4 ms·

I've had a number of chats with Dan Luu about this. If you want the high risk, high reward of a startup, while earning the total comp of a FAANG, you can work f

I've had a number of chats with Dan Luu about this. If you want the high risk, high reward of a startup, while earning the total comp of a FAANG, you can work for FAANG and angel invest on the side. If out of college, you work for FAANG for ~5 years, you'll be able to meet the requirement for an accredited investor by making over $200k a year. At that point, you can invest any disposable income into early stage startups. In addition to getting the benefits of both working at a startup and working at FAANG, you also get the benefits of an investor! You are able to diversify your portfolio across several different startups and you are able to get liquidation preference in any startup you invest in.

starfishjenga 6y ago
W2 taxes will create significant friction here - more so the higher you get over $200k.
- octoberfranklin 6y ago
  It's the other way around. FICA tops out at $135k. Past that your wages are taxed at only 1.45% (for medicare) more than any other non-capital-gains income.
  - vonmoltke 6y ago
    You are forgetting the Additional Medicare Tax of 0.9% that kicks in at $200,000 (single) or $250,000 (married joint). There is also the Net Investment Income Tax of 0.9% that applies to all unearned income when you hit those same thresholds, including but not limited to income that qualifies as long-term capital gains.
  - coryfklein 6y ago
    Uhhh... are you ignoring the normal state and federal income taxes?
chii 6y ago
> you work for FAANG for ~5 years...meet the requirement for an accredited investor...you can invest any disposable income into early stage startups. if you worked for $300k a year (total compensation) for 5 years, you would have accumulated $1.5m dollars. But you would have an outflow due to cost of living. Let's say it's 50% of your income goes to cost of living. Then you would have only $750k left to invest after the end of your 5 year tenure. Even if you managed to keep your stock based compensation (rather than selling it), or you picked some other stocks to purchase during your tenure, it's unlikely to have more than a 100% gain. Let's say you did, and end up with a $1.5m pot at the end due to lucky picks. > You are able to diversify your portfolio across several different startups A $1.5m is barely enough to invest in one early stage startup these days. And not to mention it's such a small amount that a private equity investment firms/VC firms would likely consider it not really worth the trouble to court you over. So it's likely you have to DIY everything yourself - from finding the startup, to hiring the lawyers and bankers to deal with, as well as learn the domain (which you may or may not already be an expert). Or you will have to take a much more unfavourable term with the PE/VC firms as a small client (you have no influence over the conditions of your investment).
- emit_time 6y ago
  False. Angel investors frequently invest at the level of thousands of dollars.
  - myblake 6y ago
    Have done so personally.
- malisper 6y ago
  > A $1.5m is barely enough to invest in one early stage startup these days. I just raised a $1.5m seed round for my startup and can tell you this isn't true. We've published all the numbers on our raise so you can take a look for yourself[0]. The average check an angel wrote was $22k and we even had a check as low as $5k. In fact, the largest check in our round was only $200k. [0] https://www.freshpaint.io/blog/anatomy-of-a-seed-round-during-covid-19 https://www.freshpaint.io/blog/anatomy-of-a-seed-round-durin...
wing-_-nuts 6y ago
If you want the 'high risk, high reward' yes, but just to remind everyone, you could also shovel your savings into the S&P 500 and get low risk, medium reward, and be set to retire in a decade. I've done it. I highly recommend it!
- zeroonetwothree 6y ago
  A decade is very optimistic unless you plan to retire single in a LCOL area.
  - coryfklein 6y ago
    Which, fortunately, counts for 95% of the cities in the United States! You don't have to be in SF, NYC, or LA to live near museums, good food, and the outdoors. And if you're retired, you don't even need to be near the high-paying fin/tech companies either!
awinder 6y ago
Yeah this is really the way to go, when you're young you have a principal problem anyways. I think part of what is maybe appealing about larger equity offers is that you're in with no skin, and you have no skin to give so the math seems to work. FAANG (or any public company) is going to solve this problem for you with incentive stock plans and even employee stock purchase plans. If you're going to be smart you're going to need capital before you start going into illiquid and volatile investments anyways, let a big company solve that problem and enjoy youth.

starfishjenga 6y ago

W2 taxes will create significant friction here - more so the higher you get over $200k.

octoberfranklin 6y ago
It's the other way around. FICA tops out at $135k. Past that your wages are taxed at only 1.45% (for medicare) more than any other non-capital-gains income.
- vonmoltke 6y ago
  You are forgetting the Additional Medicare Tax of 0.9% that kicks in at $200,000 (single) or $250,000 (married joint). There is also the Net Investment Income Tax of 0.9% that applies to all unearned income when you hit those same thresholds, including but not limited to income that qualifies as long-term capital gains.
- coryfklein 6y ago
  Uhhh... are you ignoring the normal state and federal income taxes?

chii 6y ago

> you work for FAANG for ~5 years...meet the requirement for an accredited investor...you can invest any disposable income into early stage startups. if you worked for $300k a year (total compensation) for 5 years, you would have accumulated $1.5m dollars. But you would have an outflow due to cost of living. Let's say it's 50% of your income goes to cost of living. Then you would have only $750k left to invest after the end of your 5 year tenure. Even if you managed to keep your stock based compensation (rather than selling it), or you picked some other stocks to purchase during your tenure, it's unlikely to have more than a 100% gain. Let's say you did, and end up with a $1.5m pot at the end due to lucky picks. > You are able to diversify your portfolio across several different startups A $1.5m is barely enough to invest in one early stage startup these days. And not to mention it's such a small amount that a private equity investment firms/VC firms would likely consider it not really worth the trouble to court you over. So it's likely you have to DIY everything yourself - from finding the startup, to hiring the lawyers and bankers to deal with, as well as learn the domain (which you may or may not already be an expert). Or you will have to take a much more unfavourable term with the PE/VC firms as a small client (you have no influence over the conditions of your investment).

emit_time 6y ago
False. Angel investors frequently invest at the level of thousands of dollars.
- myblake 6y ago
  Have done so personally.
malisper 6y ago
> A $1.5m is barely enough to invest in one early stage startup these days. I just raised a $1.5m seed round for my startup and can tell you this isn't true. We've published all the numbers on our raise so you can take a look for yourself[0]. The average check an angel wrote was $22k and we even had a check as low as $5k. In fact, the largest check in our round was only $200k. [0] https://www.freshpaint.io/blog/anatomy-of-a-seed-round-during-covid-19 https://www.freshpaint.io/blog/anatomy-of-a-seed-round-durin...

wing-_-nuts 6y ago

If you want the 'high risk, high reward' yes, but just to remind everyone, you could also shovel your savings into the S&P 500 and get low risk, medium reward, and be set to retire in a decade. I've done it. I highly recommend it!

zeroonetwothree 6y ago
A decade is very optimistic unless you plan to retire single in a LCOL area.
- coryfklein 6y ago
  Which, fortunately, counts for 95% of the cities in the United States! You don't have to be in SF, NYC, or LA to live near museums, good food, and the outdoors. And if you're retired, you don't even need to be near the high-paying fin/tech companies either!

awinder 6y ago

Yeah this is really the way to go, when you're young you have a principal problem anyways. I think part of what is maybe appealing about larger equity offers is that you're in with no skin, and you have no skin to give so the math seems to work. FAANG (or any public company) is going to solve this problem for you with incentive stock plans and even employee stock purchase plans. If you're going to be smart you're going to need capital before you start going into illiquid and volatile investments anyways, let a big company solve that problem and enjoy youth.