I'm a senior software engineer with over 12 years of experience.
6 out 7 start ups I worked for never had a liquidation event that resulted in any monetary gain.
The one that did ( i was employee #97 and worked there for almost 6 years) and they finally had a 2ndary offer which allowed me to sell 15% of my shares, for about 7K, but because it's short term gains, about 4K is what I got after taxes.
The rest of the shares were completely worthless because they couldn't be sold. I am not disappointed. I never assumed the options would ever be worth anything - I choose my employment based on Salary and work life balance. Options are just a nice bonus, if they do happen.
Your argument is not making sense to me as someone who had offers from startups. I was asked to take roughly 40% pay cut now and expect 10X increase in valuation for equity over 4 years which would put me ahead by 2X to 3X in terms of total compensation over that time frame. I didn't took the offer taking to account risk of failure (~80%). If I treated options as "nice bonus" it would never make sense to take any startup offer over jobs at established companies.
That's why people say look at them like lottery tickets.
There's many factors that go into whether or not they are worth anything - dilution and whether or not the startup is successful. The successful startup part needs good management, good demand for product, competitive against competitors.
> I was asked to take roughly 40% pay cut now and expect 10X increase
Of course you were.
They are selling you on the dream, the best case scenario, etc.
The hard part is that no-one is intentionally or literally defrauding, but it is up to every person what terms they agree to.
First startup, I traded nearly all of my salary over four years for stock options: $0
Second startup, I was told I'd get 5% of the company (no contract though). I quit after a year without pushing the topic: $0
Third job was not a startup, but it was a fairly small company, and I've made nearly two million in tax deferred accounts having made a healthy salary the entire time. I'm retiring this year.
I learned a lot of great things at those first two companies, but I would never recommend a startup from a financial point of view. I almost joined a third startup, but I didn't, and they folded as well. I suspect you've got better odds going to Vegas and putting your salary on a number from the roulette table.
"Third job was not a startup, but it was a fairly small company, and I've made nearly two million in tax deferred accounts"
I would love to know how. Am I just stupid? How am I missing these opportunities? Someone above posted that 4 years at FAANG would net you $1,000,000 savings. And you're saying that a "fairly small" company netted you $2,000,000 savings?
Just to add some concrete FAANG numbers for comparison...
I started at BigCo four years ago as a SWE, after my phd in a not-cs hard science. My starting salary was $130k, with about $30k for signing bonus and moving fees. At my first full year, I received an additional $60k in vesting equity, for about $200k total.
Last year I made Senior SWE, which gave a bump to $165k base pay. Meanwhile, stock equity trickle has continued to grow, and looks like ~$100k this year. And an additional $40k from bonuses for performance, recruiting and general 'company has too much money' put the projected total for the year at about $300k pre-tax (and not including health or other benefits).
I live afaict unusually frugally. I don't drive, live in a shared house, and don't have short humans to worry about. But I occasionally travel to interesting places and give ~$8-$10k a year to stuff I care about. After four years at BigCo, I've got about $450k in the bank+investments. So, not a million, but probably way better than I would have done with the startup scene... and it sounds like the one recruitment bonus I've gotten so far is better than most people ever see from a startup exit.
I've never worked for a "big" company, much less one of FAANG. Although, I knew a kid who went to Apple, and he did well. I also had a friend from Intel, and he did well too.
My situation was much more than 4 years, but it was steady (exponential) growth at a nice rate, and I'm exiting in my mid 40s. Maybe I could've done better, but to the point of this topic, my one stable job did much better than the three startups I was exposed to.
People win the lottery. You don't ask "Am I doing something wrong. I bought a ticket too and didn't win anything".
These huge bonuses, etc are handed out to people who either have really scarce skills or get lucky.
Wikipedia[1] says there are nearly 4 million software developers in the US. If each were to receive a million dollars, then it would total up to 4 trillion USD (using US ways of naming large numbers). The GDP of the US in 2016 (same time the software developers demographics was reported) was about 18.6 trillion USD.
The idea that a million USD is reasonable for a developer is absolutely laughable.
He never specified how many years he worked there, and he's apparently already retiring? Maybe that's over a very long period of time so I don't see how you're "failing". Maybe you're actually doing much better.
You are also failing in life against someone who won lottery last week. You should have lot of regret about not going to that same store and not choosing those same numbers that lottery winner chose.
I wouldn't believe everything you read on the internet. I often see absurb compensation packages posted on HN and have never seen anything close to them in real life.
That's about ~25 years if one is contributing ~25k a year (reasonable 3% match + 18k yearly limit) and the accounts are yielding a nominal 8%, which is not incredibly impressive (5% real give it or take).
Make the nominal interest 10% (probably more similar to the actual returns in the past two decades) and we get there in ~20 years.
Contribute more (e.g. backdoor roth and/or mega backdoor roth) and we get there much faster.
Startup 1: $50k for 1 year (in the 90s, do the math what it would be right now)
Big company for some time
Startup 2: $0 for 2 years
Startup 3: $0 for 2 years
Startup 4: $0 for 2 years
Startup 5: $500k for 4 years
Startup 6: $1m for 1 year (still somewhat in play because 3/4 of my options got converted into the options of a public company as a result of acquisition, and I got RSU handcuffs on top of that)
All numbers before tax.
I hope I'm done with my startup adventures. Lost taste for it.
Financially, based on my experience, startups do not make any sense as an employee.
Mentally, Startup 5 made me question my faith in humanity.
Serious question: Assuming most of the startup crowd is in SV - how does this make any sense at all? People do have to pay $5000 mortgages there, right?
Joined among the first 10 employees. The company grew to 200 employees and 400M valuation in 4 years. Sold last year a portion of my vested shares for 1M to investors as part of a secondary transaction, and I still have a decent amount (70%) of vested shares and unvested options, since the company hasn’t exited yet and management has no plan of doing so in the short/medium term.
I’m not counting on the rest of the equity to be worth as much because I don’t believe in the company ability to execute well at this point, too many changes diluting the quality and the mission. Unfortunately I wasn’t able to sell more as part of the secondary transaction (company rule), otherwise I would have dumped it all (the vested part that is).
Yet I consider myself lucky after having read all these comments, but had I gone to FAANG 4 years ago my financial outcome would have been very similar, if not bigger.
Seriously? 4 years at FAANG would net you $1,000,000 savings?
That seems... crazy. Can someone explain how that works? Your salary alone living in the bay area, definitely isn't goin to net you $1,000,000 in savings.
I got an offer from Netflix for 450k cash and another offer from FB for 210k cash with 600k equity over 4 years, a few years ago.
Considering how well those stocks did after such offers were made to me, and how frugal I am (avid minimalist spending <50k a year in the bay), I would have saved even more than 1M (I know most of my friends working there did).
Also, the 1M from the startup wasn’t net, but gross (taxed at long term capital gain luckily).
It depends on how you live. I know people whose entire expenses in NYC are $1.5k/mo, including food who make about $300k/year. I'm sure their bank balances grow like crazy.
I would not want to live that way but they seem to be pretty happy.
Depends on what career stage you are and what you will be doing. If you have 5-10 years of experience and doing distributed computing/info retrieval/AI then $1M worth of RSUs over 4 years is VERY normal and totally expected by everyone I know.
I joined as a regular non-manager, non-lead employee. Actually, I started as an intern, and was offered a full time job immediately after that. I was employee #~100. I sold 1625 shares in a secondary round for $14,000. When the company eventually exited, I sold 27,375 shares for $1.1M. I have 1000 shares remaining. If I hadn’t sold anything, my shares would be worth about $5.1M today.
FYI, in the US there is the Qualified Small Business Stock exemption, which can significantly reduce the tax owed on the sale of stock of a company that was once small. It can be publicly-traded at the time of sale.
Back when I was a tax lawyer, you could exclude 50% of your gain, though the rules may have changed. Also, if you rolled over your gains into other “qualified small businesses”, you could defer taxation altogether.
I am no longer employed there. I hold them mostly for nostalgic purposes. I sold all of my shares because it seemed foolish to have 100% of my net worth in one company. Holding 1000 shares feels okay. Tax bill was ~0 on the $14K and my marginal tax rate on half (I’m Canadian)
Pretty standard acquisition story. Shareholders with preferred shares (VCs) got paid first. By the time they were paid there was nothing left. It just means the company was sold for too little for the employees to benefit.
As someone who has been on the purchasing side of one of these transactions, that's not really the case.
What usually happens is, say the company has received $x million in funding. Everyone is plugging away working hard, but runway starts to run short and the product isn't getting the traction originally anticipated. At that point it looks obvious the company will go bankrupt relatively soon, so the investors push for a sale to try to recoup some of the their money. Often times there is value in the team and perhaps industry knowledge to the acquiring company, but the tech itself is often worthless, so the sales price is below the $x million capital raised and only holders of preferred shares get anything.
Note that founders rarely own preferred shares. They have common stock just like employees, so they are usually wiped out, too, in cases like this.
I joined a successful startup about ten months before it was acquired for several hundred million. The deal somehow led to a lot of employees losing their options (myself included). There was some discussion of a lawsuit but it fizzled.
If I understood the details I would never have signed the contract. At the time I was pretty desperate for a job (I’d moved to the US from Australia and my own company had gone belly up and I was living in Santa Barbara with a mortgage).
what needs to be explained, a several hundred million exit is LOWWWWWW. If they had a series B for 20 million or so, or a series C for close to or above 100 million, then the valuation itself was WAY more than that.
A few hundred million exit will result in ZILCH (almost $zero) for any common stock shareholder every single time, unless the company was in series A or lower.
VCs have a separate share class called Preferred, and they also negotiate "Liquidation Preferences" with a multiple. So a Liquidation Preference x1 means they get their money back, as much as possible. A Liquidation Preference x2 means they get double their money no matter what, before anybody else - like common stockholders - get paid.
And this is before your stock options' strike price matters.
Its a shitty deal, investor protection laws should be extended to cover this, because the information and transparency is lacking.
I joined an already-successful ~400 person company with an already-published S-1 at around year 8 or 9, and worked there for around three years in total. I was given options representing such a small fraction of the company that it wasn't memorable (perhaps a hundredth or thousandth of one percent?). My options were underwater for several months after a lackluster IPO, but eventually the stock picked up enough steam to make me around $300,000.
Of all the companies/startups I've worked for, this one was by far the most corporate and least startup-ey, yet this was the only one that made me more than a penny after an exit, despite working at a few other startups that have had "exits."
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6 out 7 start ups I worked for never had a liquidation event that resulted in any monetary gain.
The one that did ( i was employee #97 and worked there for almost 6 years) and they finally had a 2ndary offer which allowed me to sell 15% of my shares, for about 7K, but because it's short term gains, about 4K is what I got after taxes.
The rest of the shares were completely worthless because they couldn't be sold. I am not disappointed. I never assumed the options would ever be worth anything - I choose my employment based on Salary and work life balance. Options are just a nice bonus, if they do happen.
> I was asked to take roughly 40% pay cut now and expect 10X increase
Of course you were. They are selling you on the dream, the best case scenario, etc. The hard part is that no-one is intentionally or literally defrauding, but it is up to every person what terms they agree to.
It doesn't, from a financial perspective.
Second startup, I was told I'd get 5% of the company (no contract though). I quit after a year without pushing the topic: $0
Third job was not a startup, but it was a fairly small company, and I've made nearly two million in tax deferred accounts having made a healthy salary the entire time. I'm retiring this year.
I learned a lot of great things at those first two companies, but I would never recommend a startup from a financial point of view. I almost joined a third startup, but I didn't, and they folded as well. I suspect you've got better odds going to Vegas and putting your salary on a number from the roulette table.
I would love to know how. Am I just stupid? How am I missing these opportunities? Someone above posted that 4 years at FAANG would net you $1,000,000 savings. And you're saying that a "fairly small" company netted you $2,000,000 savings?
I am failing at life, apparently.
I started at BigCo four years ago as a SWE, after my phd in a not-cs hard science. My starting salary was $130k, with about $30k for signing bonus and moving fees. At my first full year, I received an additional $60k in vesting equity, for about $200k total.
Last year I made Senior SWE, which gave a bump to $165k base pay. Meanwhile, stock equity trickle has continued to grow, and looks like ~$100k this year. And an additional $40k from bonuses for performance, recruiting and general 'company has too much money' put the projected total for the year at about $300k pre-tax (and not including health or other benefits).
I live afaict unusually frugally. I don't drive, live in a shared house, and don't have short humans to worry about. But I occasionally travel to interesting places and give ~$8-$10k a year to stuff I care about. After four years at BigCo, I've got about $450k in the bank+investments. So, not a million, but probably way better than I would have done with the startup scene... and it sounds like the one recruitment bonus I've gotten so far is better than most people ever see from a startup exit.
Insofar as you seem to be "keeping score" against anyone but yourself, maybe a little. Otherwise, not really.
My situation was much more than 4 years, but it was steady (exponential) growth at a nice rate, and I'm exiting in my mid 40s. Maybe I could've done better, but to the point of this topic, my one stable job did much better than the three startups I was exposed to.
These huge bonuses, etc are handed out to people who either have really scarce skills or get lucky.
Wikipedia[1] says there are nearly 4 million software developers in the US. If each were to receive a million dollars, then it would total up to 4 trillion USD (using US ways of naming large numbers). The GDP of the US in 2016 (same time the software developers demographics was reported) was about 18.6 trillion USD.
The idea that a million USD is reasonable for a developer is absolutely laughable.
[1] - https://en.wikipedia.org/wiki/Software_engineering_demograph...
What kind of tax-deferred accounts allow $2M in deposits in less than 50 years?
Make the nominal interest 10% (probably more similar to the actual returns in the past two decades) and we get there in ~20 years.
Contribute more (e.g. backdoor roth and/or mega backdoor roth) and we get there much faster.
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Big company for some time
Startup 2: $0 for 2 years
Startup 3: $0 for 2 years
Startup 4: $0 for 2 years
Startup 5: $500k for 4 years
Startup 6: $1m for 1 year (still somewhat in play because 3/4 of my options got converted into the options of a public company as a result of acquisition, and I got RSU handcuffs on top of that)
All numbers before tax. I hope I'm done with my startup adventures. Lost taste for it.
Financially, based on my experience, startups do not make any sense as an employee.
Mentally, Startup 5 made me question my faith in humanity.
Absolutely. Also note that you are an extreme outlier for having had a 7 figure payoff.
Most people who spent their entire career in startups will be lucky to see a 6 figure payoff at any point.
I’m not counting on the rest of the equity to be worth as much because I don’t believe in the company ability to execute well at this point, too many changes diluting the quality and the mission. Unfortunately I wasn’t able to sell more as part of the secondary transaction (company rule), otherwise I would have dumped it all (the vested part that is).
Yet I consider myself lucky after having read all these comments, but had I gone to FAANG 4 years ago my financial outcome would have been very similar, if not bigger.
That seems... crazy. Can someone explain how that works? Your salary alone living in the bay area, definitely isn't goin to net you $1,000,000 in savings.
Considering how well those stocks did after such offers were made to me, and how frugal I am (avid minimalist spending <50k a year in the bay), I would have saved even more than 1M (I know most of my friends working there did).
Also, the 1M from the startup wasn’t net, but gross (taxed at long term capital gain luckily).
I would not want to live that way but they seem to be pretty happy.
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Also, what was the tax bill on the $14k and $1.1M in terms of percentage? Was it long term capital gains 15% fixed?
Back when I was a tax lawyer, you could exclude 50% of your gain, though the rules may have changed. Also, if you rolled over your gains into other “qualified small businesses”, you could defer taxation altogether.
What usually happens is, say the company has received $x million in funding. Everyone is plugging away working hard, but runway starts to run short and the product isn't getting the traction originally anticipated. At that point it looks obvious the company will go bankrupt relatively soon, so the investors push for a sale to try to recoup some of the their money. Often times there is value in the team and perhaps industry knowledge to the acquiring company, but the tech itself is often worthless, so the sales price is below the $x million capital raised and only holders of preferred shares get anything.
Note that founders rarely own preferred shares. They have common stock just like employees, so they are usually wiped out, too, in cases like this.
A few hundred million exit will result in ZILCH (almost $zero) for any common stock shareholder every single time, unless the company was in series A or lower.
VCs have a separate share class called Preferred, and they also negotiate "Liquidation Preferences" with a multiple. So a Liquidation Preference x1 means they get their money back, as much as possible. A Liquidation Preference x2 means they get double their money no matter what, before anybody else - like common stockholders - get paid.
And this is before your stock options' strike price matters.
Its a shitty deal, investor protection laws should be extended to cover this, because the information and transparency is lacking.
Of all the companies/startups I've worked for, this one was by far the most corporate and least startup-ey, yet this was the only one that made me more than a penny after an exit, despite working at a few other startups that have had "exits."