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Comment by WisNorCan | Hacker News Reader

This is why the best time to join a startup is increasingly at the post $1B mark. Significantly derisked with product and economics proven, solid comp, crazy upside.

The unicorn is a silly designation, but it also isn’t. There are exceptions of course as it is not zero risk.

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I disagree about joining a startup worth over $1B. First, compare it something that actually is de-risked, a big company. Amazon has grown 6.5x in the past 5 years. Google has grown nearly 3x in that period. So in addition to have basically no risk of failure, you get high compensation, fully liquid stock and pretty decent growth if you are lucky.

Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock. I'm not saying the valuation is made up, but I certainly wouldn't say anything is de-risked. Taking a lot of money in investment just means the outcome is expected to be bigger and bigger. It doesn't mean less risk and it doesn't mean more liquidity.

If you want upside, there is just going to be so much more potential if you join a really early company. If you want to de-risk, join a big company.

The valuation increase in the FAANGs are a historical anomaly. I’ll bet you that Amazon will not 6.5x in the next 5 years.

I am not saying that Amazon is a bad company, or working there is a bad idea. Just that reversion to the mean is a powerful force.

Maybe it an anomaly and maybe it isn't (I can't predict the future), but I know the growth was real. If I bought stock 5 years ago and sold it today, I could pocket those gains.

That is the problem with looking at private company valuations and trying to decide if they are good investments or not. You don't know how the story is going to end for the common shareholders and what the overall return is going to look like. I'm not saying the upside wont be there, it very will could be, but the level of risk is still much much higher than the big public tech companies.

6.5x is big but not that crazy when you consider they are growing at %40+ YOY (even more in the past).

How long that continues is anyone's guess but I can see them gaining just as much if we don't have a recession between then.

AMZN’s current valuation does not assume 0% future growth. It already assumes exceptional growth and expanding margins. Amazon has to do better than that for the valuation to increase.

Doesn't it just assume that people have to put their pension fund in something?

This is a really interesting phenomenon. There is crazy irrational illiquidity on mid/late-stage startup equity. Right now the conventional wisdom is that it's better to go to Google & co because startup equity is all flickers on a wall because you can't sell. I bet in 5 years there will be a thriving private market for mid-stage company common and junior preferred.

I'd be really interested in to learn more about which "unicorn" you hold stock in and whether you're interested in selling some (as you seem to imply). I've been thinking a while about buying this type of thing (or even setting up a fund to do it). I think there is a lot of value to be had in providing liquidity to employees of these types of companies. There are a few reasons this isn't done much today, but I'm 95% sure they can be overcome. My email is in my profile if you're interested.

"right of first refusal" prevents a burgeoning secondary market from forming

but yes, there is ESO Fund and other companies which you can basically become a debtor to in the event that you become liquid. you get cash and also get to potentially share in the upside.

There are a bunch of hurdles to clear: the ROFR, usually a co-sale agreement, there may even just be outright restrictions on transfer. But these can usually be worked through by simply talking to the company. If they want to exercise their ROFR, cool, the employee still gets liquidity. If others want to co-sell, I might buy more or you might have to prorate. Transfer restrictions are usually just about the company not wanting a ton of randos on their cap table they don't know, and can often be talked through.

>>> Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock.

I've seen liquidity events at smaller companies. VC offered to buy back shares from employees, at roughly 1/4th of what they would be worth if the company could IPO overnight.

Point being. You will NEVER be able to sell your shares unless a company is public.

If you got 100 shares every year as an Amazon employee, your 500 shares would be worth close to a million.

I know some friends who've been able to buy houses in places like London simply because of their Amazon shares

Outside Silicon Valley, a company with a $1 billion market valuation isn't a startup...

For example in the UK a company of that size is Balfour Beatty, an enormous construction and services company established in 1909

> an enormous construction an enormous construction

OOPS sounds like they have tangible hardware and operating costs.

tech companies get to that point, but they can offer services with very little overhead for a very long time until they scale to the point that they have to build their own hardware infrastructure to support them. and then they also resell/rent out that hardware infrastructure to smaller tech companies and everyone else.

The above is pretty good advice (except for DoorDash) and is what VCs are doing these days - piling on after a company is a runaway success.

In other words, if it's a small startup, do it as a founder.

Otherwise, stick to BigCo and Unicorns.

I'm not sure - as a common stockholder, I'd be very worried about the liquidation prefs on a lot of these high flying companies. If we see their valuations come back to earth even a relatively modest amount, common shares become worthless. Also, unlike a BigCo, it can be very hard to get any liquidity unless they're friendly to secondaries.

What’s ycombinator’s policy in their startups, is it friendly to secondaries ?

aren’t the founders common stockholders ?

I believe founders have preferred shares, and employees have common shares.

Edit: Above can be disregarded, see below replies, I misremembered my options paperwork.

There are definitely exceptions, but the classic scenario is that the founders get common stock, not preferred.

Seconding this, I can't remember ever hearing of founders getting preferred, so their incentives are generally aligned with the other employees.

I don't know the policy on secondaries. But yeah, founders are almost always common stockholders in my experience, and they certainly don't want a preference overhang.

And to be clear wrt my original comment, I think DoorDash is an excellent business, and I have no reason to believe that the valuation isn't fully justified, I'm just speaking more generally about the funding environment of companies doing large rounds at high valuations, and if a macro trend pushes startup valuations in the other direction.

>Significantly derisked with product and economics proven, solid comp, crazy upside.

What, exactly, is "proven" about this model? It's food delivery. Smells like late stage bull market to me.

> with product proven

Sure, but that doesn't mean it has a viable business.

> and economics proven

Says who? Uber still doesn't have positive unit economics and its valued at $60B+

> solid comp, crazy upside.

Base comp? Sure. Options (upside), no. Liquidation preferences wipe these out if the company doesn't meet it's valuation in a liquidity event.

One thing that is (almost) for sure - it looks good on your resume.

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