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I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry

• askafriend 11y ago
  Can you explain how you were able to invest 100k into a startup without being an angel investor?
  • arbitrage314 11y ago
    Most startups are more than happy to take your money. Just email or meet with the founders, explain your enthusiasm for the company, and you're usually good to go! For higher-profile deals, though--e.g., Uber--you wouldn't be able to invest such a small amount.
    • DocSavage 11y ago
      Doesn't this just apply to those with either sufficient net worth or earned income to qualify as an accredited investor? Or have you heard of startups taking the money of some new graduate making less than $200k/year with insufficient net worth?
      • arbitrage314 11y ago
        Yeah, typically you have to make at least $200k/year or have a net worth of $500k (the term is "accredited investor"). Thanks to a new law, though, you no longer have to be accredited to invest small amounts.
        • DocSavage 11y ago
          I believe it's net worth of a million dollars (http://www.investor.gov/news-alerts/investor-bulletins/investor-bulletin-accredited-investors http://www.investor.gov/news-alerts/investor-bulletins/inves...). I've been following the crowdfunding legislation and it seems like there may be additional requirements to accept such investments if you are an early startup with just friends & family investments. But the bottom line, I think, is that to do the strategy you suggest, you currently need to be an accredited investor if the startup is not already setup for crowdfunding.
          • limeyx 11y ago
            Excluding primary residence :)
      • balls187 11y ago
        In the US, this is the definition of Accredited Investor[1]. The SEC allows companies to sell shares privately, using Regulation D. Regulation D has a number of rules that govern it, such as, you cannot generally solicit your offering (for example: take an ad out in the NYT annoucning you are raising money). You can raise unlimited funds from Accredited investors (see link). You don't need to provide information (via prospectus) to these investors, as it's assumed they have the acumen to obtain and understand the information to understand the investment being made. Companies can also raise funds from up to 35 non-accredited investors. However, in doing so, must ensure due diligence that those non-accredited investors can bare the economic burden, are made to understand the investment, etc. By and large, that amount of work is more than enough to turn some founders away from dealing with non accredited investors. In certain cases, a pre-seed, initial funding round may come from a "friends and family" round. The SEC recently passed a law allowing selling shares via Crowdfunding, but because it's fairly new, the risk* to future Venture rounds is unknown, and I'd expect founders to be tepid with adopting Crowdfunding as a viable method to raise money. [1] http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=8edfd12967d69c024485029d968ee737&r=SECTION&n=17y3.0.1.1.12.0.46.176 http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=8edfd12967d... * Venture Capitalists (afaik) haven't published an opinion on crowd funding, so founders may inadvertently risk future startup financing rounds if they screw up their capilization table with a crowd funding round.
    • balls187 11y ago
      > Most startups are more than happy to take your money. Just email or meet with the founders, explain your enthusiasm for the company, and you're usually good to go! I would be highly skeptical of any startup founder who is going to take money from just anyone. Taking in random investment dollars could come back to bite founders and company in the ass pretty badly. From the time demanded by the investor, to working on subsequent financing rounds, you could really shoot yourself in the foot by doing this. This is one reason why Angels are more sought after than "friends and family." > For higher-profile deals, though--e.g., Uber--you wouldn't be able to invest such a small amount. No. For late stage investments, even if you had the capital, you're beholden to the terms dictated by whomever is leading the round. They're not going to invest large sums of money and want to share rights with just anyone with the cash.
      • morgante 11y ago
        While it's true that founders won't take money from just anyone, I actually think a software engineer with experience in the industry would be a great investor. They can give you insight on tech problems/scaling, help with hiring, offer connections, etc. (Basically, most of the things you're looking for from investors besides money.) A software engineer investing in your company is pretty different than your real estate mogul uncle trying to get in.
  • balls187 11y ago
    Specific to the US, my interpretation: Prior to SECs recent ruling which allows companies to sell shares (aka securities) by crowd funding, companies are allowed to sell shares to Accredited Investors, the definition of which is regulated by the SEC. Further, they can also sell shares to non-accredited investors, but with added due diligence required by the company. An individual can meet the definition of an accredited investor, without being an "Angel Investor." Angel Investor is a term for someone who is known for, as part of a financial strategy, investing their own money to startups.
  • marme 11y ago
    It is not difficult be qualified as an 'angel investor' to the eyes of the SEC, which really means you met the qualifications of an accredited investor. All you need to qualify is a salary of 200k per year, as the OP said he was making 250k which means he qualified. While 200k seems like a lot i would guess the top 10% of engineers in silicon valley are making at least this much. With 10-20 years experience in software development or if you move up to manager you can reach this salary at any major tech company http://www.investopedia.com/terms/a/accreditedinvestor.asp http://www.investopedia.com/terms/a/accreditedinvestor.asp
• benmanns 11y ago
  How did you invest in a startup with only $100k? Was this a seed-stage thing or were you a small contributor to a later round?
  • arbitrage314 11y ago
    I was a small contributor in a later round (series A or B).
• ryguytilidie 11y ago
  I would also imagine that you get a MUCH better deal and probably higher preference by investing versus being an employee. Which is also not a great message to send employees.
  • arbitrage314 11y ago
    Yes, in addition to the amazing tax benefits of investing rather than being an employee, you get preferred shares. I also want to add that I know of a startup which allowed employees to trade off salary for equity in a way that completely screwed their employees. E.g., they gave their engineers something like either 0.2% and $150k, or 0.3% and $100k. This implied a valuation of $200 million (since an employee would trade off 0.1% of the company for four years of $150k instead of $100k--for an added $200k bonus, and $200k / 0.1% is $200 million). At the time, though, the company was selling shares to investors at a valuation of $50 million. In other words, they were charging employees quadruple the price for equity. I'm thinking about writing a blog post on it.
• acconrad 11y ago
  I think I asked this from you in another thread - but this advice feels difficult to follow. Are you in SF? Do you work at a company like Netflix which is known for paying very high salaries? Or are you not fully a developer, but in management? Because national labor statistics show that even the top quartile of salaries is still much lower than this, so I'm not sure how realistic it is for even the HN crowd to just up and make $250k programming.
  • arbitrage314 11y ago
    Ah, sorry I didn't respond before. I live and work in SF at a large company (not Netflix, but something pretty similar). I'm 80% a coder, 10% a manager, and 10% a data scientist, and I love my job. $250k salaries are very common at large companies these days--you just need to stick around and work hard for a few years. Even if you make $150k, my advice stands, but you should probably invest smaller amounts than $100k, obviously.
    • acconrad 11y ago
      Same age as you, but in Boston, so relatively similar salary/cost-of-living. One question is - are you actually making $250k base? I feel like for many of these large companies, that's the total compensation package, and much of that "total" is around bonus and stock options. Is it more about sticking around than it is about getting in as a high-level engineer, or is it the pay grade? If I walk into Google and get hired as a senior engineer, most salary reports in the public domain show me making far less than $250k base, even in SF.
      • URSpider94 11y ago
        Boston and SF are NOT comparable these days in terms of cost of living OR job market. Boston is probably #2, but it's a fairly distant #2. $250k is a normal salary for an engineer with say 10 years experience in the Bay Area. It won't all be in a monthly paycheck, some of it will be in bonuses, restricted stock, etc., but it will be bankable and spendable annually, not locked away in illiquid assets (at least at a large company). Companies with long vesting schedules will supplement the early years with hiring bonuses until shares start to mature. And this is why rent on a 2BR apartment in Mountain View will run you $3000 per month, and a 900 sq ft condo convenient to nothing in particular runs $850,000.
• Balgair 11y ago
  Thanks for the comment, but 'investing' 100k, a sum FAR more than almost anyone reading the comment will ever see in their own bank accounts, is not 'investing' for most of us. Diversity and spreading the risk is bread and butter for almost all of us. Throwing 100k into a company you believe in' is a greater gamble than almost any reader could ever justify to their spouse and expect to stay married. You live in a very different world.
  • arbitrage314 11y ago
    Yeah, good point--I'd recommend investing only $10k or $20k if possible. One of my points, though, is that you are effectively investing $100k in the company by taking a crap deal to work there (e.g., via a $25k pay cut over 4 years of work). For that $100k, you're getting much less than you would get by simply straight-up investing $100k.
    • tostitos1979 11y ago
      Would you mind sharing a few things: - age - Bay area/NYC or somewhere else? - how do u deal with taxes, 401K contributions and still have 100K leftover? I am possibly overcontributing 401K (maxing the 18K allowed by the IRS) and certainly overpaying rent (bay area :[). How the heck does one manage to save/invest 100K even at that salary? As a soon to be father, I need to get my act together asap.
      • arbitrage314 11y ago
        I'm 30 years old, and my rent is about $1200/month (I'm married, which helps cut down on costs). After taxes, $250k becomes $150k. After rent, food, staying alive, some travel, etc., I'm left with about $100k disposable per year. Like most of you, I don't really have nice things, fancy clothes, etc. I would continue to max out contributions to retirement accounts, though! You can invest in startups via IRAs and Roth-IRAs (I have done it).
        • 0mkar 11y ago
• tlogan 11y ago
  I disagree because it is not true all startups offer less than market-base salary. If a startup has VC backing then there is absolutely no reason for the startup to offer less than market salary. If a startup does not have money to pay employees then founders should raise more. Or sell more. Employees are not VCs. Simple. Also look this way: if start up is not offering market salary, then think this way: how that startup is going to attract talent from established companies (whose expertise are needed if that startup wants to become big). On the other hand, If a startup has no VC backing and you are offered less than market salary you are then you should act as investor / co-founder. That will be definitely less money but it can be a great experience: money is not everything.
  • HiLo 11y ago
    >If a startup does not have money to pay employees then founders should raise more. > then think this way: how that startup is going to attract talent from established companies (whose expertise are needed if that startup wants to become big). THANK YOU so much for saying this
  • arbitrage314 11y ago
    You bring up a good and interesting point. From what I've seen, startups almost always pay less than market, but they make up for it in four different ways: 1. Quality of life and work: employees at startups get to touch more things, work on more exciting projects, eat free food, play ping pong, be a part of a tight-knit culture, etc. A lot of people highly value this, and I don't blame them! 2. Employees mistakenly overestimating the value of their options, their probability of success, and the uniqueness of the startup culture. 3. Related to both #1 and #2, hiring employees that don't care about money and/or haven't taken finance 101. 4. Related to #1, #2, and #3: hiring employees that are so excited about the startup that they don't care about the deal they're getting. I've NEVER seen a good engineer get a better offer at a startup than he/she would've gotten at a large company, but it's certainly possible.
    • serge2k 11y ago
      > 1. Quality of life and work: employees at startups get to touch more things, work on more exciting projects, eat free food, play ping pong, be a part of a tight-knit culture, etc. A lot of people highly value this, and I don't blame them! It's not worth 10s of thousands of dollars a year when you can get a lot of that (or all it) at a company that will pay you more.
• misiti3780 11y ago
  Thanks for the comment but when you say you invested 100K in a company - are you talking about publicly traded companies, investing via the secondary markets, or both ? You cant invest 100K in uber right now ....
• igonvalue 11y ago
  > my current job pays about $250k, and one year, I invested $100k of that into a startup, leaving me with ~$150k of salary. Sorry to nitpick, but how exactly does the math work out if the $100k is presumably drawn from post-tax income?
  • DHJSH 11y ago
    Here in California, you'd take home about $125. So if you invest $100K in a "startup" then you'd have $25K to live on. So I think someone is pulling our leg.
• serge2k 11y ago
  > On the other hand, most people who work at startups aren't interested in money. If that's you, that's totally cool! If that's you, you're an idiot.
• prostoalex 11y ago
  > If you're a good developer, you can get a better deal by working at an established company and simply investing. This cannot be emphasized strongly enough. Even if you suck at investing, take a look at the max fluctuations for Valley's finest - AAPL, GOOG, FB or NFLX. Starting as a very late employee at any of those places with companies well past IPO stage with original equity package pegged at 1.5x-3x the annual salary, with annual/biannual refreshers and occasional performance bonuses yields a very secure future. Of course, there's a bit of survivor bias here, but employees of a publicly traded company generally have a better idea of the company direction.
• morgante 11y ago
  Early in your career, startups can offer flexibility and growth opportunities which you wouldn't have otherwise. One of the best jobs I've ever had was at a startup. I was still in college at the time, but they recognized the value I delivered and: * Paid me a great full time salary even though I was staying in classes * Let me run a full team, giving early management experience (great for my resume) * Meaningful equity No "established" company would have done this. It was a little crazy to do (who lets a college student run a tech team?), but I had a great experience and so did the team. Even if my equity is ultimately worthless, I will still have gained from taking that job. Moreover, not all startup jobs offer poor equity terms. I've never worked at a startup for less than 1% (often much more than that) and always value my stake at less than half the VC valuation. Even if I never make any money on a startup, I'll still endorse doing a startup early in your career. Later on, the calculus definitely shifts as mature companies are both more formulaic in their compensation and also offer benefits which become more important with age.