5 ms·

Does it really make financial sense though? If there are two founders, some outside equity and a few employees I'm not sure $20 million is better than working i

Does it really make financial sense though? If there are two founders, some outside equity and a few employees I'm not sure $20 million is better than working in a big company and the risk is surely larger. It might be a lot more fun though, and you will learn a lot so if they payoff is comparable I would say go for the startup if you can afford it.

AznHisoka 9y ago
$20 million is $5 million if you just own 25%. thats almost 40 years of working at a dayjob.
- eloff 9y ago
  Except after taxes and expenses you're lucky if you're saving $1000/month at that day job. After 40 years, assuming 5% annual compounding on your investment, which requires to be almost entirely in risky investments like stocks, you could end up with 1.5 million. On the other hand, 3 million after taxes out of the initial windfall of 5 million, at 5% return would let you pay the exact same expenses while still growing by over $5000/month. You'd end up with $30 million at the end of 40 years. Huge difference.
  - zimzam 9y ago
    Your numbers are way off. In the US a young, single developer who follows a budget should be able to save at least $2k/month. $80k/year income less 25% for payroll & income taxes leaves $60k/year. $1.5k/month in housing & $1.5k/month in food/utilities/cell phone/clothes/etc. is $36k/year in spending, leaving $24k for savings. (This also ignores the tax advantages of retirement accounts, which allow for more room to save or spend) The average nominal returns of the stock market are over 10% per year: a very simple & conservative investment portfolio of 60% S&P 500 index fund & 40% US Treasury bonds yields about 8.7%/year. If we assume 2.7% inflation we get 6% real return/year.
    - SirLJ 9y ago
      add a few kids and you'll end up with debt instead of savings...
  - stickfigure 9y ago
    FWIW, a founder with an 83b election will almost certainly be paying the long term capital gains rate on their $5m: 15% federal. (add another 13% if California though)
    - AznHisoka 9y ago
      wait, why 13% if California?

AznHisoka 9y ago

$20 million is $5 million if you just own 25%. thats almost 40 years of working at a dayjob.

eloff 9y ago
Except after taxes and expenses you're lucky if you're saving $1000/month at that day job. After 40 years, assuming 5% annual compounding on your investment, which requires to be almost entirely in risky investments like stocks, you could end up with 1.5 million. On the other hand, 3 million after taxes out of the initial windfall of 5 million, at 5% return would let you pay the exact same expenses while still growing by over $5000/month. You'd end up with $30 million at the end of 40 years. Huge difference.
- zimzam 9y ago
  Your numbers are way off. In the US a young, single developer who follows a budget should be able to save at least $2k/month. $80k/year income less 25% for payroll & income taxes leaves $60k/year. $1.5k/month in housing & $1.5k/month in food/utilities/cell phone/clothes/etc. is $36k/year in spending, leaving $24k for savings. (This also ignores the tax advantages of retirement accounts, which allow for more room to save or spend) The average nominal returns of the stock market are over 10% per year: a very simple & conservative investment portfolio of 60% S&P 500 index fund & 40% US Treasury bonds yields about 8.7%/year. If we assume 2.7% inflation we get 6% real return/year.
  - SirLJ 9y ago
    add a few kids and you'll end up with debt instead of savings...
- stickfigure 9y ago
  FWIW, a founder with an 83b election will almost certainly be paying the long term capital gains rate on their $5m: 15% federal. (add another 13% if California though)
  - AznHisoka 9y ago
    wait, why 13% if California?