4 ms·

A VC funded company, assuming you are capable of raising a seed round, can generally pay sfba founders 50-120k for full time work pretty soon after (founding, o

by rdl 12y ago

A VC funded company, assuming you are capable of raising a seed round, can generally pay sfba founders 50-120k for full time work pretty soon after (founding, or people going full-time). Those same people are generally forgoing 100-200k jobs. The equity value of a founder's shares is an order of magnitude higher than an early hire, or two orders higher than a late A or B round hire, and 3-4 orders higher than a pre IPO employee. No one gets rich as a regular IC hire at series B or C, even at a Google -- it probably tops out at 10-15mm, vs 15b for the founders. Even more so at companies less successful than Google. On top of that, founders get supremely preferential tax treatment. Founders shares are generally bought near nil, and the entirety of gains are long term capital gains. If you do it right with QSBS and moving to WA before the sale, it can be taxed at zero. An employee often ends up paying hella AMT on almost all gain from ISOs since he didn't early exercise (or, early exercises at substantial out-of-pocket cost), and gets less freedom to sell in later financings, less return in a sub-optimal exit where the sale is covered with preference but "retention grants" are given to founders, etc. I think the optimal strategy is to work for the most prestigious and successful companies purely as a learning and reputation building exercise, and then either be a founder or consultant to make money. It might be possible to enter a slightly earlier (series b) company as a director or better and still get a reasonable amount of equity (1%+ in a 100-200mm company), but otherwise either going for the tax advantaged, high variance outcome as a founder, or the high cash, flexible, also tax optimized outcome as a consultant, is the best way to actually get paid.

timr 12y ago
These days, being an employee at at a profitable series B+ company may not make you rich, but it's a nice balance of risk and reward: you'll almost certainly walk away with the equivalent of a few hundred thousand per year, with a pretty cushy lifestyle on top of that. I know plenty of people who have jumped from one big valley name to another at mid-growth stage, and they're not hurting financially (plus, it makes you supremely marketable -- recruiters/investors/press go irrationally nuts over people who have big names on their resumes). Entrepreneurship has never been an economically rational decision. You do it because you have to do it, or because you can't force yourself to work for someone else anymore. If you just want to gamble, go to Vegas.
- jsaxton86 12y ago
  "You'll almost certainly walk away with the equivalent of a few hundred thousand per year" "Certainly" is an inappropriately strong word. Even if you assume a salary of $150,000/year, in order to reach $300,000/year you would need to make $150,000/year in stock options, which comes out to $450,000 total if you assume it takes 3 years to get from series B+ to an acquisition/IPO. Of course, it could take longer. Or the median outcome could occur and neither event would happen. So even in the unlikely scenario that the company goes from series B -> liquidation event in 3 years, and you get 0.25% equity (I'm assuming unreasonably generous stock options here for your average engineer, especially given the base salary), the company needs a $180MM liquidation event for the math to work out. This of course assumes that all stock is equal and your investors don't have a liquidation preference or anything like that. It also assumes the company doesn't take additional financing that dilutes the option pool.
  - timr 12y ago
    If you're in a company that's series B+, a $180M liquidation event is a fail, and you shouldn't expect to make anything. I'm not counting angel rounds as a series A here. I'm talking about the big rounds that are invested to scale the business of an already-successful product. Companies that take these kinds of rounds can still fail, but the rate is nowhere near the same as for an early stage startup. And there's still upside in it for the employees: if you get .01% at a $100M series B valuation, and the company eventually IPOs for $1B, you've walked away with a grant worth $100,000. We're only a factor of ~4 apart -- make that .02% and a $2B exit (or .01% at 50M for a $2B exit, or...), and you're basically there. And we haven't even talked about raises and/or retention grants, yet. So perhaps "certainly" was a strong choice of words, but it isn't totally ridiculous, either. Being a later stage employee at a hot company is a pretty good deal.
    - jsaxton86 12y ago
      Yeah, I think we're pretty much on the same page. I think we both agree that established startups probably provide the best balance between risk and reward, but I'm less optimistic about the potential reward, especially for an engineer. I joined the company I currently work for about a year after they raised a series C round. Most importantly, I get a pretty competitive base salary, but I also have some stock options. Even in the best case scenarios I think I'm looking at new car money, not mid-six figures. From talking with other coworkers, joining shortly after the series B round would have increased my options by roughly a factor of 3, in which case that "new car money" becomes "down payment on a house" money. Which is great, I'm not complaining at all, but it's not enough such that anyone post-series B that I know will be making a few hundred thousand per year.
kyleblarson 12y ago
10-15mm isn't rich?
- rdl 12y ago
  As the extreme high water mark of success, not really.
  - sillysaurus3 12y ago
    It's about how much pg netted from Viaweb, isn't it?
    - 001sky 12y ago
      in what year? Multiply 1990's money by 3x...for $ today.
      - ido 12y ago
        More like 1.45x: http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=10%2C000%2C000.00&year1=1998&year2=2014 http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=10%2C000%2C000....
        001sky 12y ago
        Not a precise fit for places like SF, NY, or London.
- atmosx 12y ago
  I don't know, I'm losing it. A guy on another thread stated that he is happy because the NSA is not making people disappear in the USA like the KGB did in cold-war communist Russia. Now I'm reading that a 15 million personal bank account (where you are practically a millionaire) doesn't make you rich. It's just okay. I guess, if you are not richer than Elon Musk then you're not considered rich.
ChuckMcM 12y ago
I'd like to make a small observation here, $10 - 15MM after taxes is fine. That is where you earn $240K after taxes and fees during a recession, or $20K a month free and clear. You live in a nice single family home that is paid for anywhere in the US, and you spend a lot of time travelling and sight seeing. Or if your more entrepreneurial you spend your time building things, coaching youngsters, collecting old cars or steam locomotives and restoring them to original condition. You never run out of money, you never run out of health care, toys, or shelter. If you're working 9 to 5 somewhere its because its fun and you "like to keep your hand in the game." Pretty much anyone would call that "rich." The exception are people who have a issues around money and their only definition of rich is 'more than everyone else.'
- rdl 12y ago
  I'd call that "post economic", but $5-10mm pretax (which is more likely what an employee gets at a Google as an engineer hired before IPO who stays through IPO for 4y) is not enough, after taking care of one's personal expenses, to really fund serious startups. My definition of "rich" is being able to do something (fund businesses) which you fundamentally can't do while earning a salary. You could do that at an extremely limited scale either as a well paid employee or as 5-15mm exited founder. It's a pointless semantic argument, though. My real argument is that founders are making 10, 100, or 1000x what others are making in virtually all positive outcomes, and not actually doing badly in negative outcomes (sometimes better, due to soft landings; sometimes worse, due to forgone salary).
  - deleted 12y ago
    [deleted]
  - ChuckMcM 12y ago
    I understand your definition, I disagree that it's a pointless semantic argument. Employees at startups, riding an exit or two, can easily get to the point where they have no financial worries for them or their kids. My claim is that this outcome, financial independence, is a much more common definition of rich and a much more common goal, than the one you posit of "being able to fund businesses." For what its worth I've worked with, and know several dozen people who were non-founders and achieved that goal. I also know a few people who were not founders and got to the ranks of the .01% (the 1% of the 1%). Folks like Dan Warmenhoven who joined NetApp as its CEO after it was founded but before it was public, similarly Tom Mendoza (also at NetApp), Geoff Baehr who I got hired at Sun after it was public and who did quite well for himself. Being a founder has a bigger payout in a successful exit, being an employee has a better rate of return. The reason is that an employee has the freedom to say "Ok, this isn't working, eject!" and a founder doesn't. As the author points out, Founders that eject at the first sign of trouble find it hard to ever get funded again. Back in the dot com bubble they were the joke entrepreneur the wantrapreneur. They came out in the bubble to found a company and collect a big payout, but they had no idea why people got big payouts. Kind of like cargo cultists making landing signs hoping that somehow that will cause a plane to suddenly appear on final approach. I really believe its great when people are passionate about something and they invest every fiber in their being to make it happen. It doesn't always work but it is thrilling to be on the journey with them. It it much less fun to work for someone who is "just trying to get rich", they make poor choices. As an employee you can bounce bounce bounce until you find the right fit and the passionate people and ride it to the exit. As a founder you have to ride it and it you have to give it your all and you have to only step off that horse when you've exhausted every possible alternative. Anything less and your done. Yes, when it wins, it wins bigger than the rank and file, and when it loses it can destroy any advantage that extra sized piece of pie gave you because at the end of the day 10% of 0 is still 0. Founders do much worse in negative outcomes than employees do. I don't know if its two or three orders of magnitude but it is significant.
acconrad 12y ago
How is being a consultant tax-optimized?
- rdl 12y ago
  My personal lifestyle, since I don't have kids (hate them), only really work on tech stuff or closely aligned hobbies like tearing down electronics or photography of electronics, travel only for conferences or to investigate potential work, etc., means that as a consultant virtually all of my outgoing expenditures tend to be fully deductible business expenses. I can buy a new HSM or 10GE NIC or something to figure out how it works as a business expense; that makes it ultimately 50% the cost of paying business/corp tax and then personal income tax and then buying it. This is all fully legal. Being a 1099 consultant is a bit worse; I've always done the "product company which does a lot of client services as well, and usually with multiple principals" -- which solves the PSC-fucking-of-professionals issue. I think if you're smart you can get a lot of this benefit from 1099. OTOH, a lot of people don't consider living in a government provided trailer, in hotels, etc. and eating on per diem/DFACs/with clients, only going on trips because there's a client engagement or conference, etc. to be a net win vs. ~30% income tax. (I am not an attorney; I am not your attorney. I am not an accountant. This is not legal, professional, or financial advice.)

by rdl 12y ago

timr 12y ago

These days, being an employee at at a profitable series B+ company may not make you rich, but it's a nice balance of risk and reward: you'll almost certainly walk away with the equivalent of a few hundred thousand per year, with a pretty cushy lifestyle on top of that. I know plenty of people who have jumped from one big valley name to another at mid-growth stage, and they're not hurting financially (plus, it makes you supremely marketable -- recruiters/investors/press go irrationally nuts over people who have big names on their resumes). Entrepreneurship has never been an economically rational decision. You do it because you have to do it, or because you can't force yourself to work for someone else anymore. If you just want to gamble, go to Vegas.

jsaxton86 12y ago
"You'll almost certainly walk away with the equivalent of a few hundred thousand per year" "Certainly" is an inappropriately strong word. Even if you assume a salary of $150,000/year, in order to reach $300,000/year you would need to make $150,000/year in stock options, which comes out to $450,000 total if you assume it takes 3 years to get from series B+ to an acquisition/IPO. Of course, it could take longer. Or the median outcome could occur and neither event would happen. So even in the unlikely scenario that the company goes from series B -> liquidation event in 3 years, and you get 0.25% equity (I'm assuming unreasonably generous stock options here for your average engineer, especially given the base salary), the company needs a $180MM liquidation event for the math to work out. This of course assumes that all stock is equal and your investors don't have a liquidation preference or anything like that. It also assumes the company doesn't take additional financing that dilutes the option pool.
- timr 12y ago
  If you're in a company that's series B+, a $180M liquidation event is a fail, and you shouldn't expect to make anything. I'm not counting angel rounds as a series A here. I'm talking about the big rounds that are invested to scale the business of an already-successful product. Companies that take these kinds of rounds can still fail, but the rate is nowhere near the same as for an early stage startup. And there's still upside in it for the employees: if you get .01% at a $100M series B valuation, and the company eventually IPOs for $1B, you've walked away with a grant worth $100,000. We're only a factor of ~4 apart -- make that .02% and a $2B exit (or .01% at 50M for a $2B exit, or...), and you're basically there. And we haven't even talked about raises and/or retention grants, yet. So perhaps "certainly" was a strong choice of words, but it isn't totally ridiculous, either. Being a later stage employee at a hot company is a pretty good deal.
  - jsaxton86 12y ago
    Yeah, I think we're pretty much on the same page. I think we both agree that established startups probably provide the best balance between risk and reward, but I'm less optimistic about the potential reward, especially for an engineer. I joined the company I currently work for about a year after they raised a series C round. Most importantly, I get a pretty competitive base salary, but I also have some stock options. Even in the best case scenarios I think I'm looking at new car money, not mid-six figures. From talking with other coworkers, joining shortly after the series B round would have increased my options by roughly a factor of 3, in which case that "new car money" becomes "down payment on a house" money. Which is great, I'm not complaining at all, but it's not enough such that anyone post-series B that I know will be making a few hundred thousand per year.

kyleblarson 12y ago

10-15mm isn't rich?

rdl 12y ago
As the extreme high water mark of success, not really.
- sillysaurus3 12y ago
  It's about how much pg netted from Viaweb, isn't it?
  - 001sky 12y ago
    in what year? Multiply 1990's money by 3x...for $ today.
    - ido 12y ago
      More like 1.45x: http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=10%2C000%2C000.00&year1=1998&year2=2014 http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=10%2C000%2C000....
      - 001sky 12y ago
        Not a precise fit for places like SF, NY, or London.
atmosx 12y ago
I don't know, I'm losing it. A guy on another thread stated that he is happy because the NSA is not making people disappear in the USA like the KGB did in cold-war communist Russia. Now I'm reading that a 15 million personal bank account (where you are practically a millionaire) doesn't make you rich. It's just okay. I guess, if you are not richer than Elon Musk then you're not considered rich.

ChuckMcM 12y ago

I'd like to make a small observation here, $10 - 15MM after taxes is fine. That is where you earn $240K after taxes and fees during a recession, or $20K a month free and clear. You live in a nice single family home that is paid for anywhere in the US, and you spend a lot of time travelling and sight seeing. Or if your more entrepreneurial you spend your time building things, coaching youngsters, collecting old cars or steam locomotives and restoring them to original condition. You never run out of money, you never run out of health care, toys, or shelter. If you're working 9 to 5 somewhere its because its fun and you "like to keep your hand in the game." Pretty much anyone would call that "rich." The exception are people who have a issues around money and their only definition of rich is 'more than everyone else.'

rdl 12y ago
I'd call that "post economic", but $5-10mm pretax (which is more likely what an employee gets at a Google as an engineer hired before IPO who stays through IPO for 4y) is not enough, after taking care of one's personal expenses, to really fund serious startups. My definition of "rich" is being able to do something (fund businesses) which you fundamentally can't do while earning a salary. You could do that at an extremely limited scale either as a well paid employee or as 5-15mm exited founder. It's a pointless semantic argument, though. My real argument is that founders are making 10, 100, or 1000x what others are making in virtually all positive outcomes, and not actually doing badly in negative outcomes (sometimes better, due to soft landings; sometimes worse, due to forgone salary).
- deleted 12y ago
  [deleted]
- ChuckMcM 12y ago
  I understand your definition, I disagree that it's a pointless semantic argument. Employees at startups, riding an exit or two, can easily get to the point where they have no financial worries for them or their kids. My claim is that this outcome, financial independence, is a much more common definition of rich and a much more common goal, than the one you posit of "being able to fund businesses." For what its worth I've worked with, and know several dozen people who were non-founders and achieved that goal. I also know a few people who were not founders and got to the ranks of the .01% (the 1% of the 1%). Folks like Dan Warmenhoven who joined NetApp as its CEO after it was founded but before it was public, similarly Tom Mendoza (also at NetApp), Geoff Baehr who I got hired at Sun after it was public and who did quite well for himself. Being a founder has a bigger payout in a successful exit, being an employee has a better rate of return. The reason is that an employee has the freedom to say "Ok, this isn't working, eject!" and a founder doesn't. As the author points out, Founders that eject at the first sign of trouble find it hard to ever get funded again. Back in the dot com bubble they were the joke entrepreneur the wantrapreneur. They came out in the bubble to found a company and collect a big payout, but they had no idea why people got big payouts. Kind of like cargo cultists making landing signs hoping that somehow that will cause a plane to suddenly appear on final approach. I really believe its great when people are passionate about something and they invest every fiber in their being to make it happen. It doesn't always work but it is thrilling to be on the journey with them. It it much less fun to work for someone who is "just trying to get rich", they make poor choices. As an employee you can bounce bounce bounce until you find the right fit and the passionate people and ride it to the exit. As a founder you have to ride it and it you have to give it your all and you have to only step off that horse when you've exhausted every possible alternative. Anything less and your done. Yes, when it wins, it wins bigger than the rank and file, and when it loses it can destroy any advantage that extra sized piece of pie gave you because at the end of the day 10% of 0 is still 0. Founders do much worse in negative outcomes than employees do. I don't know if its two or three orders of magnitude but it is significant.

acconrad 12y ago

How is being a consultant tax-optimized?

rdl 12y ago
My personal lifestyle, since I don't have kids (hate them), only really work on tech stuff or closely aligned hobbies like tearing down electronics or photography of electronics, travel only for conferences or to investigate potential work, etc., means that as a consultant virtually all of my outgoing expenditures tend to be fully deductible business expenses. I can buy a new HSM or 10GE NIC or something to figure out how it works as a business expense; that makes it ultimately 50% the cost of paying business/corp tax and then personal income tax and then buying it. This is all fully legal. Being a 1099 consultant is a bit worse; I've always done the "product company which does a lot of client services as well, and usually with multiple principals" -- which solves the PSC-fucking-of-professionals issue. I think if you're smart you can get a lot of this benefit from 1099. OTOH, a lot of people don't consider living in a government provided trailer, in hotels, etc. and eating on per diem/DFACs/with clients, only going on trips because there's a client engagement or conference, etc. to be a net win vs. ~30% income tax. (I am not an attorney; I am not your attorney. I am not an accountant. This is not legal, professional, or financial advice.)