I think he means 83b early exercise: <a href="https:&#x2F;&#x2F;www.esofund.com&#x2F;blog&#x2F;early-exercise-options-83b-election" rel="nofollow">https:&#x2F;&#x2F;www.esofund.com&#x2F;blog&#x2F;early-exercise-options-83b-elec...</a>Extremely beneficial when paired with QSBS and liquidity.

Sorry, separate concepts executed at separate times.Early exercise (yep, 83b in the US) when options are issued then allowing employees to sell shares down the road, outside of fundraising events (Forge, EquityZen, sales to angel SPVs, etc.).

No, although it could also be cashless.Early exercise is purchasing shares before your options vest, making you a shareholder sooner and solving a bunch of tax issues. The company retains the right (basically the obligation) to repurchase any unvested shares should you leave the company before fully vesting.

&gt; allowing early exercise along with secondary sales restricted only by a short right-of-first-refusal periodDo you mean cashless exercise?

We allow early-exercise too but I (possibly, incorrectly) assumed that this was the standard for newly incorporated startups - at least within the last 2-3 years it has become significantly more common.&quot;secondary sales restricted only by a short right-of-first-refusal period&quot;I really like this as well, I&#x27;ve always found it confusing when private companies are anti-secondary for former employees especially. I&#x27;ll look into adding something like this to our stock plan, ROFR protects against any hostile take over weirdness and I&#x27;m confident we could add something like this to make it relatively easy to sell on secondary under a certain % threshold.

I’d also push for allowing early exercise along with secondary sales restricted only by a short right-of-first-refusal period.

If my math is correct, this fails catastrophically for companies with more than 15 tredecillion employees.

This always seems like a huge scam to me. Employee 1 gets 1%? It seems unfair from multiple perspectives.One is just a straight up naive sense of fairness. If I&#x27;m going to be in the trenches with you, I had better be able to see my ownership % in a pie chart with my glasses off. If we&#x27;re out here both making chairs and when we sell a chair for $100, you get $85 (assuming someone took one of the standard-ish seed rounds that are usually 10-20%?) and I get $1? No thanks.The other sense is aware that the founder is taking various risks and blah blah blah. Ok whatever. Let&#x27;s pretend somehow 1% is a fair number and just look at it from a payoff perspective. 1% of stripe? Yeah I&#x27;ll take that. 1% of the other 1000 startups who had mediocre exits or just muddle along to finally do some kind of tender? I&#x27;m barely breaking even. 1% of the other 10000 startups that just folded? At least I can mop the sweat off my brow with the paper I signed.It seems like the only reasonable way to look at this is you either join a company for a competitive wage and get WLB, or you join a rocket ship in the hopes of becoming genuinely wealthy while pouring your blood, sweat and tears into it. So taking 1% and a shitty salary and having terrible WLB sounds like a huge suckers game.

I can share some details.Employee 1: ~1%Employee 10: ~0.1%Employee 1000: 0.01%I&#x27;m extrapolating from past experiences in SaaS companies where I was employee number X and X has varied fairly widely.

Here is a post with data from Carta - <a href="https:&#x2F;&#x2F;www.linkedin.com&#x2F;posts&#x2F;peterjameswalker_cartadata-startupequity-equitycomp-activity-7205962315052068864-s5Qf" rel="nofollow">https:&#x2F;&#x2F;www.linkedin.com&#x2F;posts&#x2F;peterjameswalker_cartadata-st...</a>

Having only worked for larger companies (RSU stage), I&#x27;m curious what the typical breakdown of founder to early employee to investor to later employee equity looks like. I&#x27;m sure it differs pretty wildly, but I&#x27;d love to know what a &#x27;typical&#x27; case for mid-to-late-stage start up looks like.

That&#x27;s actually a lot more common than people assume it is, and comments like &quot;I can&#x27;t believe there are X points but only Y comments&quot; are more common than you&#x27;d think they&#x27;d be as well!My theory is that it&#x27;s a sign of a good article, because more energy is going into reading it than into posting quick comments (which are usually less valuable comments). But I don&#x27;t have the data.Edit: well... we have the data (to test this), but it would be enough of a pain to do the analysis that other things will probably take precedence forever.

I&#x27;m one of those people who upvoted without commenting. I think it&#x27;s just a way of saying, &quot;I found this article interesting &#x2F; I agree with the content, but I don&#x27;t have anything of value to add&quot;.But hey I just commented :)

I wonder if that&#x27;s something the algorithm can detect?Measure the time between when someone clicks a link to the article and when they upvote it, compare that to one of the &quot;estimated reading time&quot; metrics of the linked page...(Which, of course won&#x27;t work, because at least some people (ie me) open a bunch of tabs for everything that looks interesting on the homepage, then spend a few minutes at a time over the entire morning choosing a tab and reading&#x2F;voting...)

I had no intention of posting this to HN (someone I don&#x27;t know posted it!) and also didn&#x27;t expect more than the 10 people I shared it with to actually read it - no vote bait intended! I&#x27;m happy to take your feedback on a better title that is less baity and more apt.

It’s a vote bait title. (Type of thing people upvote without reading the article)

The usual problem of late on HN is people commenting without upvoting, even if they like the article.On this post, I started reading, then paused to hurry back and upvote on HN, to do my part to keep it from falling off the front page, before I returned to finish reading.

Love the movement and glad there are founders out there pushing the envelope for their team.(aside: 51 points but only 1 comment? It&#x27;s a front-page worthy article, but sort of feels like there&#x27;s some vote gaming happening. I&#x27;ve never seen 50 points w&#x2F; 1 comment.)

&gt; What does this mean?Fund buys stock at X and simultaneously solicits LPs at 1.2X (whether by straight mark-up or, more commonly, by adding management fees, research fees, expense reserves and carry.)It’s why tenders have a few weeks between end of sellers submitting requests, confirmation of quantities and finally funding.

&gt; They’re frequently syndicated at double-digit spreadsWhat does this mean?

Hmm, I’ll be controversial. Twinned secondaries, i.e. secondaries tied to a primary, are almost always a give away to senior management and the buyer. (They’re frequently syndicated at double-digit spreads.)If the company sucks, senior management gets cash back first while the investor gets top-of-stack liquidation preferences. If the company is doing great, the investor gets to buy stock at a price almost always lower than market.They’re common in Silicon Valley, because they’re good for founders and the Board members. But they’re rare in public markets. The closest thing I can come up with is the current clusterfuck with Shari Redstone.

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.

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.

<pre><code> 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.

</code></pre>
Fortunately, our universe is massive with varied different views. Even OP implied that they have experienced both sides firsthand.

&gt; 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&#x27;sAnd companies that let employee&#x27;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&#x27;s call themselves founders.

It happens.I was offered the option to liquidate up to 20% of my vested shares at my last company&#x27;s Series A. It was restricted by tenure though (3 years), so it wasn&#x27;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&#x27;d include me in a liquidity event when I brought up compensation.

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.

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.

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.

That&#x27;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&#x27;s not necessarily &quot;better.&quot;

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.

Regular employees can also make scheduled trading plans. ETP.

It’s like trading windows and blackout periods for employee RSUs, but equity selloff on a schedule for the c suite.

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.

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.

&gt; It&#x27;s not in the interest of the VC that the founders have financial security.It&#x27;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&#x27;s growth as a vehicle for that. But they don&#x27;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&#x27;re doing.

It&#x27;s not in the interest of the VC that the founders have financial security. Well at least the type of VC&#x27;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

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.

&gt;&gt;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&#x27;t do this I wouldn&#x27;t want to work for them (not that I&#x27;m the target demographic anyway).

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.

I agree with the core of your point, and would extend it to any post-IPO lock in periods.

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&#x27;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.

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 off of the table if they extend that to their employees as well. Asymmetry is where things get weird.I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all ride, and sometimes that works out, but for most people, having a little bit of financial security while you’re trying to change the world is necessary.The best startups figure out how to manage liquidity through financing in a way that aligns incentives, keeps the goalposts at the mission, while allowing their teams to thrive.It’s about alignment. If everyone is pulling in the same direction you’re going to execute the vision. Whether you win in the startup lottery is up to the threads of fate, but alignment is the straightest path towards a result.

A significant portion of startups that raise a Seed round (or equivalent) never get to a Series A.  Maybe 30 to 50% fail at this stage.

As you noted below, it depends on the industry.But for software, and my impression is that it is even more like this in most other industries, a huge amount of tech ventures never receive any funding. Many of these are never even properly incorporated and may not be included in datasets. Then, for the ones that do raise seed money, usually with SAFEs, 50-60% of them would fail before raising a significant priced round (series A).The overall point being, there’s a lot of risk between starting a company and raising a sizeable priced round for most people.

The company I work for raised a $1M pre-seed round, $10M seed and $25M series AI imagine other companies went through a similar scenario but failed before series A

This whole thread is leaving me very confused. Series A is the first priced round. You&#x27;re saying only a small percentage of tech companies raise a priced round?

It is a bit funny how founders get the special access at a lot of companies. Not all places work like that, but it seems disingenuous.

Only a small percentage of tech companies raise a series A or beyond.To me, this just seems like a capital-efficient alternative to the founder increasing their salary that could be negotiated. I had no such perception that this was some “secret” thing, I assumed it happened since you can do whatever you want if the investors and founders agree that it makes sense.

Founders have control of how things go, and have many ways to make money along the way (one such way documented by this article). How often do the first 2-5 engineers get any such chances?

&gt; The only people not getting scammed regularly are the VC.Not to want to sound like I&#x27;m standing up for Vulture Capital, but while it&#x27;s not &quot;getting scammed&quot; as such - I suspect most VCs lose money on most startups they invest in. And not all VCs land enough 100x exits to make up for all those losses. (The &quot;successful&quot; VCs are the ones who make all the losses end up in pension fund balance sheets, while ensuring most of the profits land in their friends and their own pockets.)

Even founders get shafted in later rounds where they are diluted out of their voting rights because they can&#x27;t raise the capital to maintain their share. The only people not getting scammed regularly are the VC.

Founders cashing out early may be more of an &quot;open secret&quot; but it warrants more discussion. I don&#x27;t find the title overly clickbait-y.And a counterpoint to your perspective, I joined a startup a couple years out of college, had the most fun of my career, and the options were very much worth something. Working for a well-funded start-up is something I&#x27;d especially recommend early in your career when you can take more risk even if the equity doesn&#x27;t always work out.If anything, I&#x27;d discourage becoming a founder as a new grad more than SV typically discusses. I really appreciated taking time to build up my savings and get experience before taking a shot at that.

The title of the article is mostly clickbait. Anyone who&#x27;s lived in SV for a decade or so knows this well. Startups are a scam unless you are a founder. They are a meat grinder that runs on naive young new college grads who buy into the bullshit that their options are worth anything.

To be fair, there is a skill in getting people to believe your vision and to take the risk to work for you. They also need to convince VC&#x27;s of that vision to get the money to pay you in the first place.Generally they make more decisions that directly effect the odds of the company existing 6 months or a year down the line than the average employee does (with some exceptions obviously).You can still be cynical, I think all employees should be given the ability to get liquidity early, but it&#x27;s not like it&#x27;s totally unjustifiable.

You get Founder Liquidity because you managed to convince people who do just as much work that they couldn’t do just as much work without you. LOL
I am so cynical.

Perfectly illustrated by this statement:&gt; I have been an early or first engineer at five different companies and have had three liquidity events in a 9-year career.A &quot;big&quot; success is a 10+ year journey. For an early employee, it is perfectly acceptable to give a few weeks&#x27; notice and move on to the next lotto ticket. This doesn&#x27;t work for a key founder-exec -- they&#x27;re likely going to commit to a decade working on one big problem, and investors want to incentivize them to shoot for the moon &amp; stick with it for the long haul.It&#x27;s definitively not the same for an early employee.

Work a high salary job and buy lottery tickets or 0DTE options instead. Half joking. Look at the success rate of outlier comp through liquidity as an early startup employee. If professional stock pickers can’t pick better than index funds, what makes you think you can do better picking startups, spending non renewable time, working for years vesting common shares that you might get liquidity for eventually, assuming they have any positive value.If you want to get wealthy, there are more efficient, less effort ways. If you want to suffer with low chances of success based on all available data, well, help yourself to the firehose of startup jobs.

Having been employee #10 a couple times now, there is a lot of that even when you aren&#x27;t a founder. It would be nice if the &#x27;de-risk your life&#x27; stuff this article describes for founders was also available for early employees.

I&#x27;m sorry this isn&#x27;t true. Your name wasn&#x27;t on the line when you took the investment, and the OP pointed out with his &quot;5 startups in 10 years&quot; line, it&#x27;s very easy for early employees to walk away. That isn&#x27;t as available to founders. 
 There is much more burden (reputational, financial, emotional) on the founders.I&#x27;ve been a founder, and I&#x27;ve been a key early employee. It is very different.

Having been a key early employee at a failed startup, horseshit.The employees bear the burden too, if they&#x27;re working their asses off at an early stage startup they believe in the cause just as much. Viewing founders as somehow magically special is a symptom of the broader misguided hero worship the US has right now.

Making less money isn&#x27;t really the risky part about founding a startup. The risky part is missing out on years of other life experiences, stressing (or losing) your closest personal relationships, failing and feeling personally responsible for disappointing everyone you convinced to believe in you, and developing an anxiety disorder (or worse) from chronic long-term stress.Author&#x27;s suggestion that they could have taken a &quot;similar level of risk&quot; as an early employee by taking secondaries as a founder is way off, IME.

Having cofounded both bootstrapped and funded startups, I can say that in each case there was a deadline associated with success: for bootstrapped, we set hard targets in terms of maximum spending and time in order to test our hypothesis. This allowed us to fail fast in our own way and go back to a better paying day job.For funded startups - at least with a healthy seed round, the investors expected us to burn fast and hard in order to prove our hypothesis or fail trying as quickly as possible, but they also expected us to not pay ourselves very much. As we found product-market fit and raised Series rounds, it was understood that we would pay ourselves competitive salaries.Being stuck at the seed stage for 10 years is not healthy - neither in Europe, nor in Silicon Valley.

Yes and that is why we call them Europoor out here.

We are talking SV here, and that&#x27;s very different from my European experience.  I&#x27;ve known of founders in Scandinavia who walked out from startups that weren&#x27;t doing so bad and that could have gone for another round of investment because they were earning as much as a bus driver, had zero savings, and were experiencing burn out after almost a decade of work. Maybe that bit of SV culture that lets founders be on par with a highly paid engineer at a big company is up to something. Maybe if it were more of a thing in other parts of the world, we would be more competitive.

$1-$2M after 6 years of working at $100k isn’t really much either in the Bay. (Which is the only place you’d get that.)Even that averages to a senior Eng salary for the very very few founders who get there.This has to be tempered by other realities
- no social life 
- working 80 hours a week easily 
- risking personal finances 
- health problems 
- good chance of divorce 
&#x2F; no deep relationshipsStarting a company is no joke.Very few get to series B&#x2F;C.

This assumes how much of the founders&#x27; shares they sell and the size of the raise. The $400k figure is just arbitrary here. I imagine when companies are raising Series B or later, founders are walking away with millions.

Obviously everything is local. 40k is about $20&#x2F;hr, which where I live is just a tad above what new fast food workers make. Fresh CS grads make more than $100k (or at least they did, obviously the past year and a half has been brutal). This is not in SV.

Where is &quot;around here&quot;? No way it&#x27;s any city in the US.

Getting out of the SV bubble this is an insane amount of money. I boostrap my business and I make 40k a year. Most senior SWE around here make less than 100k.

Founder liquidity doesn’t make up for much in the average situation.Making $400k after making $100k for 4 years doesn’t really change much.It gets you upto junior engineer level.The underestimated play is becoming a cofounder to a great CEO 2nd time founder.

It&#x27;s fairly arbitrary, but there is at least one constraint on how much you can liquidate: You cannot liquidate much more than 10%, because you&#x27;re taking money from the company and investors would not appreciate that.

How common is this? How many founders that raise series A are liquidating? What are the amounts typically?

And what happens in case it does not work out well ?

I was being generous - if there are 3 cofounders and you let one of your early employees get in the 2-3% range - it might be closer to 10x - but you&#x27;re right that the majority of the time it&#x27;s between 20x and 50x, sometimes even more dramatic than that for solo founder scenarios

Yeah that line in the article is completely off:&gt; Ask most venture-backed founders why they get 10x more equity than employee #1Employee #1 typically gets 1%. Sometimes could be up to 2%, but 1% is standard. So then the founder gets 10%? No way.I posit that very, very few early non-founding employees in SV startups have a true notion of how cheap they&#x27;re working compared to the founders. Founders do founder-y stuff, the early engineers build and launch the full product, and if all goes well, the founders fly private the rest of their lives while early engineers make good progress towards a down payment.

I think founders generally have 20 to 50x what the first employee has, in my experience. Employees rarely have more than 1%. Founders tend to start out with about 20-40% depending on number of cofounders.

I think most employees are mostly well aware that founders take a money off the table in every round, and I think that it absolutely does negatively affect morale.

&quot;Silicon Valley&#x27;s [worst] kept secret: [Loyalty will not be rewarded]&quot;The fact remains that sweat-equity deals rarely work out in a founding employees favor.i. IP selloff to umbrella firm for $10ii. contract restructuring or share dilutioniii. jettisoned from a company months before an IPOMost techs have seen all of these events unfold... if you are around long enough.People always have their own strategic truths once significant money is on the table. Even moderate success can destroy peoples memory, and anything not legally watertight is just hot air.Best of luck, =3

This is another reason why American companies beat out Canadian and many other companies by so much.In Canada even at Series A Canadian VCs will not offer you liquidity while at the same time allotting pennies in the first place. Absolutely conservative poor people.If things are working, derisking the founder so that they can focus all in on the problem is the best thing you can do as a VC.

My guess would be that it has to do with the amounts involved. In a typical series A&#x2F;B only the founders have enough equity (they have larger share, plus they&#x27;ve been at the company the longest so they&#x27;ve vested the most) to be worth the transaction cost of a secondary sale.

This is a solid argument to motivate startups to build confidence on employees through any of the captable solutions available out there

&gt; Why is it a secret that founders get liquidity in many venture rounds? Because it undermines the narrative of the founder who is &quot;all-in.&quot; The story of the founder who mortgaged their house and lived on ramen noodles for years is compelling.A lot of startup compensation seems to rely on people not having transparency and honesty. The founders, investors, etc. all have very different risk and reward situations compared to typical employees and even non-founder executives. But for most it seems like a raw deal compared to working at a big tech company, unless you’re lucky and strike gold at a place like OpenAI or whatever.Another area where there is a lot of obscure but important detail is in the cap table, stock plan documents, and so forth. If company financials and cap tables were transparent, and if it was clear the various ways in which a company could screw over employees through various clauses deep in their documents, no one would take those jobs.

100%. The one thing you get at a bigco is bigness -- you can release a product to potentially millions of customers on day 1. When you call on a possible customer or partner, they return your call immediately because BigCo is on the line.On the other hand, I can&#x27;t stand how corporate politics corrupt a product&#x27;s vision. Even low-level politics like &quot;strategy taxes&quot; are infuriating.

How has your time in startups panned out? Were those 2 successes worth the failures?

It depends a lot on the startup. I have similar number of startup experiences, and only one had early stage secondary sales ( but those were even for non founders ). Mainly money comes from IPO or other exit.

You don’t necessarily get offered it, you demand it as a term. If it’s a “hot startup” you pick and choose your investors so if some don’t like it they can walk.

Secondaries have become more popular over the past few (5?) years but you need to know to ask.

I must be an idiot, I&#x27;ve been a cofounder or first hire in 6 startups (2 successful) over the last 25 years and have literally never been offered secondary during a Seed or Series A or B.

How is that legal and not considered self-dealing and unjust enrichment? If I was a minority common stock owner in a business I assume I would have standing to sue for damages if a majority owner or officer made my position materially worse while enriching themselves in such a manner? Are you sure such a right is typically granted? I mean even the gap between 409A valuations and preferred valuations, as well as a huge amount of precedent, give a different material value to preferred and common stock. Giving that right out of thin air in a sale by an insider is effectively theft from common holders and I have trouble believing what you’re saying as I’m not sure how that could be kosher, if perhaps infrequently litigated. But is it really standard like you make it sound? That would be a very dirty secret and I expect would and should lead to litigation.

I used Founders Preferred shares to get liquidity at the A (for a now defunct startup).In our case, we offered all vested employees the option of selling in the same round on the same terms.I personally don’t recall any disclosure requirements at 10 people; however, we didn’t have that many participate so perhaps it didn’t apply.In general, Founders Preferred does layer on the preference stack but also hopefully by a relatively trivial amount to the overall funding size.

The bigger secret is that stock sold in secondary sales by founders and employees is usually common stock, and the purchasers will often get the right to convert this to preferred stock. This means that the company is instantly encumbered with a greater liquidation preference, without the increase in balance sheet to offset it.

It sounds like they could’ve fulfilled the requirements and had more than 10 sellers but chose not to.

I didn’t comment on whether it was a good reason or not. My comment was just highlighting some of the complexities in what the blog author was hoping to achieve.

I often hear about these SEC rules that explain why individual contributors get fucked, as if that&#x27;s a good excuse. Either the requirements and disclosures should be fulfilled and more than 10 sellers allowed, or the rules should change, or both.

A lot of people (esp people that performed extremely well in school and in corporate environment) find &quot;failing&quot; and &quot;losing reputation&quot; very stressful.

I think for a lot of founders, there is significant financial cost or opportunity cost upfront. Especially if you are bootstrapping.

Starting a company myself, I took 6 months with no salary. After we raised, my salary was massively cut from where it was (30-40% of what I made the year prior). Then you have the fact I gave up guaranteed raises &amp; promotions (to the tune of hundreds of thousands in RSUs).There’s a pretty large risk to family security. By year two of the startup I have made 15-20% the cash I could have made elsewhere. I have stock that I trust will be worth more in the future (so imo worth it). However, I can see liquidity events being useful if you’re tight on cash after that run

cause if you fail you have to let people gocause if you fail you have to tell your investors you lost moneycause if you fail is a thought that’s always running through your head as you live it

I tend to have large stress in startups, more than in established companies. I won&#x27;t get into some of the occasional toxic-element sources that can happen anywhere, but some reasons that happen more in startups:1. Caring about the mission -- the real-world positive impact -- and potentially able to make or break that. Not just taking a shot at making money, for some opportunity cost that I could evaluate quantitatively on a napkin, and walk away from as soon as an option with a higher expected dollars number came along.2. Livelihoods and investments of time&amp;effort by colleagues hinge to a large degree on decisions I make, ideas I have, and things I have to pull off, and not wanting to let them down. (A bit similar with money investors, but I care more about personal connections, and involvements where it&#x27;s not just someone buying lots of lottery tickets.)3. Low &quot;paychecks&quot; for my HCOLA, at that startup and earlier, so personally needing a big win financial exit, and the startup is what I decided to invest my time&amp;energy into. If that fails, it&#x27;s starting over, and a lot of wading through various startup ickiness to get another good opportunity (or doing FAANG interview BS, and then their promotion-chasing BS).

Hiring, firing, layoffs, making the wrong decisions with limited information and not finding out they were wrong until years later, huge shifts in the tech market around you undermining your business, competitor actions wrecking your business, pressure from investors, pressure from your family to earn more money, uncertainty about whether the business will ever succeed, and an endless list of other things.&gt; You don’t lose any money if your startup fails.Except all the money you lost by not having a proper job along the way. Also it’s not uncommon for founders to float the company at early stage until investment is raised, and they don’t always get a refund for this.

I mean if you don&#x27;t care about the company mission (if it&#x27;s mission based), you don&#x27;t compare about your employees, your word, you don&#x27;t care about your time or care that you sold people that you were going to take their money to build something... then yes there might be no &quot;personal&quot; downside.Though if you don&#x27;t care about anything in the first place what are you doing trying to build a company?

Where would the stress come from?  You get a paycheck and there is no personal downside except opportunity cost (and perhaps reputation).  You don’t lose any money if your startup fails.

Running with VC funds? Oh god, that would be cakewalk compared to even just figuring out how to ensure there&#x27;s food if you spend money on some necessities for prototype...

The most common endgame for a startup is slowly running into the ground until the money runs out and you eventually shut the doors. Failing your way into a happy acquisition isn’t really something to expect as a contingency, I don’t think.

&gt; Honestly VC-funded startups seem like a cake walk compared to actually starting a small business.Make this about any brick&#x2F;mortar businesses and the stresses multiply by another factor. If they&#x27;re in a federally regulated biz (compliance) or an insurance dominated state (rates, inspections), then multiply again.

Not that people with VC need defending, but:Sure, if you magic up a startup with VC funds you suddenly have it easier than a small, bootstrapped business.Startups almost never start with a round of VC though. There are almost always months or years of the same experience as a bootstrapped business (ie: extreme uncertainty, no money to pay yourself, etc).Most startups don&#x27;t manage to raise VC, and most startups that raise VC fail with no acquihire.

I don&#x27;t know why you are trying to make this a me vs them situation. Both situations are difficult in different ways and they are all real businesses.&quot;Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque.&quot; - Sounds like you are trolling or alternatively incredibly naive.&quot;If you start a real business you can expect to take on debt&quot;. ... Real business? Come on.No one in this thread is saying starting a business is easy - ice cream business is debt funded because you have a very definitive range of outcomes. Venture funding is completely different animal - failing to see that limits the value of your comment significantly.

I one time tried to do a normal startup with 20-30 owners all financially liable. There are other challenges tho.

&gt; Please let us all know how that&#x27;s working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs.If you start a real business you can expect to take on debt, and you&#x27;ll be personally guaranteeing it because nobody cares about equity in your boutique ice cream parlour. Plus a 5-year lease (which you will also personally guarantee).

It’s a shame you were forced to take on this burden and not allowed to be a regular engineer like your peers.

&quot;Sure, you&#x27;ve got a decent chance to rocket past them in wealth.&quot;I might rephrase that as you have a non-zero chance. Odds are not that high and certainly not decent.

Or, based on examples I&#x27;ve witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You&#x27;ve gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.

&gt; making ~$1M per year working 6 hour days at FAANGCan you say more on this? I didn&#x27;t realize FAANG TCO was quite that high. Maybe it&#x27;s time to swallow some pride and take the adtech money after all...

Yeah I feel like successful founders natural ambition and optimism is sort of weaponized against them by the VC industry here. From a VC perspective it&#x27;s worth playing the odds for moonshots. As a founder though, if you can create a $100M company that you own 30% of, you can probably create a $20M company you own 70% of with a much more realistic and sustainable growth targets.I can&#x27;t help but feel this would be better for the founders, the employees and the customers of the company. It just doesn&#x27;t make as much sense for the investors.

You are completely detached from the real world. Even in super rich countries like the US there are a lot of people without savings, living paycheck to paycheck. Most&#x2F;all software engineers outside the US can only dream of ever earning that much money. And yet here you are, worrying that you&#x27;ll end up only slightly richer than people earning ~$1M per year.

Ok, please argue in good faith here. Maybe 1 or 2 people who aren’t executives are pulling in that kind of money from FAANGs.

&gt; while your peers are all making ~$1M per year working 6 hour days at FAANGUnless you are a manager, in which case you are working more like 12 hour a day.

&gt;while your peers are all making ~$1M per year working 6 hour days at FAANGI highly doubt ALL your peers are making that much. And I think the people making $1M per year at FAANG tend to work much more than 6 hour days. You have to be very productive to get $1M per year.

Sir if you live in USA and do not take a dip into the VC money swimming pool, you are stupid, because crazy people with stupid ideas routinely get to $100 Million valuations, like no other place on earth.Its like going to Disney Land and saying &quot;Oh i&#x27;ll just sit at the coffee shop&quot;. Some people are here for the ride. Some people like the 9 to 5. Like you, obviously. Why dont you go start corporate-drone-news.org, this board is for hackers and founders.

You’re obviously overstating the FAANG SWE lifestyle.But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.As an aside, when people think SWEs don’t need unions&#x2F; professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.

&gt; there&#x27;s a decent chance you&#x27;ll walk away with very littleWell, some founders care about their employees and their idea, and the idea of the start up failing is much more than just money.

Your comment suggests people making 1M in FAANG and somehow a stable job. Did you hear about the thousands of layoffs in recent years?

Yes but that&#x27;s still better than early employees who share a lot of the stress and responsibility of company building, with at best 10% of the upside, but more likely around 0.1% - 1% of the upside that the founder has.

Yep, don&#x27;t think it pays to go the middle ground in this case.There isn&#x27;t much point sweating for another person&#x27;s dream, go big with your own startup or rest and vest at FAANG and live life.

&gt; our peers are all making ~$1M per year working 6 hour days at FAANGI think you overestimate median pay at the FAANGs by quite a lot.

&quot;mostly profit someone else who did nothing but write you a check&quot;There is quite a bit of work involved in reaching the point where you write a check for a Series A round. Also, the better VCs spend significant time with their portfolio companies.

Especially 5 years down the road when you own ~30% of a $100M company - but you know there&#x27;s a decent chance you&#x27;ll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn&#x27;t going away.Sure, you&#x27;ve got a decent chance to rocket past them in wealth. But they&#x27;ve got everything they really want. You might have foregone your shot at a partner to build a company to mostly profit someone else who did nothing but write you a check. If you do have kids, you&#x27;ll be old as hell raising them. All you&#x27;ll have is extra stuff hardly anyone cares about - except maybe you - if you&#x27;re the type of person chasing down a decimillion net worth.I hope these people truly enjoy their boats and their third homes in Aspen! It sure is a lot of work to get them.

Correct me if I’m wrong, but my perception of most startups at series A is that they’re not usually more than ten-ish employees, and even then, you’d expect more balanced comp packages for employee number 11+, no?

Secondary at Series A is very rare. Part of the reason more early employees don&#x27;t get included in secondary sales is because of the Securities Exchange Act of 1934 14e-2. If you have more than 10 sellers involved, the transaction can be considered a tender offer, which triggers additional regulatory requirements and disclosures.&gt; As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR in two years) to become a founder and that is when it clicked - I expected to feel stressed, pressured, and the weight of all of the risk I was taking.Please let us all know how that&#x27;s working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!

I’m really sorry to hear about your burnout, I hope you’ve made a recovery and are at a better place now.I thought it was the prevailing wisdom here on HN that being the first employee almost always is bad for the employee. You’re right, the cards are stacked against them

requires having cash to tie up indefinitely, privilege alertwe did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS the election was beautiful.

I&#x27;m not the GP but was one of the first engineering hires in a startup. In my case I got caught in the cross-fire of one of the co-founders backstabbing the other which meant that by the time we closed the series A I had been diluted by 80%. To &#x27;make this up to me&#x27; the company gave me a new grant that would counter the dilution. The downsides were that this restarted the vesting clock and the new options would cost a year worth of savings to exercise - this was much more than the few hundred dollars my original grant cost.Fast forward four years of toil with multiple cycles of doubling and then halving headcount as well as endless leadership changes. We are now on our fourth CTO in as many years. On the upside things are starting to look up! The newest sales team have worked out how to sell the original product we built, not the bells and whistles we pivoted to on the wisdom of the overpaid CPO. We can now celebrate as we have about a year&#x27;s worth of runway and can confidently project being cash flow positive in about six months.The new ex-FAANG CTO earning three times as much as anyone in the original team has great news! As a result of the positive development we are now able to hire an extra development team in South America! This shouldn&#x27;t cost us too much and they can start on the next greenfield effort. The existing developers need not worry about being replaced as the existing team has all of the experience with the money making side of the business, and besides the new devs will be working on a parallel offering anyway.Four weeks later and we&#x27;ve onboarded two offshore devs. The VCs have demanded we cut our burn rate and my position is being made redundant. I have 90 days to exercise but my options are underwater, both when compared to the funds we raised a few months ago and also the FMV. Essentially to buy them now I would be worse off than someone walking straight off the street.

If you were early, why didn&#x27;t you purchase your options and file an 83b?

What if they give 1-2% and good market rate salary (~200k&#x2F;y) to a founding engineer? Is that still a bad deal?

This reminds me of how I have seen a few asks lately for roles where a company is looking for a CTO for their “AI startup”. How an “AI startup” (whatever that might actually mean) can _start up_ without a CTO is beyond me, and raises some very big red flags about what that company might be up to.

I recently applied to a seed stage YC company that was offering me 1.5% equity for a founding eng role which they felt was generous. So basically I get to do all the work for like 1&#x2F;50th of what the founder has? Get real lol. I even pointed this out to them and they said &quot;it&#x27;s totally normal, that&#x27;s the way it&#x27;s done&quot;. Like oh okay, as long as everyone else is getting ripped off too.

&gt; a lot of early stage founders looking for a &quot;founding engineer&quot;I always just assumed that the Entrepreneur, Founder &amp; CEO had come up with an amazing idea like &quot;build an startup (Ai probably) that makes a lot of money&quot; and got some funding - but don&#x27;t know what software is, don&#x27;t know how to code and isn&#x27;t really sure what Ai is does or can be used for; so need someone to put the pieces together to execute their vision with (for) them.Opportunity to get in the ground floor with a future Unicorn - must have 25 years experience, Salary $25,000, 2% equity with 5 year lock-in.

This is the model, you can see a lot of early stage founders looking for a &quot;founding engineer&quot; which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.

If you&#x27;re certain the stock is worth something, just take some risk and exercise.

90 day exercise window is a big part of the problem here.

I can also guarantee you points 2 &amp; 3 are pretty wrong as well. Funny (and also sad) how different peoples realities can be. I have been worn out sitting on both sides of the table to tell you the truth.  (One thing I will say is that within VC, the vast majority of the folks actually doing the work are sympathetic and helpful to companies, working with early&#x2F;senior employees, but it gets lost up the food chain so to speak and there&#x27;s usually just one or two people making decisions at the end of the day about a particular deal or a whole portfolio- and these people are generally very self-interested.)

What would you suggest to someone who wants to work at interesting (non-evil) companies, wants a decent comp ($200k+) and doesn&#x27;t mind being one of the first to lay the foundation with the possibility of upward mobility in the future?

Sorry I&#x27;m a total dumbo when it comes to startups, but what do you &#x27;vest&#x27;? I thought vesting is for stock options (maybe stake?). 
And your startup is not on the stock market, and won&#x27;t ever be unless it gets a billion-dollar valuation.Even stake might be worthless, if the company fails, despite you building a kickass backend for it.

the lottery ticket analogy doesn&#x27;t quite hit the mark imho.I&#x27;ve been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5&#x2F;15&#x2F;30&#x2F;50 on people.even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that.with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket.I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you&#x27;ll walk out worse off than you were when you walked in.if a startup or VC truly gave a shit about anyone outside the c-suite, they&#x27;d have an employee ownership program of some form and assign actual equity, not just options. I&#x27;ve yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.

Every startup CEO must demystify 83(b) for their employees.If you don&#x27;t have cash on hand to pay for early taxes, the company can pay a signing bonus or something for those who elect 83(b) to pay for the upfront taxes.ORJust pay market salaries and leave the choice to employees to do whatever they want with cash. You want to buy our company stock great here&#x27;s the grant. You want to put your money in S&amp;P index go ahead.The employee equity part needs a lot more simplification. I don&#x27;t know why it is not as simple asHere are 2 options for youSalary 200K
OR
Salary 100K Equity 100K
If equity 100K 
 exercise 83(b) - pay taxes at 200K income
 OR
 defer taxes for the subsequent exercise dates. (Could land a huge tax bill)
 OR
 defer the exercise date for a liquidity event&#x2F;secondary sale.Those who value risk will take the last option and those who don&#x27;t will stick to full salary.
83(b) exercise, when presented like this, doesn&#x27;t seem all that rosy.There could be some legalities that I am unaware of, but broadly this should work.

&gt; Getting out for an early employee after funding rounds is expensiveEarly exercise and 83(b) is a must, or forget about it.When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it&#x27;ll be after board approval but as soon as that happens).If they don&#x27;t allow that or if the price is too high for your comfort level, don&#x27;t join that startup.

&gt; Accepting a below market salary and then doing a great job is a huge risk.By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.

Sure, in startups that don&#x27;t grow.In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren&#x27;t so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales.And if the startup is not growing, you can stop worrying about the equity package

The irony of being an early engineering employee (and any engineer really) is that the better job you do the easier it is to replace you with someone who can maintain what you built. Accepting a below market salary and then doing a great job is a huge risk.

I’ve heard this a few times. Could you elaborate why? Surely at that point, less you are hired to a very senior role, you are going to get a very small equity % and a lot of the capitalisation growth has already been priced in? In exchange it is far less risky.Do you just go for the market salary and treat the equity as a minor plus?

In my experience there has never been a good time to be a founding engineer even in companies that have later made it. It&#x27;s much better to join the company 1-3 years prior to IPO&#x2F;Sale where you get many of the benefits but significantly less stress. If I had worked at startups I would have been taking a 30-40% pay cut compared to the roles I did work and none of those startups have gone anywhere with most crashing and burning.

&gt; how little VCs actually value early employeesDo they even pretend that they care about anything other than money? Like... ever? Maybe to family and friends (not even sure), but I mean professionally?

I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be part of what my friends and I were building. Had I had the chance to &#x27;de-risk my life&#x27; with some equity to replenish my empty bank account, which was empty from taking an early employee salary, I may have been able to stay but in the end I had to get out.Getting out for an early employee after funding rounds is expensive because buying options can hit you with massive tax bills on top of the cost of buying the options. Worse, the stats aren&#x27;t great for a chance on return. Your lotto ticket gets expensive and risky as soon as you decide to leave.Articles like this one hammer home more and more to me how little VCs actually value early employees. Paying out founders to stay is a strategic move. Keeping them is worth it because they are the face of the company and turmoil at that level hurts their payout. Burning out early employees is not a concern because you can just swap them without drama. In fact, with the way options are structured and the &#x27;industry wisdom&#x27; to hold off purchasing, it feels like a strategic move to burn out early employees since many employees that are forced out often can&#x27;t even buy their options. They are left with nothing after all that work and risk. From a purely cynical view this is a great thing for VCs since now the company got all the benefit of an early employee and just lost all the costs.I don&#x27;t know about the other three points, but I can guarantee you point 1 of &#x27;right sizing perceptions&#x27; is wrong.

I poked around google&#x2F;ddg and didn&#x27;t see any obvious public discussion of it so I can&#x27;t blame you for missing it.If you have access (or have friends with access) to PitchBook, their file on WeWork would have comprehensive data about all the liquidity events.

Thank you for letting me know about this - I searched for other tender offers or liquidity for employees of WeWork and couldn&#x27;t find anything (and the 2 former WeWork employees I know joined in late 2019 &#x2F; 2020 - so they had a pretty terrible experience)I will re-work that section so that it&#x27;s factually correct

Nice article, but it is wrong about liquidity events at WeWork. The author only discusses a tender offer that fell through at the end of 2019 after the failed IPO and collapse, implying there was nothing ever before.There was a tender offer in 2017 with the first SoftBank investment, and again in early 2019 (pre IPO attempt, closed in April) associated with the second investment by SoftBank. It is possible there were earlier events, but I had joined in 2015.That isn&#x27;t to say things were roses; I know many early employees who, in the lead up to IPO, exercised their options and took enormous loans to pay AMT and were left in a terrible situation.

&gt; The founder in this scenario was offered $400,000 of liquidity at Series A and $750,000 at Series B and encouraged to do so by their board of investors to de-risk their own life.This is from the article. I would tend to agree with you.

&gt; Never took a dime off the table, was never offered it, never asked for itWell they certainly wouldn&#x27;t volunteer the offer without you asking for it.

The single data point here is Adam Neuman, so I have a hard time taking this seriously.I have raised 6 equity rounds as a founder of 2 companies. Never took a dime off the table, was never offered it, never asked for it. We actually did have early employees ask about it, and we encouraged them to not sell.Why would you, especially at early stage valuations? You&#x27;re either bad at math, or you know you&#x27;re about to fail. And who is buying these secondary shares? I don&#x27;t know a VC or angel who would &quot;de-risk&quot; an early founder like this; it&#x27;s not aligned with their model. It also complicates QSBS status if I recall correctly.

It is about aligning risk preferences. Being &quot;all-in&quot; is not likely a good thing for a founder. The founder prefers to take less risk which results to mediocre exit for the investor. The investor would rather have bigger exit or nothing, and giving the founder some money is helping to aling the risk preferences a bit towards the same direction.As for employees? They are typically not calling the shots about company direction. I don&#x27;t see a reason why investors would care about employees.

&gt; removing the worry about e.g. paying rentOnly once the startup has matured at least a little, too much money too early and your hungry founders become lazy.

&gt; another reason for VCs encouraging founders to sell shares: giving them a taste of wealthVCs are wealthy. Some of them weren&#x27;t born wealthy. The best among them recognise that removing the worry about e.g. paying rent will make a better CEO.

I always thought there was another reason for VCs encouraging founders to sell shares: giving them a taste of wealth. If you&#x27;re a founder that sold 2M in stock a year ago and a 200M acquisition offer comes along, you&#x27;d be less tempted now that you appreciate the difference between small millions and big millions.If you thought you had a real chance of going much bigger, having cash already makes you more willing to take that risk. And since VCs tend to make most of their money off a couple very big wins, it&#x27;s worth it to have founders that won&#x27;t settle for less than billions.

If employees realize they are taking more risk than the founders, maybe they&#x27;ll ask for more compensation, maybe they&#x27;ll congratulate the founders and move on with their day, maybe they&#x27;ll start yelling: &quot;I&#x27;M TAKING SO MUCH RISK, IT&#x27;S SO HARD TO BUILD A COMPANY, I DON&#x27;T EVEN HAVE ACCESS TO LIQUIDITY!!!&quot;. And maybe they&#x27;re right.This is why I think the term &quot;Founding Engineer&quot; is often just a fancy way of saying &#x27;sucker.&#x27;

If the product isn&#x27;t making enough money to pay people by year 5 you&#x27;re not a startup founder you&#x27;re just unemployed with a side project.

&gt; All of this after 7 to 10 years of working 80+ hours week, no social life, loosing family, sacrificing health, taking less than $100k&#x2F;year salaryIf you are taking less than $100k&#x2F;year salary for 7 to 10 years while also absolutely no-lifing then that’s on you.It’s true that early on you prob take ramen salary, but that’s for one or two years. You can prob scale to 200k by year 3 if your thing is viable. No-lifing when your startup is in year 5 is just a personal choice. If by year 5 you aren’t on a path of unicorn then prob it’s time to evaluate if it’s worth so much sacrifice or if you should run it as a lifestyle business (or just go do something else).

I read GP as very few founders individually have double-digit ownership, not collectively.

After the Series B for my last company the three founders owned something like 45% of the outstanding shares, and when they sold took out something like 40% of the price. What were the rounds like that led to less than 10% after 3ish rounds?

I don&#x27;t the the author is saying that founders don&#x27;t deserve 400k after 7 years of hard work.He is saying that it is sketchy that this is hidden from employees.

&gt; Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.Have you been a founder? If not, I&#x27;m not sure you fully realize what goes into the job. Everyone wants to be a founder, but nobody wants to _be_ a founder.

&gt; I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.Have you been an employee in a startup? Because in my experience it has a lot of the downs of the founder, but none of the ups.

I think a part of the problem is that if you&#x27;ve chosen a market where VCs do want to invest, and you decide not to take their money, someone else is going to take it, build and grow faster than you, and out-compete you into the ground.Sure, maybe their longer-term trajectory is unsustainable growth and disappointing surprises for founders and employees, but by that point your bootstrapped company has already shut down.But, by all means, find a market where there&#x27;s scant VC money to be found, and you can probably bootstrap for quite some time without funding. And maybe you will eventually decide to take on funding, but instead of giving 60% of your company away to get it, you only have to give away 30%. Or you decide that giving away 60% is fine, in return for 10x as much investment as you might otherwise get at an earlier stage.I know a non-zero number of people who have gone that route, and it&#x27;s worked for them. If I were to start a company, I&#x27;d aim for this model myself. But I would have to be very careful choosing my product and market.

I often think about how if more people understood the median cap table life cycle from Seed to Acquisition&#x2F;Shut-down&#x2F;IPO, there&#x27;d be half as many VC-funded companies and twice as many bootstrapped companies every year. Thank you for sharing your experience towards that goal.Unless you&#x27;re doing some niche b2b thing where you have no personal connections (in which case, why are you doing it at all?), the differential financial returns of going with VC are often negative, if not neutral. The main diff is you can &quot;fail up&quot; into the investor class if you prove your worth but the business goes sideways. But even that is a dissatisfying career for most founder-type people.To whoever needs to read this: start your own company, avoid raising money.

&gt; exercising options up to 10 years are not uncommon10 year expiration is the standard, yes, but only if you stay with the company. Most still kill your options 90 days after you quit or are laid off or fired. There&#x27;s been a small but noticeable trend of companies not pulling this garbage, including the article author.&gt; I think the OP should work on his company for more than 4 months and have more than 10 employeesYeah, I thought it was funny that the author seemed to be speaking so authoritatively after so little experience as a founder. I&#x27;ve never been a founder myself, but I would put much more weight behind the words of founders who have been doing it for years and decades.

Many companies don’t get to Series A and very few companies get to Series B. Even if they do get to Series A or B, they won’t be able to raise the amounts you see in the news and have heavy dilution.Very few founders have double digits percent ownership by Series B and Series C.Liquidity of $400k or more is a lot and isn’t available for many founders.All of this after 7 to 10 years of working 80+ hours week, no social life, loosing family, sacrificing health, taking less than $100k&#x2F;year salary, constant worry of failure, dealing with ups and downs of employees, being a support system of everyone in the company while not being one for their own families, and no guarantee of success. All of this for seeing their dream come true because failure would be worse.I think the OP should work on his company for more than 4 months and have more than 10 employees for at least a year to truly understand what it is to be a founder.Also 20% option pool and exercising options up to 10 years are not uncommon.Source: 2nd time founder.

I&#x27;ve joined two startups now as the 2nd and 4th engineer. I went into both expecting nothing from options or shares, and knowingly accepted a lower than market salary because I liked the teams and projects.I couldn&#x27;t be happier. Neither panned out for me with regards to stocks, and I definitely didn&#x27;t get rich in the process, but I very much enjoyed the jobs and when I decided to leave it was only because the business direction wasn&#x27;t a fit for what I wanted to spend my time on.It sure sounds like a privledged position, but it more came down to us living cheaply compared to our income and having the breathing room to trade a higher salary for work that I really enjoyed. I hope more people can make that tradeoff, it&#x27;s much more fulfilling in my opinion

I&#x27;ve seen it repeated multiple times, and in the past have even repeated it myself. But these days I&#x27;m not so sure. I think you should go into it being ok with the possibility that it&#x27;ll be worth zero, but I don&#x27;t think you should plan for it to be worth zero. Put another way, I don&#x27;t think you should evaluate competing startup offers completely discounting the equity comp. A company that offers $200k and 0.05% of itself is not automatically worse than a company that offers $250k and 0.01% of itself. Hell, that&#x27;s still true even if they&#x27;re both offering the same equity ownership percent.

<pre><code> &gt; Plan around it being worth zero and go in eyes wide open.
</code></pre>
This is the best advice I have seen on HN about start-ups. Note: I have seen it repeated multiple times.

I think that was the entire point the GP was trying to make.  The founders were doctors that decided to start a side hustle, and then one day, boom, they got a huge payout and suddenly stopped &quot;working&quot; and became private investors.  (And meanwhile, their employees didn&#x27;t get all that much out of that &quot;boom&quot;.)

&gt; the owners suddenly went from being doctors with a side hustle to private investors.Did the owners sell the company or get some sort of payout? I&#x27;d imagine if they were making decent money they&#x27;d have kept the business alive, right? Would you be okay sharing the name of the place?

I&#x27;ve worked for six companies, won the lottery once, and it was life-changing. I&#x27;m not bringing this up to brag or to suggest that it&#x27;s common, but to point out that it is possible.And frankly I think as time goes on it has become and will become more possible for more people. In part because of people like you who bring up all-too-common stories of how their founders got big payouts, but their employees only saw breadcrumbs. As more and more employees become educated on this stuff, the more pressure it puts on companies to offer better deals to their employees. We have a loooong way to go before my experience is common -- if we do ever get there -- but I do think it&#x27;s possible that we could get there.

Look, I&#x27;ve worked for 5 companies, 1 of which I knew would never sell and I had inklings that one other probably wasn&#x27;t going to sell and instead was a lifestyle business for the founders, and the other 3 had successful exits. I won the lottery 3 times but I quit the game because I was tired of making VCs and founders rich while taking home breadcrumbs, comparatively.My first startup I walked with a paltry sum and the owners suddenly went from being doctors with a side hustle to private investors. That was my first warning sign and really drove home the need to invest in myself because it certainly wasn&#x27;t going to be someone else doing it, despite the talk of changing the world. It was really, really obvious that the payouts were stacked in one direction and it certainly wasn&#x27;t on the side of employees, early or not. I still enjoy working for small companies, but the hype and bullshit are really tiring and so very cultish. I&#x27;d really suggest treating the startup life like a scratch lottery ticket, because that is all it is. If you win, you&#x27;re gonna get paid but it won&#x27;t be life altering money, just like a scratch lottery ticket. Plan around it being worth zero and go in eyes wide open.

IDK how secret this is.But the reason for founder equity -- as with anything in a free market system -- has nothing to do with deserve and everything to do with demand&#x2F;supply.There are many more we early employees willing to take 1% equity than founders willing to offer it.

I wish I had known so much more about this before joining a hot AI startup a few years ago. It raised its Series C at $850MM valuation. The business was doing terribly; investment was exclusively speculative with no business success to speak of.The founders made tons of cash. Layoffs ensued. They&#x27;re still kicking; they&#x27;ve pivoted to Gen AI which has given them new life. I had no idea how terrible the deal was. I regret so much about that time and the opportunity cost of joining that place.

I couldn&#x27;t care less. They can keep their secret and stick it where the sun doesn&#x27;t shine.

Why, simply pawn some of Father&#x27;s apartheid emeralds to Tiffany&#x27;s, why didn&#x27;t any of you lazy imbeciles ever think of that?

Most can even file for personal bankruptcy and then lounge around in their parent&#x27;s home for a bit. (Or a house in the name of their spouse-with-a-prenup.) 
My parents didn&#x27;t have a garage for me to found a business in.When people helpfully suggest, why don&#x27;t you start your own business, they usually have a substantially bigger than average support network and liquidity to begin with. I never get those suggestions from people who&#x27;ve actually experienced hardship due to job loss or financial stress.

The founders I&#x27;ve known were already wealthy when they decided to do a startup. They aren&#x27;t at risk because even if the startup falls through without making a cent they have enough money in their bank account to withdraw $200k&#x2F;year for thirty years. There&#x27;s no risk there.

&gt; Founders message you 24 x 7. If you don&#x27;t reply, there&#x27;s a &quot;serious discussion&quot; to be had next time.You drop them a bunch of messages to get signoff for the thing that absolutely had to go live on Thrusday and dont hear from them till Sunday because they are tripping on Ayahuasca in the desert.There&#x27;s a &quot;serious discussion&quot; to be had next time about your work ethic.

This is a great post. No need for the throwaway account!<pre><code> &gt; Founders message you 24 x 7. If you don&#x27;t reply, there&#x27;s a &quot;serious discussion&quot; to be had next time.
</code></pre>
That one is my favourite.

I think this is the right point, but it&#x27;s tough.People don&#x27;t like to say &quot;no&quot; or &quot;can&#x27;t do it in that timeline&quot; and other permutations of these statements. If you can&#x27;t even challenge or disagree with anything, then you&#x27;re doing something wrong, or you&#x27;re in the wrong environment, or both.20 years into my career and still practicing this.One hack: I can&#x27;t respond when I&#x27;m asleep! So, I head to bed pretty early (9:30-10 EST).

it&#x27;s important to figure out where to set your own boundaries. people out to exploit you will seek to see how far they can push. congratulations for leaving.one thing that catches out some junior folks is that they may believe this kind of behaviour from bosses is normal and unavoidable as they have only worked for exploitative bosses at places with toxic cultures. you can do better, you&#x27;re worth it. get out. find a more mature company with professional managers, where it&#x27;s normal to leave the office on time and turn off all your work comms and leave all work-related messages unanswered until you&#x27;re back in the office and getting paid to think about work again.

There are many reasons that startups tend to have young employees.As someone in a similar place in my life, I&#x27;d never take a job like that either.

I expect not really? I&#x27;m 42, married, but no kids. I can&#x27;t imagine joining an early stage startup. Not just for the kinds of reasons you mention (being present in a marriage), but just because it sounds so exhausting. When I was 30 I could pull an all-nighter and still have a somewhat productive next full day at work until I could finally get some sleep that evening. But these days I&#x27;ll be a passed-out wreck by 10am, at best, assuming I even make it through the night, and will feel like shit for a couple days afterward.There&#x27;s a reason why people in their 20s or early 30s, and&#x2F;or without a partner or kids, are over-represented in early startups. When I was deepest in my startup work as an employee, I had no time to date, and didn&#x27;t bother to try. My friends barely saw me; most of the little socializing I did was with my co-workers, and that socializing often felt more like work than play, as we were usually discussing (or complaining about) work.I do know people our (current) age, with families, who have done it, but I frankly have no idea how, and I&#x27;m sure it put a strain on their marriage and on their relationship with their kids.On the flip side, as someone who has no kids (and doesn&#x27;t intend to have any), I have noticed a lot more tolerance for missing work &#x2F; missing meetings &#x2F; ducking out for a while when it&#x27;s for childcare than for any other reason. But a childless employee is seen as having no excuse for needing time out of the office here and there for whatever reason. (I suppose this is true to some degree of both startups and established companies, though.)

Honest question: do people with young kids do these jobs well, or at all?I&#x27;m sure the answer is sometimes, yes. But, as a 41-yr-old father of two kids (6, 2) and a wife in PE, the pace and stress strike me as contradictory to being present in a marriage, being present with my kids, managing my health, etc.I&#x27;d love to hear how the people with families manage (or fail) this pace?

because they are cheap ass people. Pivoted 3 times since 2021 to the latest hype, currently building another generic AI app. They still have 5-6 years of runway left with current burn-rate.If they go all out in 12 months, they would actually be considered a winner&#x2F;failure. Purgatory is comfortable.

Sorry if founders already raised a huge valuation, why didn&#x27;t they hire more devs?I&#x27;m sure what can be done with 996 style slave labor with 3 devs can be done with 6 devs working 9 to 5. It&#x27;s not like they couldn&#x27;t afford the salaries (and you mentioned they weren&#x27;t paying that much anyways).

I&#x27;ve worked for a startup similar to that, though it was series A when I joined. It was gross. I stayed there for nearly a year and a half because I did genuinely enjoy the work and my peers, but ultimately the founders ruined the experience for me with their evasiveness and lies, and their creepy later-on focus on &quot;loyalty&quot; when the company&#x27;s prospects started to go downhill. The last straw was when I was told by another often-in-the-know employee (whom I trusted) that one of the founders had found out I was interviewing at another company, and he called someone he knew there and told them not to hire me. Obviously I don&#x27;t know for a fact that&#x27;s what happened, but it sounded believable based on the founder&#x27;s other behavior, coupled with the seemingly-fantastic interview experience I had.That hurt, but I realized I had to do a better job of treating interviews as a two-way street. The company was interviewing me, sure, but I also needed to interview them, and learn what I could about the kind of people the founders and my peers were. I also needed to understand up-front what would be expected of me, and how flexible they could be with my time. The next startups I worked for were much better, and I never felt exploited.

I worked at a preseed company recently. Here&#x27;s my experience:- Work 9 to 7 everyday. 6 days a week.- People are working 9 am - 5 am in crunch time. Then joining again at 10 am.- Monetary Comp is exactly market average.- Equity Comp is even more paltry since founders raised at a huge valuation.- Founders make unrealistic promises. Eg: It took a competitor with 7 people, 3 months to make a product. The founder told us Saturday that he wanted it built by Monday (with 3 total devs).- Founders message you 24 x 7. If you don&#x27;t reply, there&#x27;s a &quot;serious discussion&quot; to be had next time.- Non Accomodating of anything because &quot;It&#x27;s a startup&quot;.I left the place after 10 weeks. I saw 3 people leaving the 6 person company in these 10 weeks. The ones who stayed were under heavy financial stress or had drank the kool aid.

It was 10+ years ago. I don&#x27;t have the details, but the riches they were underpaid for never came true. The founder made out like a bandit.

I don&#x27;t believe a private sale entitles one to ignore a stock options legal rights. What are the relevant details here I&#x27;m missing?

This and my own experience with employee stock options led me to reject any work for startups that offer stock options. It is a way to make you work hard and allow to be treated like dirt for less money. The lowest point was having to walk across town to the office to eat energy bars from the office kitchenette, because I could not afford a bus fare or food as my pay was delayed by a week over Christmas. Meanwhile, the founder was holidaying in Dubai, driving a BMW X7 to work, and showing off a house with a small park and a pond bought in leafy Berkshire. Employee #1 treated the rest of us like dirt. I got laid off in a round of cuts just before my options kicked in and thought it was unjust, but a year later the company was sold to a competitor and the investors got a nice return, the founder got another pot of gold, and the employees with stock options got nothing, because it was a private sale and not an IPO. Employee # 1 was in a bit of a shock allegedly.

Silicon Valley's best kept secret: Founder liquidity