were getting liquidity that that would negatively
| impact employee morale (it wouldn't)
|
| It would. Knowing that founders are cashing out and I'm not able
| to would be a very good reason to walk away, in my rather old,
| maybe slightly cynical opinion.
|
| I get the need to hedge your bets, but employees should be able
| to that too.
| lenerdenator wrote:
| Accumulating capital becomes easier as you gain more capital,
| which is exactly why we need to abolish stock option pay packages
| and tax these people. Film at 11.
| abpavel wrote:
| It's clear that the author is first time founder. The article is
| disingenuous in that it talks about secondary availability, but
| the solution is longer exercise and shorter vesting? That
| wouldn't solve WeWork situation at all. Also, the risk of
| founders and employees is not comparable. A good analogy of the
| relationship is Landlord vs. Tenant. Founder burdens statutory
| obligations, is responsible with their personal belongings, has
| to lay the groundworks, and get the investors. Employee has to
| pass a job interview. If company fails, both lose a job, so that
| part is shared. First employees are sometimes special, but they
| are not founders. Musk was not even an employee and he became
| founder of Tesla.
| HarHarVeryFunny wrote:
| I've read that Sam Altman's net worth has ballooned from hundreds
| of millions (mostly tied up in Helion) while at OpenAI to
| billions, and that despite all his protestations of not making a
| penny from OpenAI, he also has/had a $10M investment in the
| (~100x profit capped) for-profit part of OpenAI...
|
| Given Altman's slippery relationship with the truth, I have to
| wonder if his sudden significant increase in wealth, if true, is
| due to having participated in an early "liquidity event" as the
| article describes. Did he sell part of his shares to Microsoft,
| perhaps ?
| nimish wrote:
| Being a "founding engineer" is a sucker's game unless you have
| some very specific goals.
|
| Nearly all the same risk, 99% less reward.
| bob1029 wrote:
| I just got off the ride (at a small startup) after ~9 years. Not
| much to show for it economically, but I did gain a lot of
| confidence and experience around how to actually run a business.
| I've picked up a lot of lessons, most in what _not_ to do. I 'd
| say it was absolutely worth it compared to alternative paths that
| I was previously on.
|
| My biggest takeaway is to focus on compelling problems, rather
| than delusions of financial grandeur. I've learned that solving a
| hard thing and hearing the feedback from the customer brings me a
| lot more joy than hypothetical promises of extra cash in the
| bank. The money is a mind killer for me, especially when it's not
| real yet. Stock options are no longer something that interest me.
| I'll negotiate additional salary instead. The only company with
| stock options I am interested in would be a company that I
| personally found and retain control over.
|
| One other lesson is to pull the rip cord the microsecond you
| think something doesn't feel right with management/leadership. I
| started thinking things like "does anyone care about the sales
| funnel?", "Why are we only talking to _one_ prospect at a time!?
| ", etc... The chances you will be able to "fix" some other person
| in this setting are pretty much zero, unless they actively want
| to be helped. I feel like I could have jumped off this ride at
| the ~7 year mark and walked away with 99% of the wisdom I have
| right now.
| hemloc_io wrote:
| Damn I was writing a blogpost about this exact problem inspired
| by a talk w/ a friend of mine.
|
| Being an early engineer is the worst deal in all of tech, the
| people I've seen do it are either comfortably wealthy or just
| don't care about money.
| yieldcrv wrote:
| Delaware allows for employee shareholders to demand some
| transparency, but it doesn't apply to options holders.
|
| VCs and Founders should be far more forthcoming to sweat equity
| participants. Delaware could mandate that too.
|
| I've been on both sides, where leadership gaslights candidates
| and employees about why their tiny stock grant is so generous,
| diluted in the best case scenario. And on the other side where
| leadership is confused why someone with prior financial success
| would want to be an employee at all since its so obviously shit.
| That's sad to me that they can put on two faces, and its enabled
| in a way that securities laws were made to mitigate.
| jaksmit wrote:
| dunno why the writer opted for this: "Our equity packages vest
| over 3 years instead of the industry standard 4-year period."
|
| given it takes a long time to build companies; so on the
| contrary, many startups are instead opting for like 6 year
| windows.
|
| "We allow employees to exercise options up to 10 years after they
| leave instead of 90 days." - the reason that 90 days is more
| standard is that it's more tax effective than having options
| exercisable for 10 years, though many companies are making a
| compromise on this recently
| p0seidon wrote:
| This thread is more entertaining than both TikTok and Netflix
| combined, which is truly exceptional.
| stratigos wrote:
| As someone who has worked in startup environments for 20 years,
| its rather offensive that anyone in 2024 would claim that
| employees arent taking risks.
|
| In todays salary brackets, one could be comfortably making 220k
| as a staff dev some huge healthcare/pharma tech firm. One may
| also feel the job is boring, soulless, and mostly uncomfortable.
| Then one may choose to work at an exciting AI startup for ~160k,
| and suddenly find themselves way happier, growing more, and
| engaged. One just took ~60k worth of risk right there, not to
| mention that it could be come $0 tomorrow, and one likely now has
| crap healthcare benefits, given the startup status.
|
| That 60k could be a million dollars in ~15 years if invested
| wisely.
| matco11 wrote:
| Yeah. This misses the point that founders often go unpaid for
| long periods of time.
|
| Those payments catch founders up to being able to have a "normal"
| lifestyle - which enables them to perform their CEO or CTO jobs
| better. A CEO having issues with making ends meet at home, having
| personal debt, and eating ramen can sustain that additional
| pressure forever. It's in the interest of VCs to arrange things
| so that founders can focus 100% on the success of the company.
| totorovirus wrote:
| What shines better in a resume? ex-founder or ex-founding
| engineer? If ex-founder is a better role for next job, I think
| founders are taking much less risk than founding engineers. They
| get all the exposure to talking to rich people, VCs, learning how
| financial game works, which i regard much more rewarding career-
| wise.
| corry wrote:
| Three interesting part of the discussion:
|
| (1) The opportunity cost to the founder of taking early
| liquidity:
|
| If a founder cashes out 10% of their position for $500k @ $25M
| Series A valuation, that de-risks a lot of their personal life.
| But when the startup ends up selling for $250M, that $500k of
| 'early' selling would have been worth $5M (less any dilution
| between rounds) - hard not to regret the choice in that case even
| if hedging is going to be the correct choice 99% of the time.
|
| (2) Meaningful vs. not-meaningful amounts:
|
| From my prev example, the founder sells 10% of their position for
| $500k. Well, if all employees were allowed to sell up to 10% of
| their positions too, would that even matter to them? 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).
|
| (3) Sellers need buyers:
|
| In order for there to be a seller of shares, there needs to be a
| buyer. The founder is effectively choosing his buyer and future
| business partner by taking investment and choosing to give that
| buyer more control over the corp by selling him even more shares
| (his personal shares). The buyer wants to make the founder happy
| and de-risk their downside so they can be more aggressive or big-
| picture or whatever, plus is happy to own more of the company
| assuming it's a hot round.
|
| But what does the buyer want to achieve by purchasing the
| employees shares? Just to own a little bit more % of the corp?
| For amounts that might not even matter for the employees and may
| de-incentivize them?
|
| It's all very complicated and perhaps there are nuances that make
| every situation unique.
| neilv wrote:
| > _If a founder cashes out 10% of their position for $500k @
| $25M Series A valuation, that de-risks a lot of their personal
| life. But when the startup ends up selling for $250M, that
| $500k of 'early' selling would have been worth $5M (less any
| dilution between rounds) - hard not to regret the choice in
| that case even if hedging is going to be the correct choice 99%
| of the time._
|
| IMHO, it's _very easy_ _not_ to regret, with those particular
| numbers.
|
| I'd take $500K now plus possibly $45M later -- over $0 now and
| possibly $50M later.
|
| I'd take that deal even if "possibly" were "guaranteed".
|
| (Who might regret that is a founder who was otherwise already
| wealthy.)
| simonebrunozzi wrote:
| You are not taking into account QSBS. [0]
|
| When you sell your stocks before 5 years of holding period
| has passed, you pay significantly higher taxes. So you don't
| get 500k net, you get 500k gross, or probably 300k net. Which
| makes the de-risking less compelling.
|
| [0]: https://www.investopedia.com/terms/q/qsbs-qualified-
| small-bu...
| nine_k wrote:
| This is when you immediately liquidate your stock position,
| instead of taking a loan using it as a collateral, which
| would likely cost you 10%-15% in interest, not 30%.
| andrewmutz wrote:
| No, in this example the person sold equity in order to
| get the 500K. They can't use the equity as collateral for
| the loan because they dont own it anymore
| nine_k wrote:
| Yes. They should not have if they were to optimize taxes.
| tyre wrote:
| But then they're paying interest and very few startups
| are going to have stock that a someone will lend against.
| I cannot imagine someone taking Series A stock as
| collateral for a loan.
| lotsofpulp wrote:
| I do not see the purpose of this nitpick.
|
| The numbers are made up anyway, adjust up by a few hundred
| thousand and the point that securing one's shelter is worth
| foregoing winning the lottery still stands.
| brightball wrote:
| Exactly. About 15 years ago I was offering equity in a good
| little startup. I didn't take it because I just wanted to go
| somewhere with a higher salary.
|
| When they finally sold about a decade later I ran the numbers
| and determined it would have been about $40,000 based on the
| actual sale price.
|
| There's no guarantee of a $50M exit for anybody.
| remus wrote:
| Not to mention that in reality there is no guarantee you'd
| end up selling for $250m. $500k now would look pretty damm
| good if the whole thing tanks and the other 90% of your
| shares become worthless.
| corry wrote:
| Regret is perhaps too strong of a word. But $5M is $5M even
| if you have $45M. Sure, it won't change your life since you
| have the $45M, but the incremental investing / philanthropy /
| estate / family help etc that it allows you is real in
| absolute terms.
|
| The other thing I've noticed is that for people on the other
| side of this transaction, it's not like "smaller numbers" all
| of a sudden become immaterial. $1M is still $1M. $5M is still
| $5M.
|
| Again, I'm with you, I don't think it's regret exactly. But
| post hoc you might choose differently, even if it's the
| rationale choice at the time.
| sarchertech wrote:
| >$5M is $5M even if you have $45M
|
| The whole concept of diminishing marginal utility is that
| this isn't true. The first $5M is worth far more to a given
| individual than the last $5M.
| bruce511 wrote:
| Your argument is treating the future as knowable and
| certain, while not accounting for the value of risk.
|
| I guess you'll feel pretty bad if you pay for car insurance
| for 40 years, and never have a crash.
|
| If the 100% upside is guaranteed, then sure, you should
| hang on.
|
| But if "anything can happen" then cashing out 10% now, and
| providing a "can't fail" safety net, is well worth it. The
| reduction of risk of "losing it all" is well worth the 10%
| premium. And if the (somewhat unlikely) big exit ever
| happens you still have 90%.
| neilv wrote:
| Just to clarify about taking the $500K rather than _even
| guaranteed_ additional $5M ($50M vs. $45M) years later...
|
| $500K is an immediate big quality of life boost for most
| people.
|
| For example: a condo/house downpayment, which lets you move
| out of cruddy ramen apartment, to routinely get a good
| night's sleep. And/or that relieves some of the various other
| startup salary level money stresses on your family.
|
| I think this can also be aligned with the goals of the
| startup. You don't want people so "hungry" that the stress is
| hurting their health and their home lives. You want them
| motivated by the mission, the work, the environment, and the
| possible big liquidity windfall in the future -- but not by
| desperation.
| dheera wrote:
| Exactly. As a former founder who dealt with hospitalization
| and thousands of dollars a year in medical bills on the sh!t
| insurance startups can afford, I too would rather have 500K
| now than 50M later. There's also a good chance I could turn
| 500K into 5M-20M in 10 years with reasonably low risk
| investments.
|
| Plus, setting 100K aside for medical bills and even throwing
| the 400K into Bitcoin is a far less risky investment than me
| NOT being in a FAANG and accumulating 401K money which is
| absolutely critical if you want to keep up with the rising
| cost of life through retirement. When everyone else who
| joined Google or Meta out of college and now has a 10 million
| net worth at 40, that defines the cost of living in the area,
| and that's the bar you have to keep up with if you want to
| still live here at 40, 50, 60. Chipotle will cost $50 in a
| few years. A 1 bedroom apartment will cost $5000 in a few
| years. UberEats was $15 when it started, already costs $50
| for lunch in my area, and at this rate, it will be $200 in a
| few years. Because those people can afford it, so greedy
| owners and greedy landlords will up their prices, so I will
| have to pay not just my $5000 rent, but also the Chipotle
| worker's rent, and the Chipotle franchise's rent, in order
| for their prices to stay profitable. The cost of living in
| the bay has tracked the S&P500, not the CPI. YOU will be
| priced out if you didn't have liquidity at a younger age to
| throw into some investments.
|
| I'm at a large company right now. Being compensated enough to
| be able to afford life in the bay area _now_ , having enough
| income to afford a mold-free modern apartment in a place
| where I don't need to worry about getting mugged, and hedge
| the risks of all the crap that's going on in the world was a
| big part of my reason to join one. If I had enough saved to
| "feel safe", I would absolutely be doing a startup again.
| ipsento606 wrote:
| > hard not to regret the choice in that case even if hedging is
| going to be the correct choice 99% of the time
|
| in the scenario you outline the founder sells the remaining 90%
| of their position for $45MM?
|
| I don't think many people would experience any real regret at
| "only" getting $45.5MM instead of $50MM, due to declining
| marginal utility of money
| thunkshift1 wrote:
| Also bake in the fact in your calculations that 9/10 startups
| will not see the kind of success you are talking about. And the
| authors point still stands.. the founder made some money at
| liquidity event at round A vs ... making even more money later
| if he doesnt sell?
| galaxyLogic wrote:
| Bird in hand is better than 3 in the bush
| cashsterling wrote:
| Great points... as to #3, investors are often happy to be
| buyers. They are buying shares anyways that would otherwise
| have to be created. Allowing founders and employees to sell
| shares lowers dilution vs. creation of new shares... usually
| this is not a large effect, but still not bad for current &
| future investors.
| yuliyp wrote:
| I mean it effectively means that the amount of cash going
| into the business is less than it otherwise would have been.
| The company wanted $5M of cash. With the owner selling $500k
| worth of shares it means they had to find $5.5M to be
| invested.
|
| The only reason it happens is that the founder is negotiating
| both on behalf of the business and a bit for themselves.
| ishan0304__ wrote:
| I mean it basically means that the founder is not some dude
| in early 20s who can crash on a couch and work off coffee
| shops, they r going thru life as well and they r the one's
| who drove success so they rightfully expect a piece of that
| success
| WalterBright wrote:
| For me, it's always regret:
|
| 1. If I buy stock, and the stock goes down, I regret buying
|
| 2. If I buy a stock, and the stock goes up, I regret not buying
| more
|
| There's no winning :-/
| flowingfocus wrote:
| I find that it sometimes easier to accept this as this is
| just how life is when I read people with experience write
| about this. If this is true for you as well:
|
| There is a good book review about it on SSC
| https://www.astralcodexten.com/p/your-book-review-the-
| laws-o...
|
| > Whether or not you make money, you have regrets! If you
| profited, you could have made more. If you lost money, you
| shouldn't have made the trade at all. Like death and taxes,
| you can't avoid adverse selection.
| PheonixPharts wrote:
| > hard not to regret the choice
|
| If you can't handle "regret" in these cases, then you probably
| shouldn't be in a position where you're deriving the vast
| majority of your income/weatlh from investments (which is
| fundamentally what a CEO does).
|
| It's astounding how many ICs can't wrap their heads around the
| concept that holding onto your RSUs make absolutely no
| financial sense. With rare exceptions, this doesn't make sense
| for anyone. And yet, fear for "regret" keeps people holding.
|
| But it's not shocking that even in tech many ICs are not good
| at reasoning financially. But if you want to be a co-founder,
| and hold a lot of your wealth in investments it's essentially
| that you learn to reason, plan and accept outcomes accordingly.
| Otherwise you're more-or-less a professional gambler.
| skybrian wrote:
| I believe in diversification and index funds for most people,
| but this seems overdone.
|
| The issue here is that sometimes if you procrastinate about
| diversifying, it pays off very well. As a Google employee
| (who joined after IPO), it was by far my best investment and
| funded my retirement.
|
| I guess that's accidental gambling. I did have other
| investments.
| lurking_swe wrote:
| Yes that's accidental gambling. Or what i like to call "at
| the right place at the right time".
|
| Ask a Yahoo employee how that same plan would have worked
| out for them.
|
| That being said, good for you. :)
| mgfist wrote:
| Mostly agreed, but as an employee you do have some
| semblance of material non-public information that gives
| you a structural edge in assessing the stock. (This
| probably works better at a 1k-5k company than a
| Google/FB, but I can't say because I haven't worked at
| the big faangs).
|
| I've benefited financially from having a good sense of
| how well things are going and holding/selling accordingly
| (within the confines of the law and blackout periods, of
| course).
| nealchandra wrote:
| The way you can test if it's accidental gambling is by
| answering the following:
|
| If you had worked at a different company with pure cash
| comp equivalent to your RSUs, would you have invested the
| same $$ in Google stock? Or would you have invested it
| instead in an aggressive but diversified portfolio (e.g.
| 100% S&P 500 or even just a bucket of blue-chip tech
| stocks).
|
| I am confident that for the vast majority of tech employees
| they would choose the latter if they were operating in a
| pure cash regime.
| skybrian wrote:
| No, I definitely wouldn't have invested so much in
| Google. However, I'm not sure how much to attribute to it
| being a default choice, versus the differences between an
| inside versus an outside view.
|
| It's easier to be comfortable investing long-term in
| something you know well. While there's a lot I'll never
| know about Google, I think I understand the company
| somewhat better than others. For example, I can discount
| a lot of news articles as being written by people who
| don't really understand the culture. If I hadn't worked
| there, I might worry more.
|
| That's less and less true, though, as much has changed
| since I left. And for investment purposes, maybe that
| bias only seemed to be helpful, versus an outside view?
| molyss wrote:
| I'm going to rebound on that and explain why it doesn't make
| sense to hold on to RSUs.
|
| Disclaimer: I'm an IC myself.
|
| I worked for my 1st company for 15 years. Held to their RSUs
| most of the time. Then moved to another (public) company and
| stayed there for a year before leaving. Now in a startup with
| a lower salary and no immediate liquidity on my stock
| options.
|
| When you work at a public company, you have multiple
| exposures to the company's growth: the RSUs that have already
| vested, the RSUs that haven't vested yet and through your own
| career growth and salary increase that goes with a successful
| company. If you were early enough, you also get market cred
| for having made the company successful. If the companies goes
| under (or shrinks, or lays people off), all those assets are
| at risk.
|
| Usually, one has more in granted stocks than in vested
| stocks. If your company just went public, you might have a
| lote more sellable than in your pipeline, but even that is
| unusual. Usually, you'll still have more in the pipeline than
| you've already vested.
|
| If your company has been public for a while, you should get
| frequent refreshes, which means you still have a significant
| numbers of unvested shares.
|
| Regardless, you should sell as soon as you can, because of
| the remaining exposure through unvested equity. Use the
| proceeds to place in an ETF, or in a high-yield savings
| account, or some more aggressive investment strategy. Or use
| it for the downpayment on your house, or fund your kid's
| college funds, whatever floats your boat.
|
| Anyways, keep in mind that you still have a significant
| exposure to the growth of the company through your unvested
| equities. If you're worried about short-term cap gain, don't
| be. If you sell immediately, there's no growth between cost
| basis and selling price, so no cap gain. Another upside to
| selling is that you're not bound by the blackout periods, so
| your assets are much more liquid. And remember you still have
| exposure
| rybosworld wrote:
| None of this is very good justification for founders being the
| only employee that have the option to sell part of their stake.
|
| > If you were an employee and had $200k total value in your
| options, and you could sell 10%, you're getting $20k.
|
| It obviously depends on your financial situation, but having
| the option vs not will certainly matter to some employees. Not
| to mention that the stake could well be worth $0 in the future.
| earnesti wrote:
| I don't think it needs any justification, really. The
| investor decides, whom to sell to and how much. If the
| founder doesn't want to organize a sale for employees, then
| he doesn't do that. He would probably have to pitch it and
| include it in to an already complicated funding round.
|
| I totally understand why a typical founder doesn't want to do
| that. If for you as an employee it is a deal breaker, then
| you can complain about it, change company or whatever. It is
| not like the founder owes anything to the employees (unless
| he has promised that). Everyone in the equation are adults
| and have to decide themselves, if the position they are in
| makes sense for them with the terms they have.
| rybosworld wrote:
| > I don't think it needs any justification, really
|
| From a founder's perspective sure, you can do what's best
| for you.
|
| That's not what this article is about. This article is
| highlighting that there's a tendency in SV for founders to
| cash out early, and _secretly_. And along with that, there
| 's a tendency to paint a narrative that the founders _haven
| 't_ sold a share. It's hard to see that as anything other
| than deceptive.
|
| It's one thing to join a startup that you know may not
| succeed in the long run. It's another to join a startup
| that has a founder whose been secretly cashing out along
| the way.
|
| Justification does seem necessary in that second scenario,
| at least from a morality perspective.
| earnesti wrote:
| Lying to the employees is scammy and wrong. However
| regarding that we would need more information what has
| exactly happened. Not telling or not highlighting
| something is not the same as lying.
|
| Personally I'm not in the SV scene but from Europe, and I
| don't know much cases of these early cashouts.
| ishan0304__ wrote:
| I mean I think it depends, why is it needed, the founder
| is not working for his employees, it's the other way
| around and he has the most risk involved, founders don't
| make a lot of money in cash anyway and this is not pre
| COVID, investment rounds r smaller, so u r basically
| saying that a founder should only think about making
| company and his team rich and if he fails he can die poor
| while his employees can always jump ship with the cash
| incentives they got
| MisterBastahrd wrote:
| $500K right now would pay off my home and do a good job of
| setting me up for retirement in the future.
|
| $5M when you already have $45M doesn't move the needle much.
| fragmede wrote:
| to put it bluntly asf, you're being poor (and I'm being
| insensitive). what's $500k going to do for you if you come from
| a rich family? you already have your rent paid for until you
| die, and vacations paid for. all you have to do to do is put up
| with your annoying family, which isn't the worst if you've been
| through therapy. your mom or dad's abusive? if you've been
| through enough family therapy, that's not a problem.
|
| if you ask you mom or dad, whichever believes in you, they have
| enough money to fund your dreams (if you care enough to ask) of
| joining or starting a startup to become an (x)
| CEO/salesman/builder/marketer/whatever for whatever you want to
| build, and that includes signing onto some startup that won't
| pay you a living wage until it fail-exists for $5 million and
| everyone goes to burning man/Berlin/ibiza on the founders dime
| (including rent for everyone N months).
| Matticus_Rex wrote:
| Yes, there are people who won't get the same benefit from
| hedging like this.
|
| But they're a small minority. Not that many people meet your
| description here.
| dayvid wrote:
| Would be interesting to see average founder who can
| fundraise large amounts and family income. I'd imagine they
| tend to come from higher income backgrounds, though could
| be wrong.
| Matticus_Rex wrote:
| I'm sure the wealthy are overrepresented, whether or not
| they got financial help from their families while
| starting/building the business. But there's a long gap
| between "being rich makes it more likely to succeed" and
| "most people who succeed are rich."
| corry wrote:
| My point is that the situation will vary.
|
| Yes, if $500k doesn't move the needle on your life then the
| question is moot anyways. Most first-time founders will be
| closer to the poor end of the spectrum than the wealthy side.
|
| There are people reading this for which $20k will change
| their life (which in my example was the 'shouldn't matter'
| amount instead of the $500k).
| gwbas1c wrote:
| I think the most interesting part of the discussion is that the
| early employees almost always get the worst end of the deal:
|
| Going in they have a lower salary than if they work for a more
| established company.
|
| Then, either their shares end up being worthless, or at the
| final exit, they make less money than if they worked for a more
| established company the entire time. IE: Being an early
| employee in a startup is a lose-lose situation.
|
| This is something founders need to understand when recruit
| their early employees: These are often the most critical hires
| for the business, and therefore it needs a high probability of
| upside.
|
| IMO: A series of retention bonuses, and/or guaranteed bonuses
| at acquisition / funding events is a good solution. It's how
| I've sidestepped the equity issue when I was employed during an
| exit event.
| corry wrote:
| I'm curious why you think these employees -- who are getting
| the worst end of the deal -- are working for startups in the
| first place?
|
| Either they have the skills to be a founder themselves or to
| work at BigTech... or they are financially
| ignorant/disinterested enough to not understand how equity in
| corporations work? Or is the charming and misleading founder
| who is to blame?
|
| My point is that considering the high avg intelligence of the
| typical startup employee, there must be something else going
| on.
|
| Clearly, people like working at smaller companies that have
| potential to grow - maybe that's because there's more
| interesting work, less bureaucracy, smaller teams, more of a
| sense of a journey, etc. Easy to devalue these things, but
| what else explains the fact that even when there's more risk
| and likely poorer financial outcomes these otherwise very
| intelligent people still choose to work at these companies?
| underdeserver wrote:
| Or they want to work at a small startup and have the
| technical skills, but don't necessarily want to manage
| people, work insane hours, and meet with customers and
| potential hires instead of building the product.
| sshconnection wrote:
| An early stage startup is a bad place to avoid working
| insane hours.
| projectazorian wrote:
| Chances are higher that those hours won't feel like
| "work" though.
| jedberg wrote:
| I'm in that position right now, and have done it a few
| times in the past (my entire career is switching between
| startups and public companies).
|
| I work for startups because I get a ton of responsibility
| for things I would never get at a big company. I get a
| chance to learn a ton of new stuff.
|
| Through my career, I've made all my money at the public
| companies, and had most of my skill growth from the
| startups (Netflix being the big exception, where I both
| made money _and_ leveled up my skills).
| thruway516 wrote:
| No Reddit f-u money?
| jedberg wrote:
| I did not get any stock in reddit when I worked there. I
| worked there between when they were first acquired and
| when they were spun back out. The guys I hired got f-u
| money and I couldn't be happier for them, they deserve it
| for how hard they worked and how long they waited!
| hn_throwaway_99 wrote:
| I think the other thing to realize is that the change in
| this "startup calculus" has happened only relatively
| recently.
|
| The "old" calculus was that, being an early employee in a
| startup, you'd make less cash money than at a "big corp",
| _but_ if the company "hit" you'd end up doing much better.
| Just look at the stories of early Microsoft employees, or
| the Google chef whose stock options ended up being worth
| tens of millions. Obviously those are outliers, but it was
| still common that early employees of "home run" startups
| would be doing great.
|
| But the thing that really changed the calculus is that the
| FAANGs started paying _extremely_ well, especially as the
| value of their RSUs skyrocketed. So the new problem was
| that _even if your startup hit_ , you'd be doing about as
| well as a senior engineer who was at Google for 5 years.
|
| I know in the past YC itself has commented about this
| dynamic, basically arguing that early startup employees
| deserve more equity.
| ozim wrote:
| Part of vacuum up the talent strategy that made it more
| expensive to launch any competition.
|
| Other part, buying out any promising startups and letting
| them rot on the sidelines of the main business.
| dmitrygr wrote:
| > when the startup ends up selling for $250M
|
| s/when/in the statistically and historically very unlikely case
| that/g
| ericd wrote:
| The strongly diminishing marginal utility of money after $10M
| for most people makes that first $500k much more impactful than
| $5M would be after you have $45M.
| underwater wrote:
| Another consideration is that employees are much less conscious
| of the real value of their stock than founders, and you don't
| want to make the (lack of) value of their shares too obvious in
| the early stages.
|
| If you tell them the value of their stock is $200k, and 90% of
| that is imaginary, then they might start thinking about that
| job offer with a 500k stock grant at a listed company.
| natosaichek wrote:
| This is basically arguing "It's good to deceive your early
| employees about the value of their compensation" This is
| morally repugnant to me, and I hope you're not an executive
| at a company. If you are, I would not work for you.
| phone8675309 wrote:
| > 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
| booleandilemma wrote:
| What would you do with $20k that would change your life?
| nbardy wrote:
| I've got a job as a ML Researcher without a degree. I have
| experience building multimodal generative products. Because I was
| able to learn on the job at startups. I get to work on the
| problems of my dreams for the rest of my life now.
|
| 10 years ago the only jobs for machine learning were for PhDs at
| big companies. If you want to join a nascent industry and you're
| not a top college graduate you have to find a way in the back
| door.
|
| Don't do startups for the money do it for the career growth.
|
| 10 years in startups out of college.
|
| Even with two good exits. I didn't make much money as an early
| employee, even in success, compared to FAANG peers.
|
| If I went to big companies I most likely end up doing a lot of
| web development and Im rich off the stock market.
| didgetmaster wrote:
| I joined a startup as an engineer about 30 years ago. I was one
| of the first employees and one of the last to get some 'founder
| stock'. I took a big risk (low initial salary and even lent them
| money to make payroll) but it paid off. When the company was
| purchased 8 years later I did fairly well. Not enough to retire
| wealthy, but well worth the risk I took. I am glad I did it, but
| it could have turned out to be a big mistake.
|
| Everyone working for a startup might have a different story to
| tell. Some good. Some bad. Tread lightly if you wade into the
| startup waters. It CAN be very rewarding but it can also lead to
| nowhere.
| light_triad wrote:
| While I agree that employees should get more equity and
| liquidity, I think it comes down to supply and demand:
|
| - If the founders are de-risking appropriately it will take years
| of no pay/low pay work before they can even consider taking on
| employees. Building a valuable asset is not done overnight and
| takes extreme commitment - plus reputational & financial risk,
| opportunity costs etc.
|
| - It's very rare for companies to get past the Series B stage.
| When they do, the founders have accumulated non trivial and non
| replicable knowledge about the market and the customers. The
| liquidity they get should be worth much more down the road.
|
| Now of course if you are an early employee that is expected to
| 'make the startup work' like a founder and get none of the
| benefits there's a problem. On the other hand employees are
| replaceable & 'swappable' in a way that founders are not.
| riemannzeta wrote:
| This is a wonderful article and kudos to the author for his moral
| sensibility here. The lack of liquidity and anti-dilution rights
| for any except a handful of key persons is a dirty secret of
| Silicon Valley. Most startup employees do not end up better
| compensated than they would at a larger company on a net present
| value basis even when their startup is successful -- and they
| don't as easily get liquidity along the way although there are
| more private secondary market brokers than there used to be.
|
| The other angle worth observing here is the tax angle. In many
| cases, the founders are taking liquidity at valuations that are
| only loosely tied to tax valuations of the company. These
| valuations are fine for the founders and preferred by the
| buyers/investors, but undercut the premise of the tax system that
| was redesigned after the options backdating scandals of the early
| 2000s, in part, to ensure that taxes were getting paid in
| accordance with the actual capital gains.
| apinstein wrote:
| The only fair way to analyze this is by looking at opportunity
| cost, which isn't what TFA does.
|
| Founders often have slightly higher market value (though not
| always) than first employees, so they are giving up more to go
| the startup route.
|
| Separately, TFA further underestimates founder risk as they are
| typically not taking salary during pre-seed, and no or low salary
| during seed. However employees 1-5 typically get mostly cash,
| often much closer to market.
|
| Thirdly, there is also often a lot more stress in being the
| founder. It is a complex, all day job. You have the weight of
| keeping things going for all employees, and when cash is low it's
| your paycheck that gets delayed/cut first, not your employees.
|
| That said I am all for reasonable early stage liquidity where it
| makes sense, but as many other commenters have mentioned, it
| tends to not be life changing super early for most early
| employees. Most employees would rather keep the bet on the table.
| Also, I am strongly against large founder secondaries. I think
| it's helpful for founder to remain feeling "not financially
| successful", especially first time founders, so that they keep
| their heart in the game. I followed this practice with my
| companies.
| openmajestic wrote:
| > Thirdly, there is also often a lot more stress in being the
| founder. It is a complex, all day job. You have the weight of
| keeping things going for all employees, and when cash is low
| it's your paycheck that gets delayed/cut first, not your
| employees.
|
| I've seen startups from a founder perspective and from an
| employee perspective (VC style startups). I agree there _is_
| more stress as a founder, but people really underestimate the
| toll as an early employee - the gap is smaller than many people
| think. Particularly those ideal missionary-type early
| employees, they take on just as much mental ownership burden as
| the founders. It is also an all-day job. Let me tell you, when
| the money runs low, it is immensely stressful as an early
| employee - it is both hard to be the one making the decisions
| and it is hard to not be the one making the decisions. The
| ability to walk away isn 't a benefit, it's a burden.
|
| Their jobs can be different (or can be very much the same -
| depends on people and every startup is its own beast) with
| founders needing to deal with fundraising, board management,
| and ultimately having the impossible problems land at their
| feet which is often out-of-scope (and out-of-sight) for early
| employees. But the same core problem exists for both - your
| actions will dictate the success of the company.
|
| And there is a huge amount of understanding of the founder
| burden and support for them, from financial to emotional to
| reputational. Where are the support networks for early
| employees? People will say the founders, but this is a load of
| crap for the same reason that founders rely on relationships
| with other founders rather than talking to their board or
| teammates.
|
| Early employee is probably the worst engineering gig in Silicon
| Valley on most dimensions. Unless you just want to 0 to 1 build
| things. Then I haven't seen a job that can compare.
| notanadvice wrote:
| People are talking about angry founders and angry employees, but
| there is another side to this post:
|
| Prospective founders who work in big tech companies and have a
| family which depend on them. I include myself in that group, and
| I thought I needed 10 years worth of savings to venture on
| creating my own startup. But from the discussion, in about four
| years it is possible to match big tech compensation.
|
| I feel more motivated to start a company now.
| divbzero wrote:
| Startups are far more founder-friendly than they used to be
| (thanks in part to YC's contributions) but we have a ways to go
| to make them more employee-friendly too.
|
| To call out the employee-friendly equity policies that OP has
| instituted at his new startup:
|
| > _Our employee option pool is 20% which is double the average_
|
| > _We have a 3-month equity cliff which is 9 months sooner than
| the average._
|
| > _We allow employees to exercise options up to 10 years after
| they leave instead of 90 days._
|
| > _Our equity packages vest over 3 years instead of the industry
| standard 4-year period._
|
| > _... only taking liquidity if I can also offer it to employees
| as well._
|
| The 10-year exercise window is especially noteworthy since the
| cost to exercise options can be substantial.
| sealthedeal wrote:
| I think its less about more risk etc, and its more like, they are
| the ones starting the company lol.
|
| 1. They are providing jobs 2. They are responsible for growing
| business 3. They are accountable to not only the employees but to
| board and investors, etc.
|
| They take money off the table because they are in a much
| different position than say an engineer. It might be bad to say,
| but the engineer is responsible for one part of the business, the
| founders and CEO etc are responsible for all aspects of the
| business, and should be compensated appropriately for it, whether
| secondaries or higher salaries etc.
|
| Also, secondaries at seed and A are not as common as they were
| during the 2020-2022 run up.
| bink wrote:
| Are founding engineers not also taking on risk? They're
| typically taking a much lower salary in exchange for their
| shares. They're avoiding vacations, nice cars, fancy houses,
| and other expenses that they could purchase if they worked for
| a larger, public company. In the example from the article
| WeWork founding engineers would've gone 9 years without seeing
| any value from their shares while the CEO was cashing out
| billions.
|
| The difference in responsibilities is already accounted for in
| their disparate salaries and ownership stakes. I don't think
| it's very relevant to whether or not they should have the
| option of cashing out some of their stake during funding
| rounds.
| AlwaysBCoding wrote:
| The situation I recently went through reads like a horror story:
|
| > was the founding engineer at a startup, essentially do co-
| founder work for 18 months getting the company off the ground.
|
| > company is a breakout success, raises a large growth round.
|
| > founders each take a couple of million dollars off the table in
| secondaries, no option for employee liquidity.
|
| > founders start thinking about early employees as "problems"
| because they have too much equity and could easily hire multiple
| FAANG engineers for the equity comp they're paying the early
| team. push all early employees out of the company.
|
| > horrible ego-based decision making such as this kills the
| company culture and runs the company into the ground. company is
| a mess, stock is now worth significantly less.
|
| ---
|
| > early employees have to pay money to exercise their stock
| options which are worth millions on paper. early employees have
| to front money to pay taxes on the capital gains on the stock.
|
| > founders have pocketed millions, off the backs of other
| people's work, while the employees who built the company all owe
| huge tax bills and have no path whatsoever to ever seeing
| liquidity with the floundering company.
|
| > all of this is because the employees did their jobs too well,
| the company grew too fast, and the founders egos got completely
| out of control.
|
| To be blunt, situations like this should be illegal. joint-stock
| companies aren't slush funds for three people to personally
| enrich themselves off the labor and capital investment of others,
| they're supposed to be entities where all shareholders
| participate in the upside of the value creation together. Until
| there's some sort of legal framework for pursuing class-action
| lawsuits against founders who defraud their employees like this I
| don't think this situation will ever get better. There are
| already laws against self-dealing transactions by company
| executives, I don't see what is different in cases of extreme
| founder liquidity off the backs of other people's work.
| gedy wrote:
| Not to put you on spot, but this behavior is unprofessional,
| and you should name names IMHO.
| AlwaysBCoding wrote:
| The company is Phantom, and the VCs are Paradigm.
| brendanyounger wrote:
| Crypto? I'm _shocked_.
| dpe82 wrote:
| I think "this happened at a crypto company" is important
| context to your original post.
| carbocation wrote:
| I'm focusing on a tiny technical detail here but from the
| description, it sounds like the ISOs weren't set up with an
| 83(b) election which is another bummer.
| dpe82 wrote:
| A tiny, but *absolutely critical* detail!
| 1024core wrote:
| I recognize some of those words....
| tomp wrote:
| employees aren't shareholders
|
| they get options, not equity
|
| personally, I never understood why they don't get actualy
| equity (in particular, given that the options are "fairly
| priced" i.e. the call price is the latest equity round price,
| making them worth literally $0!)
|
| and that equity should have the same terms as investors get (no
| "liquidation preference" lol) because - guess what - you're
| literally exchanging your labour (== money) for them!
| georgeecollins wrote:
| That's elective. It's fine and not uncommon to just give
| employees stock (actual shares, not options) in a company as
| compensation. Famously Wizards of the Coast gave shares to
| employees and vendors to create alignment.
|
| Someone is going to point out that giving actual shares is a
| taxable event. And that is sometimes the rational for
| options. But there are work arounds: you can put shares in a
| 401k for example. 401ks were originally created to be
| employee incentives, but morphed into being used for
| retirement, but you can still do it either way.
| bluGill wrote:
| There are a lot of ways to do this. However you should
| NEVER have any significant value in the stock of the
| company you work for. It has happened - and will happen
| again - that the company you work for goes bankrupt
| unexpectedly and now not only are you out of a job but your
| savings has vanished as well! Even if the company is doing
| well you need to diversify your savings out of that one
| basket.
|
| There is one exception: if you are high enough in the
| company that you actually know the non-public information
| as it happens (not either because you need to know or
| months later in the all-employee meeting). Then the
| shareholders demand you hold a lot of value in the company
| so that if you do something bad for the company it hurts.
| Most of us will never be that high.
| georgeecollins wrote:
| Financial advisors will advise you against the risk of
| having all your wealth in the company you work for for
| just the reason you describe. If you have a net worth of
| $10m and it is all in the company you work for you could
| in one moment loose your job and be broke. So you should
| diversify.
|
| However, employees often have virtually no net worth (why
| else are they worried about paying taxes on share, except
| they can't take the risk of loss? I can say from
| experience that when I worked for a startup but had
| previous personal financial success I just absorbed the
| tax bill for exercising options knowing that the shares I
| paid taxes on could ultimately be worthless.).
|
| So if all their net worth is in a company its not ideal
| but it is a risk you can take when you are young. I see
| the argument of avoiding taxes and not taking ownership
| until the shares are liquid-- good arguments, it is
| true-- as being used as ways to justify giving employees
| shares or options that are likely to be less valuable
| then the ones held by founders and investors.
| bluGill wrote:
| If you have almost no net worth than put it in a bank
| savings account. If you have more than almost nothing put
| it in 401k or IRA plans - a house is sometimes a good
| option too (but only if you will live there for a decade,
| and of course location location location). Only when you
| have the above in great shape should you thinking about
| anything else more risky.
| efnx wrote:
| Because that's the racket! They can't pay you top dollar
| because they're a lean startup, so they make up for it by
| adding "equity" to remuneration. But that equity is in the
| form of options which you have to _buy_ with your not-top-
| dollar salary, so it's unlikely you will. Then you leave the
| company before an event and those options expire after a
| month or so, going back into the pool for another engineer to
| do the same. The house always wins!
| 0xB31B1B wrote:
| 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.
| AlwaysBCoding wrote:
| 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 they're
| currently fighting me on it because I wasn't a
| shareholder at the time the secondary sale took place, I
| only held options in the company at the time.
|
| This anecdote is illustrating a real world situation in
| which it is being used as a way for founders to try to
| screw their employees, not because their hands are tied
| by some arcane tax law.
| indoordin0saur wrote:
| I'm pretty unknowledgeable when it comes to tax law
| but... If you're an employee at a series A start-up
| valued at $50 million and part of your annual salary pay
| package is being issued equity worth $100,000 do you have
| to pay tax on that immediately? If you can't cash out
| because there hasn't been a liquidity event how do you
| pay the tax?
| AlwaysBCoding wrote:
| you are issued equity in the form of stock options. Stock
| options give you the opportunity to buy stock in the
| company at a specific "strike price" enshrined as the
| fair market value of the company when you sign your offer
| letter.
|
| you aren't actually vesting stock month to month you are
| vesting your stock options. when you "exercise" your
| stock options you pay the company the strike price *
| number of options you want to exercise in order to
| purchase the actual stock in the company.
|
| If the company has grown in value since you joined then
| you would have a taxable event upon exercising your stock
| options because you are buying the stock at the strike
| price, but the fair market value of the stock is
| significantly higher, so that is a taxable capital gain
| that you have to deal with.
|
| Any sane company will give you a 10-year exercise window
| after leaving the company to actually pull the trigger
| and "exercise" your stock options so that you don't incur
| a tax liability but some companies only give you three
| months. Which means not only do you have to front the
| cash to "exercise" the options, but you also have to pay
| the tax liability on the capital gain of stock for that
| year.
|
| If you're asking how you can possibly be expected to pay
| the tax on a million dollar+ capital gain, without ever
| even having access to cash or a guarantee you even will
| have access to cash in the future, then welcome to the
| scam that is being an employee at a Silicon Valley
| startup and the fucked up logic of the US tax code.
| OJFord wrote:
| They're not a subset no, but the two aren't mutually
| exclusive.
|
| They can get options, they can get equity, they can get
| nothing (beyond salary).
|
| Options are common probably because it gives (the company)
| more or easier control over what happens when.
| matuszeg wrote:
| I have received equity as an employee. When I started, the
| company was very early and their evaluation was still very
| low. The way it worked was that I had to pay for the equity
| grant upfront. I forget exactly how much but it was<$200.
| This is also how it worked for me as a founder of a company.
|
| That same company eventually raised a sizeable equity round
| and then began issuing options for new employees. If they
| were to continue issuing equity grants, the cost to purchase
| the grant would be much more than $200 (likely tens or
| hundreds of thousands of dollars). Alternatively, if the
| company were to give employees equity grants directly instead
| of having to buy them then that would count as income and the
| employees would owe taxes on the equity gained. The tax bill
| could also easily be tens or hundreds of thousands of
| dollars.
|
| Options avoid all of that and defer the upfront costs that
| come with an equity grant.
|
| Imo, the real problem is that options can be clawed back once
| you no longer work for the company.
| indoordin0saur wrote:
| IMO, the real problem with options seems to be that you
| have no idea what they are truly worth. You have the option
| for 10k shares and you know the company is worth $200
| million, but you have no idea how many shares are
| outstanding. Meanwhile, shares are being diluted, or maybe
| they aren't. You're just kept in the dark as to what is
| happening. At least that was my experience.
| fardo wrote:
| Actual equity is hard cash, options are a potentiality of
| cash.
|
| As the company with equity, any calls you're selling are
| guaranteed covered, which hedges against downside loss of
| having given away equity and it exploding in value. Calls
| also theoretically align incentives better than equity
| because it gets the staff member personally interested in
| seeing the stock rise, rather than just selling immediately
| to take profit if they're short your company's future
| outlook.
|
| Lots of other nice properties - If you sell the option,
| either discounted or at some full price, you make a money
| premium, which helps runway. If the stock falls, you make
| money from having chosen options and basically don't have to
| give the employees anything. If the stock rises, you're
| probably making great sums from your (much larger) equity
| share, and your losses versus just giving them equity are
| essentially capped at the difference between the current
| price and strike price, instead of theoretically unlimited
| cost. This is easily quantified with some multiplication when
| issuing the options, meaning in a growing company, you have
| knowably limited exposure, and essentially are just giving
| them the equity you would've given them anyways.
| tomp wrote:
| I think you're confusing a few things.
|
| First of all, we're talking about pre-IPO startups, so you
| can't just sell the stock.
|
| Second, talking about "company loses money because it gave
| equity to employees" is as non-sensical as saying "company
| loses money because it gave equity to investors".
|
| You're not _giving_ away equity, you 're _exchanging_
| equity (at present value) for cash (from investors) or
| labour (from employees). They 're both _investors_
| (investing either their money, or their time /skills), and
| by investing, they're taking ownership of any potential
| future gains or losses (and by letting them invest, the
| company is giving up that potential).
| fardo wrote:
| >First of all, we're talking about pre-IPO startups, so
| you can't just sell the stock
|
| This is often but not universally true - about 40% of
| companies allow you to do so, and about 40% of those that
| allow you to do so allow those sales on secondary markets
| [1]
|
| >company loses money because it gave equity to employees
| is nonsensical
|
| You lose money in the sense that the gains beyond the
| strike price which you would have realized had you not
| sold the call option are your losses: you could've not
| sold the option and profited on that rise instead. You
| have lost the difference in the profit between these two
| investment plans.
|
| > You're not giving away equity
|
| I was responding to someone asking "why don't they just
| give the equity instead as compensation?", as opposed to
| writing call options against it - assuming that as a
| company you want to incentivize workers to work by
| setting aside some fraction of your equity which they may
| receive, these are the reasons a company might prefer to
| "give" employees that equity with options, instead of
| discounted equity or stock grants
|
| [1] See page 8 footer of https://www.gsb.stanford.edu/sit
| es/default/files/publication...
| nine_k wrote:
| If we talk about stock _options_ , the company is still
| private, and no stock was issued.
|
| Paying taxes on options for stock that may never materialize,
| or never be worth much, sucks.
|
| I won't (and didn't) buy options before an IPO or an
| acquisition is scheduled, even if they had been granted, unless
| I have money to gamble on it. I won't consider options as a
| part of my pay, unless I'm a founder %) They are but a lottery
| ticket, even when your personal effort may significantly affect
| the odds of it winning.
| bagels wrote:
| The options are exerciseable whenever they are vested (and if
| you are on good terms, sometimes before that). This can be a
| waste of money, or a huge boon in terms of taxes avoided.
| nine_k wrote:
| In what circumstances would that be a huge boon, and how
| much risk / uncertainty is involved?
| georgeecollins wrote:
| I wonder if this problem could be avoided if the early
| technical founder insisted on having the same class of stock as
| the founders. IANAL but in my (limited) experience these games
| are easier to play when the founders (or often the C-suite
| people) have a different class of stock then key employees. Or
| that's how I have seen the game played where one employee can
| have a liquidity event and another doesn't, or the dilution is
| unequal.
|
| I am no expert! Can someone explain to me if having the same
| class of stock as the founders is a meaningful protection?
| AlwaysBCoding wrote:
| I'm not sure if you even need the same class of stock as it
| is needing some assurance of the same liquidity rights as
| founders. If the company charter ensured that any secondary
| liquidity event would have equal participation between
| shareholders (including employee stock options) it would be a
| lot healthier and prevent this class of fraud.
|
| It's such a garbage situation right now for employees,
| because even if you find product-market fit, you do the work
| and your company is successful you can still get dumped on by
| your founders taking secondaries and subsequently checking
| out of the company.
| georgeecollins wrote:
| Isn't "some assurance of the same liquidity rights" just a
| way of saying "the same class of stock". The same class of
| stock will have the same liquidity rights.
| AlwaysBCoding wrote:
| you don't need the same voting rights, for example
| llmblockchain wrote:
| This happened to me as well, but even worse because they killed
| my equity by getting rid of me on month 11 of year one.
|
| I joined a company as employee #2 (though, I started the same
| day as #1). I started working with the founder and co-founder
| in a We Work office that barely fit the four of us.
|
| Within 11 months the company was worth over a billion dollars
| and my wife was about to give birth. At this time the company
| had around ~15 employees (mostly in sales).
|
| I find a job posted on our site for a job that sounds an awful
| lot like mine. The founder/CEO is suddenly vary combative with
| me every day over nothing (shouting at me). I felt like he was
| trying to get me to react negatively to him. I just dealt with
| it because my wife was about to give birth.
|
| One day I come in and I just couldn't deal with it anymore when
| he was shouting at me. I basically told him to stick it up his
| ass and he went ballistic. I was "fired" at this point and had
| to leave and leave behind my company laptop.
|
| I get a call to meet with the founder the next day to discuss
| the exit. We meet at a cafe. He presents a folder with a bunch
| of "evidence" for why I was being let go. None of it was really
| damning in any way (he had private emails between me and an
| employee, Slack private messages, etc). He tried to spin some
| narrative as to why I was being fired and not given my stock
| even though the cliff was around the corner. I also had to
| return my signing bonus ($XX,XXX).
|
| I told him good luck and showed him the job posting that was
| dated after he found out my wife was giving birth. I also had
| printed email exchanges proving the company was doing some
| less-than-legal operations.
|
| Needless to say I got to keep my signing bonus, but not the
| stock. I also got glowing recommendations for every job I
| applied to after that.
| indoordin0saur wrote:
| Wait, your 11 month old company with a handful of employees
| was valued at a billion?
| llmblockchain wrote:
| Yes-- and worth more today.
|
| I don't think it's an ordinary path. The founder had
| success before, and the company I was a part of skipped
| seed and started with a series A before raising more pretty
| quickly.
|
| edit:
|
| From the looks of it, they have 500+ employees now.
| indoordin0saur wrote:
| Seems like you would have had a good case to a lawsuit,
| at least enough to give them a headache settle in court.
| Strange that they dumped you if you were valuable to the
| effort. Did they just squeeze you for what you were worth
| and decided they could get by with other engineers or did
| they not see your work as valuable?
| llmblockchain wrote:
| > Strange that they dumped you if you were valuable to
| the effort. Did they just squeeze you for what you were
| worth and decided they could get by with other engineers
| or did they not see your work as valuable?
|
| Yes and no? I was certainly brought on as a valuable
| asset to the company.
|
| I was introduced to the founder via a mutual
| acquaintance. I had other job offers at the time and had
| no intentions of joining, but the acquaintance asked me
| to speak with the founder and hear him out. I was
| basically tossed an offer that was silly to refuse.
|
| I provided a lot of value and was responsible for
| building the most successful product the company offered.
|
| I think things went a bit south when they wanted to raise
| even more money and bring in more investors. I think I
| was a bit of a black sheep in the company (I didn't have
| the phd+company pedigree as the other founding members).
| I felt like maybe I didn't look so good when they
| presented to investors. They certainly pitched the
| company as being built by the elites of AI and machine
| learning... and yet there I was ;p
| goalonetwo wrote:
| 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 founders made millions (through the exit or
| through liquidity)
|
| Now I'm a realist. Either you create/found a startup or it's not
| worth joining one as an employee. You have way more upside at a
| FAANG/pre-IPO mid-life startup that already found a great product
| market fit.
|
| Essentially, founders are pushing a crazy narrative of Startups
| being worth it to early employees because they need them. It was
| sometimes fun but I wish I just joined a FAANG like most of my
| friends, I would have a couple millions by now if I did.
| abvdasker wrote:
| I second this. I took a large salary cut to be 1/2 of an
| engineering team at a seed stage startup for ~1.25%. After 2
| years of pretty grueling work I left to go back to big tech for
| 3x the pay. I wouldn't call it a total waste of time in the
| sense that it made me a better engineer, but it certainly
| wasn't worth it financially. The company still exists and has
| had a relatively successful series A and "A extension" but I
| don't think my equity will ever be worth anything.
|
| I really wouldn't recommend anyone work as an engineer at an
| early stage startup unless you're getting ~5% or more (this
| would be unprecedented) because the risk is barely less than
| the founders and the pay is generally terrible. Series B or
| later (growth stage) may be a sweet spot where the salaries are
| decent and there is still significant equity upside without the
| insane hours.
| habosa wrote:
| 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.
| goalonetwo wrote:
| Yeah. Founding engineers are drinking the koolaid narrative
| from the founders. I know I have been in the past.
| joshuamerrill wrote:
| Founder liquidity events are done in secret in startup land.
| There's a simple reason for that.
|
| It's wrong.
|
| Startup employees, especially early ones, take on most of the
| risk that founders do. They take pay cuts. They work insane
| hours. They sacrifice.
|
| And they have the same liquidity needs, too.
|
| It's wrong to make them wait a decade for a fraction of the
| liquidity that founders got in the Series B.
|
| It's wrong to force them to absorb the risk of the Series B, C,
| D, E, F, and IPO. All while the founders were set for life years
| ago.
|
| If founders are going to take money off the table, they should
| extend the same liquidity offer, pro-rata, to their employees.
| Period.
| riazrizvi wrote:
| I don't understand the framing here, where they need to justify
| why they get paid. They created and secured a thing and sell
| off chunks of it along the way when it suits them. What's
| strange about that? If you buy a cheap stretch of land in the
| middle of nowhere and develop it and sell pieces of it off,
| that's just understandable.
|
| When you come on board as an employee, you're just not in the
| same situation.
| craftkiller wrote:
| Using your analogy, this is Alice bought a cheap stretch of
| land in the middle of nowhere, and wanted to develop it, but
| she couldn't afford to pay Bob to develop it. Alice then
| offers to pay Bob a smaller portion of money and some of her
| land in exchange for developing it. Bob has other clients
| looking to pay him more money, but he decides to take Alice's
| contract because he wants the land.
|
| Why is Bob not in the same situation? They both are taking a
| financial loss in the hopes of having more valuable land to
| sell. Why shouldn't Bob have the same right to sell his
| portion of the land that Alice has?
| otoburb wrote:
| There's a moral justification, and a desire to change the
| social norm, versus the terms of an agreement. This is
| where educational articles like this are important to
| improve the understanding throughout the industry so that
| employees can make informed choices.
|
| >> _Why is Bob not in the same situation?_
|
| In this specific circumstance, Bob agreed to an arrangement
| that contractually doesn't put him in the same situation.
| Hopefully Bob will learn from this experience and, if
| possible, negotiate better (or equivalent rights) instead
| of willingly agreeing to unequal rights.
|
| Pragmatically, unless and until more workers are willing to
| take the risk to become founders themselves, the balance of
| power usually is in the founders' and investors' favour
| (i.e. capital).
| betagammaxyz wrote:
| It's hard to make this point without a normative argument,
| but by analogy to land, a company is not only the land but
| also the workers laboring on it. It's reminiscent of serfdom.
| The serfs are attached to the land, and they own very little
| of it (if at all, and with many strings attached), even
| though their continued work is a large reason why the land
| would be considered valuable in the market in the first
| place.
| csallen wrote:
| But this analogy fails, too, because in Silicon Valley, the
| serfs _aren 't_ attached to the land. Generally, someone
| who's an early employee at a tech startup has the option to
| go be an early employee at a different tech startup,
| without too much hardship. They aren't tied to the company
| the same way a serf is, where uprooting one's life to go
| work a different stretch of land was absurdly difficult, if
| not impossible.
| AlwaysBCoding wrote:
| what happens if the founders subsequently run the company
| into the ground, having personally enriched themselves off
| their employees work, who they then destroyed the upside for?
|
| should the employees have a legal claim against the money
| that was taken in the secondary transaction?
| drewrv wrote:
| > They created and secured a thing
|
| They did not do that alone. If they had, there would be no
| employees to keep secrets from.
| bigstrat2003 wrote:
| There's nothing wrong with getting paid. But there is
| something wrong with pretending like you _aren 't_ getting
| paid in order to play on people's sympathy, so that they will
| accept getting paid less.
| indoordin0saur wrote:
| This makes sense if you're coming in as employee #50, but
| what's the difference between a founder and the first
| engineer?
| riazrizvi wrote:
| The difference between the founders and the first employee
| is the founders own the company
| AlwaysBCoding wrote:
| It's also wrong because it's not the founders work in isolation
| that is providing the liquidity opportunity in the first place.
| The entire purpose of a joint-stock company is to align
| incentives for all shareholders to benefit from the value
| creation of the company. Founder secondaries are a work-around
| that hack money into the pockets of a couple people off the
| back of other's labor instead of collectively enriching the
| group performing the labor.
| billy99k wrote:
| When I was younger, I worked for multiple startups and received
| stock in each one. How much is that stock worth now? $0. I no
| longer will put that much time and effort into something, unless
| I am the founder.
| blizkreeg wrote:
| Founder liquidity is wrong -- and not because employees don't get
| the same deal.
|
| It's wrong because it is NOT uncommon for a founder to take chips
| off the table sometimes enriching themselves to the tune of
| millions only for the startup to then "fail" -- either go
| bankrupt, sell for peanuts, or sell for only a modest multiple.
|
| You're not done until you're done. But founder liquidity has now
| become a path to getting rich when the outcome of the company is
| still unknown and up in the air. If venture backed founders don't
| want that risk, they should start bootstrapped companies.
|
| At a minimum, there should be a cap on it (not % but $), and yes,
| it should be extended to early employees too.
| bagels wrote:
| When is the outcome 'known'? Only when the business fails?
| blizkreeg wrote:
| Sells or shuts or goes public.
|
| Those are the only three outcomes for a venture backed
| startup.
| sub7 wrote:
| I was an early (first 5) dev at a company now valued north of $5B
|
| I have seen only a few hundred k so far while both founders have
| bought over $30m of real estate and who knows what else...
| 8f2ab37a-ed6c wrote:
| The other aspect that's not factored in here is that often
| founders can spend years in search mode, living on savings or
| some early stage pre-seed VC, with zero guarantee of success or
| ever even finding something to work on.
|
| Took you 5 years to get to a concept that finally justified
| hiring someone to help you grow it? Equity is the only form of
| compensation you have for all that work, and it might still be
| worth $0 another 5 years later. In the meantime the ICs are
| getting paid, are getting benefits, are having a life beyond the
| company.
|
| The rewards have to be deeply asymmetric for this system to work,
| otherwise nobody in their right mind would even consider it.
| blizkreeg wrote:
| The asymmetric reward is the _company_ having a liquidity event
| thereby enriching the founder, NOT a funding round enriching
| the founder.
| 8f2ab37a-ed6c wrote:
| At least in my personal experience of doing this, you're
| often many years of living on savings and are in a bunch of
| debt and being able to get some cash from a funding event
| really helps with relieving the stress of barely making ends
| meet. Investors expect you to stay hungry for as long as
| possible, so even your salary is complete garbage, and the
| funding secondary is an absolute life saver that lets you
| sleep a little bit better at night after many years of
| dipping into the piggy bank.
| aj7 wrote:
| Founder risk is total myth. I was at a startup where, when it was
| apparent there would be no more funding, the vc's permitted
| principal founder to essentially embezzle the remaining few $M.
| He and his cronies then lived off the proceeds for the better
| part of a decade in a kind of "brown dwarf" of a company of the
| same name.
|
| And it was the SECOND time he had done this in his career!
| scndrythrwy wrote:
| 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 in favor of a secondary is often: If
| the founders take some money off the table, they have downside
| protection and are more strongly incentivized towards only a
| massive outcome. This aligns their risk profile more closely to
| their (Seed/A/B stage) VCs who model their portfolios based on
| bimodal (boom or bust) outcomes. It helps prevent scenarios where
| the founders safely exit for $Xm leaving the Series B VC with a
| 1x'ish return that's against their profile.
|
| (2) I didn't take the offer because I felt it would be unfair to
| our early employees who took a big risk leaving FAANG
| compensation to come build with us. I ruminate on this often. It
| would have changed my life, and the only difference to them would
| be some numbers in our cap table being 10% different. In
| retrospect, doing it pro-rata for everyone would have solved
| this, but I'm not sure the VC making the offer would have gone
| for it. Who knows.
|
| (3) I do not think founders and early employees deserve exactly
| the same treatment. While early folks took a similar financial
| risk as I did, they aren't chained to the company in the same
| way. They can quit tomorrow and go back to FAANG jobs. A founder
| has to either find their own replacement, sell the company, or
| run a long and painful wind-down process and return money to the
| VCs. All of these options take months-to-quarters of work, create
| reputational risk, suck emotionally, etc. And that's in addition
| to still losing all your money like the employee did. I don't
| think it's the same.
|
| (4) You don't get nice-guy points for turning down the offer.
| Nobody on my team knows that my cofounder and I turned it down,
| so we get no credit for doing right by them. Telling them about
| it feels somewhere between a humble brag and guilt tripping them
| into working harder. The motivation to do "the right thing" has
| to be purely internal.
|
| (5) If you're starting a company I strongly suggest you give your
| employees the option to early-exercise / 43b their shares. Few
| folks seem to know enough about their options to take advantage
| of this but it prevents the lock-in scenario where someone wants
| to quit but can't because the AMT bill would devastate them. We
| have had this since the seed round but sadly only a few people
| pay attention to it, and I can only suggest it so much without
| creating a financial-advice legal risk.
|
| While I feel like I did right by my team, I can put an exact
| price on the cost of that positive moral sensation. My team might
| even think I'm stupid for not taking it when they would have.
|
| It's pretty easy to say what's obviously right and wrong in HN
| comments, but when all you have to do to pocket a life changing
| amount of money is say "ok", the decision feels much heavier.
| guhcampos wrote:
| 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.
| iainctduncan wrote:
| Background: I work in technical diligence and talk to a lot of
| companies just before they do exits to PE firms (i.e., usually
| the first _big_ cash-in). One of the things I see over and over
| again is just how much great people matter. Not only do they
| matter for getting you there, but they matter for how much you
| get _when you get there_. Our work is used at the negotiation
| table: piles of tech debt and stuff that needs to be seriously
| fixed up comes off the top... a "hair-cut" as they put it. Your
| pile of tech debt and ignored security issues and so on could be
| millions off the deal.
|
| So... I agree with this writer that it there is likely more value
| to early founders than they think in doing that which motivates
| star-level early employees to join and stay.
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