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The best startups have a concept which is summed up thusly: “We all go to the pay window at the same time.” It’s ok for founders to take a little bit of money

• kneath 2y ago
  I have seen a lot of companies, a lot of rounds. I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees). I love the idea of your universe, though.
  • sashank_1509 2y ago
    The very first startup I joined after grad school allowed all employees to cash out significant chunks of their stock in the Series A round. Also Elon famously put 200 million of his own money into Tesla and SpaceX to keep it afloat, which is the opposite of cashing out early.
    • romwell 2y ago
      > to keep it afloat Can't "cash out" (early or not) if your company is sinking.
      • eru 2y ago
        You totally can. That's what investor money is for.
      • gorbachev 2y ago
        Private equity firms do exactly this.
      • phlo 2y ago
        Adam Neumann begs to differ.
        • kelnos 2y ago
          Exception that proves the rule, perhaps?
    • mapt 2y ago
      If you have 200 million "of your own money" to spare, you are no longer just a person for the purposes of this conversation, you're a walking VC fund, and you're not really risking a substantial change to your quality of life going from 250M to 50M net worth. Your living expenses are already generously compensated for by the large salary that you, the VC fund pays you, the person, out of your personal bank account, and they will be paying you those expenses until the end of your natural life. This isn't "risk" in the same sense as somebody who jumps to supplement their $150k salary with $450k of founder liquidity because it dramatically changes the material security of their life.
      • throwbigdata 2y ago
        Life is very different at $50M v $250M
        • Tepix 2y ago
          Is it?
          • BoorishBears 2y ago
            It's not really compared to an average person's life, but in SV tradition never let the chance to subtly flaunt a wealth gap pass by freely (This is the part where you say "Yes, having lived both <insert revelation>")
            • shermantanktop 2y ago
              Has 50M: wishes they had 250M Has 250M: wishes they had 1B
              • gafferongames 2y ago
                Tres Commas
          • fooker 2y ago
    • KennyBlanken 2y ago
      ...while he was getting loaned $200,000 a month for personal expenses by his billionaire buddies. https://www.cnbc.com/2017/04/27/the-crucial-decision-teslas-elon-musk-had-to-make-when-he-was-broke.html https://www.cnbc.com/2017/04/27/the-crucial-decision-teslas-... Also, that may have kept tesla and spacex 'afloat' but what really saved both companies was billions upon billions of dollars in government contracts, subsidies, preferential loans, and tax breaks. Nevada alone gave nearly two billion dollars to Tesla.
      • petesergeant 2y ago
        The government is expecting something in return for these breaks rather than them being some kind of gift, though.
        • nick7376182 2y ago
          And the government got it, in the form of a cost effective usa-based launch solution.
        • oblio 2y ago
          The government is not monolithic and politicians might except other things than what their constituents want. It's a bad test of the value of an investment.
          • petesergeant 2y ago
            For sure, and it may well have been a terrible investment with terrible returns, but selling to the government and responding to government incentives is an entirely legitimate thing to do, rather than some kind of inherent weakness in a company’s model. A company being “saved” by a government contract is a company being saved by making sales to its largest customer.
        • kelnos 2y ago
          Expecting, perhaps, but in general there's little to no penalty if those expectations are not realized.
  • smallnamespace 2y ago
    VCs will go along with or sometimes even encourage founders to take a little bit out, but employees rarely don’t have the same level of bargaining power.
  • _xivi 2y ago
    A: I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. B: I have known zero founders who have turned down an option to take money off the table [...] I love the idea of your universe, though. Fortunately, our universe is massive with varied different views. Even OP implied that they have experienced both sides firsthand.
  • rKarpinski 2y ago
    > I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees). Have seen companies offer this to employee's And companies that let employee's take money off the table at series A are also likely to be generous with meaningless titles; that is they will let early employee's call themselves founders.
    • adastra22 2y ago
      At a Series A?!? That's insane to me. We're talking about the first priced funding round for the company, right?
      • fire_lake 2y ago
        These days there is typically an institutional seed round before that.
        • adastra22 2y ago
          How long is typical for the seed round? Both my prior startups only spent a few months in the seed stage.
      • quartesixte 2y ago
        I have witnessed small liquidity events at Series A and Series B that allowed for some small percentage of all total equity vested (around 3-5% ish, depending on the terms of your specific options grant) to be cashed out at some multiple of the FMV price. AFAIK the founders held themselves to the same restrictions (5% total, I believe?) to keep it relatively "fair". Pre-Seed, Seed, and some really really early Series A employees got to cash out fairly significant chunks of equity. Not as much as a founders' 1-2 million, enough for downpayments on homes or slick new cars all cash. The founders apparently were incredibly generous to Seed stage employees. Still doesn't compare to a Founders' equity, as this article implies.
        • lmeyerov 2y ago
  • extragood 2y ago
    It happens. I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount. I more recently interviewed with a pre-series A company and they said that they'd include me in a liquidity event when I brought up compensation.
    • anonymousDan 2y ago
      How would you negotiate that in practice? Would it be reasonable to ask for it to be in your contract? How would you suggest wording it roughly? Sorry I'm inexperienced with this kind of thing and have no idea how I would go about negotiating for it.
      • kelnos 2y ago
        I think for the most part you can't negotiate for this sort of thing, because most companies are not going to work up a one-off, custom equity comp agreement. Not just for you, someone they've just finished interviewing, seem to have some enthusiasm about, but ultimately they have only a vague idea of how you're going to perform or how long you're going to stick around. Either the company offers it, or they don't. I think more companies offering it is maybe driven by feedback loops around recruiting (prospective employees asking for more and varied opportunities for compensation, and rejecting offers that don't include them). And also perhaps by employees just simply becoming educated about and talking about this stuff, with the sometimes-tacit understanding that they're going to be looking elsewhere for other employment opportunities if their employers don't give them more than just salary bumps and occasional equity grant refreshes.
        • anonymousDan 2y ago
          Great, thanks for the response. That seems like a realistic perspective on what is achievable in most cases. I guess it's good to have it in mind as something to raise on the offchance it might be something a particular company is willing to be flexible on.
  • chatmasta 2y ago
    This assumes that the founders are aware of, or offered, the option. If anything this is an argument for why founders should be represented by a banker or lawyer at the closing of every investment round. Let the founders do the negotiating, but once it comes time to sign the papers, bring in the sharks.
    • newswasboring 2y ago
      That's not common? I was under the impression that everyone hires at least a lawyer to get through the paper work.
    • _heimdall 2y ago
      Honestly if a founder isn't pulling in finance or legal experts prior to signing a funding round they really have no business being in position to begin with. They have to know VCs are leaning on their own financial experts and lawyers, why would you not have your own to protect your own interests?
  • bradleyjg 2y ago
    All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.
    • lupire 2y ago
      There's a sucker born every September. You can find your comment in the HN archives as far back as 2010.
    • smeej 2y ago
      I'd tweak this slightly: "It's exceedingly foolish to be an employee at an early startup for the money." I think there are a lot of us who struggle to fit the larger corporate mold who pretty much only thrive in the startup world. I can't speak for all of them, but I've been very willing to take the balance of lower cash compensation and a fistful of lottery tickets and not having 12 layers of middle management breathing down my neck over more liquidity. I guess I'm also blessed with inexpensive tastes, which helps, but I'm still able to live somewhere I love and do all the things I care to do, so it works out.
      • p1esk 2y ago
        Why does everyone thinks startups don’t pay well? I have worked for various startups all my life, most of them well funded, and competing for talent with faangs. Yes, I could probably make more at Google but I don’t feel like I’m underpaid. At the last 3 startups my base salary was above 250k. I work remotely and I rarely work more than 30 hours a week.
        • bradleyjg 2y ago
          Early startup is the part you seem to be overlooking. A well funded startup with few or no runway concerns is a different calculation.
        • bradlys 2y ago
          I’d say you’re uncommon. I’ve never seen anyone who is a typical engineer making $250k/yr at a startup that’s below $1B valuation. Same for the amount of work you’re doing and that it’s remote with that compensation. It’s possible you’d be making $700k+/yr if you were at google. About triple what you are now.
• darth_avocado 2y ago
  It’s like trading windows and blackout periods for employee RSUs, but equity selloff on a schedule for the c suite.
  • hackitup7 2y ago
    That's not quite how it works. Certain people are required (or strongly encouraged) to sell on a 10b5-1 plan. These plans can trade outside of open trading windows, but they have a meaningful cooldown period before they go into effect and can only be entered into during open trading windows. So it's not necessarily "better."
  • jahewson 2y ago
    That’s really about not falling foul of insider trading laws. Regular employees are free to set up limit orders within their trading windows (eg sell if stock hits $200) if they want. Can’t subsequently cancel it though! It makes way more sense to just sell on the day of vesting and then trade shares that you’re not restricted from trading. No tax or other reason not to do this.
    • throwbigdata 2y ago
      I’ve never worked at a public company that allowed limit orders to survive blackout periods.
      • nick7376182 2y ago
        I believe they are referring to a 10b5-1 plan that includes price-based sale triggers.
  • lupire 2y ago
    Regular employees can also make scheduled trading plans. ETP.
    • vonmoltke 2y ago
      We couldn't at Twitter, which is the only company I've worked at that had a blanket trading blackout policy. The closest we could do was elect to sell all RSUs as soon as they vested (even if outside an open window).
• xbmcuser 2y ago
  It's not in the interest of the VC that the founders have financial security. Well at least the type of VC's that have come up in since the dot com boom where it was not about building viable businesses but getting sold to the highest bidder when the founder is under financial pressure to sell they can strong arm him into easily compared to a founder that is financially secure and interested in building and running a business
  • wrs 2y ago
    It’s not binary. Enough financial security that they don’t care what their investors think, no. Enough that they’re thinking of how to grow the company rather than how they’re going to pay their mortgage, yes.
  • zenlikethat 2y ago
    It’s literally the opposite to what you suggest. Someone who hasn’t eaten for days isn’t thinking about eating healthy when they walk by a McDonalds.
  • kelnos 2y ago
    > It's not in the interest of the VC that the founders have financial security. It's also not in the interest of the VC that the founders are worried about making their rent or mortgage payments, or paying off the credit cards they maxed out paying their AWS bills in the early stages of their company. The VCs want their founders to be hungry for more, and see their company's growth as a vehicle for that. But they don't want founders to be stressing over basic human needs, either. Any VC that would refuse to let you take some liquidity in these situations is not a VC you want to make a deal with. And if you can only find VCs like that, your company is probably doing poorly enough that you might want to rethink what you're doing.
• nytesky 2y ago
  I’m sorry, I think the era of “change the world” motivation in tech was eclipsed by “make 42 tons of money” about a decade ago. Along that line, I would be very surprised that there are founders who don’t seek an opportunity to set aside their nest egg to “de-risk”. You say you have seen such guileless dedication to the founding first hand, can you share what industry or type of company? Perhaps I’m just exposed to the wrong crowd.
  • bigbacaloa 2y ago
    [dead]
• gadders 2y ago
  >>It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird. Yeah, if the founders don't do this I wouldn't want to work for them (not that I'm the target demographic anyway).
• TimPC 2y ago
  Assymetry makes a certain amount of sense. Employees don’t take $0 for a long time and generally aren’t having as large a pay cut as founders afterwards. Most of the founders I’ve worked with have had the seniority to justify the top salary in the company and have typically had pay at or near the bottom. Someone operating at that extreme getting to trade equity doesn’t necessarily mean that everyone should get to.
• fidotron 2y ago
  I agree with the core of your point, and would extend it to any post-IPO lock in periods.
• kelnos 2y ago
  Asymmetry is common in startups, though. Consider one of the complaints from the article, and discussed here: founders get to keep several tens of percent ownership of their companies (at least initially), while early employees get a small fraction of a percent. Founders are generally not taking two orders of magnitude more risk, or doing two orders of magnitude more work. I think giving founders liquidity but not employees is maybe ok for series A: the founders may have been working for $0 for a couple years at that point, and may have taken out a second mortgage or ran up a bunch of credit card debt to keep things going. An early employee is not going to do any of that once they join, even if they're getting paid a below market rate salary. That is definitely an asymmetry! Getting some liquidity at the series A allows the founders to pay down debt and replenish their savings, financial issues that are probably directly related to their time working on their company. But after the series A, founders should be able to pay themselves a livable salary. The founders and employees should be on much more equal (or at least comparable) footing when it comes to their regular income. By the time the series B comes along, if the founders are going to get some (more) liquidity, the employees should get some too. That only seems fair.