Sage advice from an old timer. Don’t take that startup offer at A and B round companies. You’re playing with your time on the rare odds of an exceptional payout. The net present value of cash trumps non liquid paper money that usually never shows up. The other day I had macha with a founder whose been very successful, 3 digit M exits. They told me how happy they are that so many people are willing to take .1% to work in companies and that if those people didn’t exist this whole ecosystem of generating wealth for founders wouldn’t work either. Don’t be a sucker. Invest in yourself or get paid and invest in seed rounds. But don’t invest your talents to make someone else rich.
Granted most start ups are junk
Exactly most startups especially once taut aren't profitable won't survive till end of year things are looking bleak as VC $$ dries up, no SPAC or IPO possibility in this market( for private) and hard to get a loan after SVB even at high rates.
I think the best advice is demand more equity to do it. Plenty of reasons to join a startup but making cash obviously isn’t one.
The equity never works unless you’re a founder. Employees aren’t even allowed to exercise secondary due to low float on cap tables.
What does “low float on cap tables” mean?
Thanks, does that mean C and D are better?
C and D do indeed provide less risk
Less risk but there is an issue with late stage startups. Most have no reset value of options to market keeping frothy values seen up through last year. As such, many will receive under water options.
That’s a well known advice. Folks should be careful indeed. This is a less well known advice: Befriend as many startup founders as possible and milk their options by offering them easy favors. The work is a lot less than working for them, and you’d be surprised how much they are willing to give. And who knows if one of them blows up? It’s early retirement time for you.
This is great advice. I advised an A round startup and received as much equity as engineer #2. Ultimately it went to $0 however. I wasted 30 hours. They wasted 4 years.
How common is it to do this approach to “farm” for these options, after being aware such a strategy exists? It sounds like a really good idea on the surface, but what’s the actual likelihood of pulling this off regularly? Or is this common enough where startup culture is almost incestuous, and founders have a tiny stake in dozens of other startups? Does this approach also translate into anything beyond networking, or can you build a resume effectively from doing this?
It makes sense to go to a series A startup if you can get 3-5% equity and can do an 83b election.
Do series A actually give that much equity, even pre-seed doesn’t seem to give that much nowadays
Seed round, founding role and they gave me fucking 0.3%. I had to rub my eyes until it hurts to confirm I didn't read it wrong. And the CEO thought it was generous lmao. Some founders are delusional and I've personally never seen anyone around me who's gotten 3-5%.
So realistically .1% of a 100m company is worth about 100k, so you’d need to invest that much in order to reap similar rewards. Also you have to keep in mind that .1% is over 4 years iirc. So it was probably usually better to just work at a liquid company then invest in a startup
.1% off a 100M exit is worth much less if there are added liquidity rounds causing dilution. Let’s say it’s a 400M exit but a 30% solution, you get 300k. Nice right? No, you need to wait the 4 years to best plus you need to wait for liquidity event. So you get 300k after 5 years or 60k a year, in the unlikely case there is a huge exit. In the branding, you got paid 100k less and couldn’t avoid that crazy boss
100m exit is literally worthless, not 100k. there’s a threshold function for employees and 100m is below it. (pref stack)
Series D/E?
Any that raised pre mid 2022 are sitting on now very unrealistic valuations. I’ve seen very few companies reset them. D/E that have raised during the downturn a better bet but still have risk.
Consider prospect theory which states people are willing to take on additional risk in exchange for the hopes of a higher payout. This is well known in behavioral economics. I've seen studies that say investors do the same with small cap stocks- they'll take on a potential bigger short term loss because they believe the long term gains will be larger than they likely will be. Startup equity is a lot like small cap stocks here. Never seen an actual study on it so far, but if I were to get a PhD in any subject,it would be studying this because I'm sure lots of us have been tricked into it before
Yes
> Startup equity is a lot like small cap stocks here. Actually way more risky, since your years cannot be as widely and easily diversified as the portfolio of a VC.
Some ultra pro suggestion here. Thx
Personally prefer dragon shield suggestions
😆 🤣 😂
3 digit exit, like 1 hundred dollar?
I think he means like 3 separate mutli digit exits
Op ninja edit