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Liquidity is coming? No, arbitrage is coming! Lots of bagholders, too. In tech, there are many accredited (potential) investors who have product expertise but

Liquidity is coming? No, arbitrage is coming! Lots of bagholders, too. In tech, there are many accredited (potential) investors who have product expertise but no finance experience. This "slack capacity" of capital is what Carta wants to profit from. (If you want a public VC fund, there's Forge. Maybe Carta wants to go here some day, too). Why do tech employees join companies that doll out significantly better equity to investors? (In some cases, those investors even get dividends on their convertible debt). Why are there still startups who don't even have 83(b) elections yet, and why aren't all start-ups doing bonus-to-cover early exercise? Why are employees totally cool with dilution and a 10% employee pool? Because employees earn just enough to compete with each other, but not with the house. This is Carta's business opportunity.

marton78 6y ago
I'm sorry for being dull, but how does what you described translate to a business opportunity?
- choppaface 6y ago
  There's a lot of demand for pre-IPO stock. Facebook was selling on the private market for ~$40-$45 per share before listing at $38. Uber had a similar run-up. Carta provides some equity tools for start-ups (at least, I've used their 83b product) and they want to expand to be a marketplace for helping sell that stock. Forge Global is similar operation (if you create an account there btw they were giving free Crunchbase data for a while). These equity transactions aren't as simple as buying and selling an ETF though. Moreover, most of the existing sales have been private, so sellers (e.g. accredited investors) and buyers (e.g. employees and founders) are at a steep information disadvantage when jumping into these deals-- Carta and Forge know the consequences, but the market participants do not. Moreover, the space isn't necessarily well-regulated. So that's a prime business opportunity: you have people who are too "dumb" to create a market themselves, but who want to transact. The snark in my narrative comes from personal observations that it's very easy to get burned (even in successful exits) and that these middlemen are typically even less trustworthy than big banks.
  - cetico 6y ago
    What are, in your opinion, things that startup founders should do to make things more financially rewarding for employees? Any low hanging fruits you suggest we look at first?
    - bagels 6y ago
      Pay more money? Allow employees to include their shares in a round?
      - brianwawok 6y ago
        The more you pay, the shorter your runway. It’s a balancing act like most things in business.
        dnhbt 6y ago
        >The more you pay, the shorter your runway. The horror of asking a company to charge customers to finance their operations rather than running the VC treadmill. I don't get how more founders don't realize it is in the VC's best interest to keep you on the treadmill, burning their money and giving away your equity.
    - choppaface 6y ago
      I am certainly biased but I would like to see the minimum employee comp package include: * 83b election standard with employee on-boarding paperwork. * Bonus of up to one year salary to cover 83b early exercise costs. * Employee equity pool size disclosed along with 409a. Ideally contractual protection for the employee equity pool. * Offer documents must include a 409a valuation and share price. (I have gotten multiple offers with just a number of shares. And in one case the company was literally peddling a false valuation in my offer). * 401k with company match, even for a small company. Lottery ticket is not a retirement plan. Ideally in my mind: * Employees get convertible debt that is either as senior as investor debt or pays a 5% dividend. * Double standard employee pool to 20%; keep 30% founder pool size. * No ISOs or non-quals ever. Extremely tax toxic, and employees can actually get driven into debt from the job. Options should be outright forbidden for comp packages under $1m / year. The tax games are absolutely not worth it. The main way any positive change can happen is for employees either to negotiate for it during offers or for founders to just start doing it to be more competitive. One might argue that Carta has made 83b easier by chasing a private stock marketplace... perhaps there are other mechanisms for change.
- heimatau 6y ago
  Being a money-changer is very lucrative, it's not noble nor constructive but it is lucrative.
simonebrunozzi 6y ago
Very, very brilliant comment. > bonus-to-cover early exercise Can you explain this in more detail? I'm a bit familiar with it, but it seems you might have more experience and could be able to describe it properly.
- mavelikara 6y ago
  Not the person you are responding to, but I think something like this is what they meant: https://news.ycombinator.com/item?id=13426949 https://news.ycombinator.com/item?id=13426949
vmception 6y ago
mmmm yeah I’m just rolling in all these choices and offers why oh why did I take that job where the hiring manager told me with a straight face my fraction of a fraction of a percent was “high” and couldnt tell me details about the common stock and preferred stock why didnt I take that other job where that other red-but-most-likely-benign flag popped up when the interviewer asked an awkward question why didnt I take the 83(b) election and cough up all the money for my shares right when I started what is up with employees like me, can someone explain?
- derwiki 6y ago
  Sometimes it takes going through it to learn it. Experience. Don’t beat yourself up. Few if any make all the right choices. Just try to always avoid the worst choices (which it sounds like you’ve done so far). And remember: one persons 83b triumph is another’s capital loss they get to carry forward for a while.
  - vmception 6y ago
    or like it wasn’t a mistake at all and calculated risk, and not on the share upside.
deleted 6y ago
[deleted]
fxtentacle 6y ago
I believe the reason is simply that many highly technical people aren't that good at negotiation or have an overly strong sense of duty. Out of my wider social circle, I know several people who I believe are underpaid but stay due to being afraid of interviews or due to loyalty to their company or their customers. I mean that's kinda also why nurses don't quit even though they are usually treated badly. But I also know multiple people who negotiated a generous chunk of stocks as a signing bonus and/or who have agreements that allow them to convert employee stock options into convertibles debt notes (i.e. akin to seed investors).
- fiddlerwoaroof 6y ago
  I’ve been trying to figure out just how strong a prospective Sr. Software Engineer’s bargaining position is here: if they walk away unless given RSUs instead of options, is this likely to be met? If they walk unless given a $20k signing bonus? Also, is “four year vesting with one year cliff” for options negotiable with any chance of success?
  - fxtentacle 6y ago
    A signing bonus is kind of based on your reputation and the alternative job offers that you decline to accept this one. Also, it depends on whether you contacted them directly, or if you were introduced by a headhunter, as the latter will charge them. If you approach them directly, you have a good reputation, and they can see a clear way from your time to increased profits, I'd say you can get up to a year of salary as signing bonus, which for senior positions will be a lot more than $20k. There's also the path of being acqui-hired, where the money that they pay for your past startup is kind of like your signing bonus.

marton78 6y ago

I'm sorry for being dull, but how does what you described translate to a business opportunity?

choppaface 6y ago
There's a lot of demand for pre-IPO stock. Facebook was selling on the private market for ~$40-$45 per share before listing at $38. Uber had a similar run-up. Carta provides some equity tools for start-ups (at least, I've used their 83b product) and they want to expand to be a marketplace for helping sell that stock. Forge Global is similar operation (if you create an account there btw they were giving free Crunchbase data for a while). These equity transactions aren't as simple as buying and selling an ETF though. Moreover, most of the existing sales have been private, so sellers (e.g. accredited investors) and buyers (e.g. employees and founders) are at a steep information disadvantage when jumping into these deals-- Carta and Forge know the consequences, but the market participants do not. Moreover, the space isn't necessarily well-regulated. So that's a prime business opportunity: you have people who are too "dumb" to create a market themselves, but who want to transact. The snark in my narrative comes from personal observations that it's very easy to get burned (even in successful exits) and that these middlemen are typically even less trustworthy than big banks.
- cetico 6y ago
  What are, in your opinion, things that startup founders should do to make things more financially rewarding for employees? Any low hanging fruits you suggest we look at first?
  - bagels 6y ago
    Pay more money? Allow employees to include their shares in a round?
    - brianwawok 6y ago
      The more you pay, the shorter your runway. It’s a balancing act like most things in business.
      - dnhbt 6y ago
        >The more you pay, the shorter your runway. The horror of asking a company to charge customers to finance their operations rather than running the VC treadmill. I don't get how more founders don't realize it is in the VC's best interest to keep you on the treadmill, burning their money and giving away your equity.
  - choppaface 6y ago
    I am certainly biased but I would like to see the minimum employee comp package include: * 83b election standard with employee on-boarding paperwork. * Bonus of up to one year salary to cover 83b early exercise costs. * Employee equity pool size disclosed along with 409a. Ideally contractual protection for the employee equity pool. * Offer documents must include a 409a valuation and share price. (I have gotten multiple offers with just a number of shares. And in one case the company was literally peddling a false valuation in my offer). * 401k with company match, even for a small company. Lottery ticket is not a retirement plan. Ideally in my mind: * Employees get convertible debt that is either as senior as investor debt or pays a 5% dividend. * Double standard employee pool to 20%; keep 30% founder pool size. * No ISOs or non-quals ever. Extremely tax toxic, and employees can actually get driven into debt from the job. Options should be outright forbidden for comp packages under $1m / year. The tax games are absolutely not worth it. The main way any positive change can happen is for employees either to negotiate for it during offers or for founders to just start doing it to be more competitive. One might argue that Carta has made 83b easier by chasing a private stock marketplace... perhaps there are other mechanisms for change.
heimatau 6y ago
Being a money-changer is very lucrative, it's not noble nor constructive but it is lucrative.

simonebrunozzi 6y ago

Very, very brilliant comment. > bonus-to-cover early exercise Can you explain this in more detail? I'm a bit familiar with it, but it seems you might have more experience and could be able to describe it properly.

mavelikara 6y ago
Not the person you are responding to, but I think something like this is what they meant: https://news.ycombinator.com/item?id=13426949 https://news.ycombinator.com/item?id=13426949

vmception 6y ago

mmmm yeah I’m just rolling in all these choices and offers why oh why did I take that job where the hiring manager told me with a straight face my fraction of a fraction of a percent was “high” and couldnt tell me details about the common stock and preferred stock why didnt I take that other job where that other red-but-most-likely-benign flag popped up when the interviewer asked an awkward question why didnt I take the 83(b) election and cough up all the money for my shares right when I started what is up with employees like me, can someone explain?

derwiki 6y ago
Sometimes it takes going through it to learn it. Experience. Don’t beat yourself up. Few if any make all the right choices. Just try to always avoid the worst choices (which it sounds like you’ve done so far). And remember: one persons 83b triumph is another’s capital loss they get to carry forward for a while.
- vmception 6y ago
  or like it wasn’t a mistake at all and calculated risk, and not on the share upside.

deleted 6y ago

[deleted]

fxtentacle 6y ago

I believe the reason is simply that many highly technical people aren't that good at negotiation or have an overly strong sense of duty. Out of my wider social circle, I know several people who I believe are underpaid but stay due to being afraid of interviews or due to loyalty to their company or their customers. I mean that's kinda also why nurses don't quit even though they are usually treated badly. But I also know multiple people who negotiated a generous chunk of stocks as a signing bonus and/or who have agreements that allow them to convert employee stock options into convertibles debt notes (i.e. akin to seed investors).

fiddlerwoaroof 6y ago
I’ve been trying to figure out just how strong a prospective Sr. Software Engineer’s bargaining position is here: if they walk away unless given RSUs instead of options, is this likely to be met? If they walk unless given a $20k signing bonus? Also, is “four year vesting with one year cliff” for options negotiable with any chance of success?
- fxtentacle 6y ago
  A signing bonus is kind of based on your reputation and the alternative job offers that you decline to accept this one. Also, it depends on whether you contacted them directly, or if you were introduced by a headhunter, as the latter will charge them. If you approach them directly, you have a good reputation, and they can see a clear way from your time to increased profits, I'd say you can get up to a year of salary as signing bonus, which for senior positions will be a lot more than $20k. There's also the path of being acqui-hired, where the money that they pay for your past startup is kind of like your signing bonus.