No Exit
thinkpiece.club
thinkpiece.club
Even long after active religious beliefs are gone, there is a long trail of attitudes and habits which linger on. They just become part of culture.
Also those institutions or individuals (owners) who can tap into those attitude and play them against others can reap great benefits. There are a bit like settings and switches already there, just have to turn them on.
"Work hard and you'll be rewarded in the afterlife". In this case the "afterlife" like the article mentions is the exit event, or what used to be the IPO.
This belief is useful both to the owners (the ones who control the believers), but it is also useful to the believers as well. It provides comfort and a sense of mission. That last bit is readily discarded, but I think it is a very important part in the equation.
People will work 80 hour weeks at below market salary if they get to fantasize of being a multi-millionaires. Even people who think themselves beyond irrationality and silly biases (programmers in our case) will go for it.
Maybe the ability to fantasize, is actually worth something. Perhaps imagining oneself a little Zuckerberg or Mark Cuban, should be worth something. You are closer to that dream by working in a startup than say working for a big corp or sandwich shop. Is that dream worth the salary cut and uncertainty? That's the question.
Comparing with other countries, I wonder if there are cultures where this wouldn't work as well. And it might explain why startups just can't take off there. Let's suppose there is capital and talent but people there might ask "Yeah what's in it for me today?" and if the answer is "You can dream about being wealthy in the future". They'll say "No, thank you" more readily. It could be because of a religious background or they simply have less faith in official institutions.
When people grow up, they are more than willing to accept a job at a mature company with slightly less exciting prospects for much more overall compensation, respect and accommodation.
Investors are so keen to pump a flattering narrative about youth being critical to new ideas to try to keep the flow of naive underpaid labor coming in, but none of that stuff is really true.
Experienced people are more valuable in everything, including software and entrepreneurship. There's nothing wrong with that and it only makes sense. The solution is to become experienced.
I've heard of it before and meant to read it, so this time will actually do it.
People from the "socialist" countries saw through the bs relatively quickly and adopted the attitude "you pretend to pay me and I pretend to work"
When such a person moves to an environment where a real chance exists to reap the rewards of their labor, they get the proverbial wings.
The puritan/religious seem to be unconscious of the oppressive programming and see it as their own "values"
I wish there were easily accessible statistics for startups "making it" vs failures. People should be able to know what the odds are for the lottery ticket they buy with ~5 years of their lives.
Maybe someone can create an app for calculating your startup's chances.
Time is an important factor here, more for employees than, say, investors because you don't have a portfolio of multiple lives. Several years of your life count for a lot; be clear-eyed about where they're going.
> Codified at 26 U.S.C. § 83(b), this election lets you decide at the start of your vesting agreement to be taxed for the entire amount that will eventually vest at the present value. Rather than paying tax each year then, you pay all the tax up front based on the value of the stock when it was granted to you. In order to make this election, you have to send a letter to the IRS within 30 days of the grant being made.
They can - that's what early exercise is. If you exercise on the day you are granted the options (not they day they vest - the day you join the company) your spread is zero, so your tax liability on that is zero.
Of course, you still have to pay the strike price out of pocket, but the IRS doesn't take anything (yet).
Why does this have to be either-or? Never understood that
Not sure a lot of VCs would back that.. as they can find another founder to work for 95k and 20% equity. Your pay cut would fund 3 more engineers.
If you really want lots of equity and lots of pay, you need to bootstrap and be patient and be a rockstar. I don't see other ways to get there.
One or the other. But not 0.02% and half the pay...
The choice to underpay and offer lottery tickets in lieu is a conscious, deliberate one by the founder/investor class, and hey, if you can't get enough suckers from amongst the Workers you can always lobby Congress to increase the H1B cap and let you import some from overseas...
Yeah.
Not long ago, someone from a code camp negotiated 250k total annual compensation from an SF short-term rental company.
I've sold a couple companies and been an insider in a couple other acquisitions, and many of the knobs that get turned during the negotiations are about retention/compensation plans. It's hard --- like, it actually can be a problem when trying to close the deal --- to balance employee retention and the interests of investors. Even in the best case, every dollar you're giving to current team members is an incentive for the management of the company to accept a lower sales price.
In some egregious cases, one of them pretty infamous in the security world and the reason I've promised myself I won't spend real money to execute employee options, management and current team members got basically the normal proceeds of an acquisition and investors got zero.
or management simply hijacked the company.
That sounds like an excellent case to me :)
It's an old approach, but still works surprisingly well, and it doesn't even require anyone to buy the company or have an IPO.
You can earn a profit and then pay that profit to the shareholders in the form of dividends.
The employees won't receive any dividends unless they have already paid to exercise their options and are holding restricted stock.
The investors don't want to have their capital returned to them while the company is getting off the ground. They want the profit to be reinvested in growing the business.
The founders are already taking a salary. It is easier for them to fine tune that than it is for them to take compensation in the form of dividends.
And that should be the actual endgame that is being targeted, and that the employees should be striving for.
People seem to have lost sight of that goal.
Issue one class of share that is restricted from sale but earns dividends (for the employees) and one that is unrestricted but pays no dividends (for investors)?
"Many have blamed the decline of the IPO market on regulatory changes, such as the Sarbanes-Oxley Act.. There’s another important reason fewer and fewer startups go public these days, though: acquisition by an established company is a far easier, and, often, more lucrative, exit strategy.. A few extreme outlier exceptions such as Google and Facebook notwithstanding, acquisitions have been by far the most viable exit for small tech companies since the end of the dotcom bust."
Acquisitions have been more viable than IPOs for _precisely_ the same period we've had Sarbanes-Oxley. How the heck is this 'another' reason, then?
Sarbanes Oxley passed in 2002. IPOs increased from 2002- 2004. Source: https://www.quandl.com/data/RITTER/US_IPO_STATS-Historical-U...
I suspect that Sarbanes-Oxley did suppress IPOs but if you can't think of some other reasons for fewer IPOs. I will offer some:
- Much more capital available in private markets from hedge funds, sovereign funds, etc. Think of how much money Uber can raise today as a private company. That didn't used to be possible.
- Tech companies have really resisted offering dividends because they are believed to be tax inefficient and a sign that those companies can't grow and invest. So instead they have huge amounts of cash on their balance sheet that they need to invest.
Was there really more capital available in private markets before 2008? I thought that was just because of post-2008 QE. That timing doesn't seem to work either.
Didn't Microsoft have billions in cash on its balance sheet in the 90's? I thought tech companies always hoarded cash when they were cash cows, and that it was at least partly a consequence of tax regulation, with cash sitting in one jurisdiction (say Ireland in recent years) costing too much to move around.
The fact that the delta in IPOs went up doesn't necessarily seem so indicative. There's a holding capacity for IPOs in an economy. I think your graph shows just how far the holding capacity dropped after SOX.
Ouch.
...for casinos. I suspect anecdotally, with no hard evidence whatsoever to back it, that the people who get into startups a lot, are the types of people who are very aware that other people have made insane fortunes that way, and they want that.
I don't understand this. I have equity. I don't care about it, since I value it at ~$0.
If you didn't, good job.
If you did, you valued the equity at market rate - actual pay, conscious or not.
I don't know if this is practical, but as an early employee at a startup it's hard to not feel bitter about the massive disparity. Usually I try to avoid thinking about it.
My conjecture is that reward above a certain threshold is not actually that meaningful of an incentive when starting a company. I would be interested in hearing founders' perspectives though.
However, my experience back in the late 90s / early 2000s went reasonably well. I was working for a newer department in a firm owned by private equity (which had been turning modest profits in one division or other for 20 years). We were purchased by a fortune 1000 company. As a team lead and key contributor to some of the infrastructure around the place, I received a nice little bundle of options, which were actually worth a little something in a year or two. Anyway, I stuck around for a little while during the transition, eventually got fed up with the parent company's stupidity, cashed out, and moved on. The options pretty much paid for a 6 month sabbatical while I retrained.
The numbers in my region sound tiny compared to SV numbers, but we bought a 3 bedroom house on an acre (in the foothills) for $140 K back in the late 90s, so you didn't need a 200K / year salary to get by.
Since then, I have worked at places that either offered some kind of pension, or had significant yearly bonuses. Show me da money! :-)
I believe that the secondary market is becoming a much more popular option to startup employees as companies start to take notice of the current issues with liquidity.
I wonder if you could introduce a kind of "Franked RSU" where the company pays the tax obligation at vesting (for certain agreed taxation jurisdictions)?
Many experienced engineers I know feel the same.
To that, I'm willing to bring wits, flexibility, and broad experience. I bring value and justify my existence, and I do expect to be appreciated (compensated) for that; I expect to have a much higher salary than at a non-startup, not a lower salary and a lottery ticket.
The sheer number of "startups" that want me to work for peanuts just tends to make me avoid the term startup. Instead I look for their investors looking for someone to help them manage their risk, and treat it as a consultancy.
I look for small teams, instead, who are hot to try something new, where I can personally accomplish something significant and where I'll have enough breathing room to exercise my own initiative and apply my by-now-considerable experience to the choice of tasks we undertake and the design of the solutions we implement. I won't suffer through any more small-cog-in-a-big-machine experiences, no matter how much money they're offering. Life is too short for that.
Still, I agree with you about the lottery: equity has lost all incentive power, and salary is the only form of compensation I care about. I just see money as a tool for living an enjoyable life, not as an end in itself, and it would take more money than anyone will ever be willing to pay me to make up for the suckage another boring corporate grind would inflict on my quality of life.
I think in my case I've just become more aware of the fact that an exit is the exception rather than the norm. I've also had to educate myself a hell of a lot more regarding the intricacies of equity, i.e. investors preference, etc.
In other words, they'd really need to pay me a lot more than an established company in order to offset my risk.
I don't think this needs to be said but if my airline stats selling where I go to advertisers I'm not going to be using that airline anymore. It's bad enough they are selling it to governments.