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What I find frustrating about this is if it leads a founder take liquidation preference multiples or other disadvantageous terms that drastically reduce my chan

What I find frustrating about this is if it leads a founder take liquidation preference multiples or other disadvantageous terms that drastically reduce my chance of seeing any payday as an employee. I've been around, so I'll take solid financials over juicy-looking smoke and mirrors any day, but my worry is the median startup employee is young and inexperienced enough that it probably serves the founder to play these games.

yowlingcat 8y ago
Unfortunately, I think that ship sails when you take VC funding. Founders that can fundraise and run corporate BD/sales well and/or are experienced can mitigate this by having a stronger hand to bargain with, but it's just unavoidably the case that VC money comes with strings attached. They indemnify themselves differently from debt investors, but as you point out, that comes from liquidation preferences as well as preferred participation and more. While I would say that it seems probable that many startup employees are young and inexperienced enough that it services the founder to play these games, I'd definitely say that the incentives are definitely in favor of this dynamic. It's unfortunate. I'd prefer solid financials and growth, just like you. The only real way to avoid this kind of game is not to play -- have an independently wealthy founder/stakeholder, or a very close relationship with an angel investment firm that can afford to be long term. It's challenging to find that from people managing Other People's Money.
x0x0 8y ago
To reiterate my experience: Fought is an overstatement, but we worked hard to get 10 year options for our employees. No engineer we recruited or tried to recruit appears to have cared. They do care about valuation. That comes up all the time. This is across new and experienced engineers. ps -- you can't blame founders for responding to the market. If potential employees overvalue unicorn valuations and undervalue 83b or long term options, well, I'm not capable of changing their minds. I sell to the market I have, not the market I wish I had.
potatofarmer45 8y ago
There's a great piece of advice an experienced founder told me: the longer you wait to raise, the better off you'll be. In my first startup we were so happy anyone would be interested in funding us we took on, in hindsight, some pretty bad terms. But having said that, our first raise got us onto a tech blog where a person reached out intrigued by what we did and turned out to be our best engineer. It's really a calculated risk. Despite all that, since we got acquired reasonably early on, our engineers made a pretty solid return.

yowlingcat 8y ago

Unfortunately, I think that ship sails when you take VC funding. Founders that can fundraise and run corporate BD/sales well and/or are experienced can mitigate this by having a stronger hand to bargain with, but it's just unavoidably the case that VC money comes with strings attached. They indemnify themselves differently from debt investors, but as you point out, that comes from liquidation preferences as well as preferred participation and more. While I would say that it seems probable that many startup employees are young and inexperienced enough that it services the founder to play these games, I'd definitely say that the incentives are definitely in favor of this dynamic. It's unfortunate. I'd prefer solid financials and growth, just like you. The only real way to avoid this kind of game is not to play -- have an independently wealthy founder/stakeholder, or a very close relationship with an angel investment firm that can afford to be long term. It's challenging to find that from people managing Other People's Money.

x0x0 8y ago

To reiterate my experience: Fought is an overstatement, but we worked hard to get 10 year options for our employees. No engineer we recruited or tried to recruit appears to have cared. They do care about valuation. That comes up all the time. This is across new and experienced engineers. ps -- you can't blame founders for responding to the market. If potential employees overvalue unicorn valuations and undervalue 83b or long term options, well, I'm not capable of changing their minds. I sell to the market I have, not the market I wish I had.

potatofarmer45 8y ago

There's a great piece of advice an experienced founder told me: the longer you wait to raise, the better off you'll be. In my first startup we were so happy anyone would be interested in funding us we took on, in hindsight, some pretty bad terms. But having said that, our first raise got us onto a tech blog where a person reached out intrigued by what we did and turned out to be our best engineer. It's really a calculated risk. Despite all that, since we got acquired reasonably early on, our engineers made a pretty solid return.