Engineers: always negotiate for higher base salaries. In the vast majority of cases—especially during acquihires—your equity will be worth little or nothing. Founders and VCs still get paid; employees rarely do.
Don't just accept promises. Ask for the 409A valuation, liquidation preferences, and pay bands. If a company won’t provide transparency, that’s your signal.
Equity is a lottery ticket. Salary is money in the bank.
my equity from 2years pre-acquisition: ~$2800. Then the CEO gave out bonuses when everyone threatened to quit. Then after his 3 month vacation to Italy, he came back driving his new Ferrari.
My equity from 4 years ( employee ~60, grew to over 500 ): worthless. No one is able to exercise any options. They also readjusted when the valuation came below the total raised, making the value of my vested shares ~$13k ( down from ~$200,000 ) . They 'made us whole' by giving more shares with a new 4 year vesting schedule.
Startups have found ways to fuck everyone but the investors with equity. It's confederate dollars; funny money. Maybe some people get great deals, I don't know. From my limited experience at very successful startups, the only people who made real money were those able to parley huge bonuses or base salaries.
The fun part comes when you put in 20 years doing this, and your dream is to buy a nice house, and you finally get your seven-figure payout, and.... it's not enough to buy a house. Because now a house is 3 million dollars.
I'm in Santa Barbara, CA. Good friend of mine just bought a shithole 3-2 1300sqft for $2.2m. $3M doesn't go very far considering 30 years ago it was retirement status almost anywhere.
I don’t get it, at this point you move to Baja or Portugal (for similar climate) and live like a king without ever having to work again (unless you want to). Or a cheaper east coast state if you wanna stay in the US on the coast and have access to to all the same fast food and Walmarts.
that's not a glamour shot, that's just a sunny day. the dirty little secret of the southern california coast is it is cloudy more than half the time. west la, downright depressing. they call it "the marine layer", i call it cloudy as fuck.
I have to ask, if they have access to get a loan of $2.2m then the friend could likely save for 5-7 years and just retire someplace cheap. Like, spending that much seems wild given the implied access to straight cash.
anything within 45 minutes of your office in palo alto (where you are mandated to show up 5 days a week). this will get you a 1300sqft piece of shit built in 1964 with asbestos and lead paint and lead pipes and a cracked foundation (also some dipshit realtor had them paint all the original wood beams and paneling inside gloss white and replace the original wood and slate floors with grey vinyl) from some baby boomer forklift driver or mailman who paid 40k for it (you will pay 40k per year in property taxes for it), all for the privilege of “only” spending an hour of your life a day commuting so you can sit in your assigned area of your open concept office with noise canceling headphones on zoom meetings for 4 hours a day surrounded by other people on zoom meetings who also just expended a collective 5000 man hours and countless CO2 emissions to be there.
Every now and then I dream about how much more money I'd be making if I lived in the Bay Area, but then I read something like this and realize that earning ~half as much working remotely from a cheaper (at least when I bought) city maybe isn't so bad.
They are greatly exaggerating. One tangible advantage to living somewhere expensive with higher salaries is that anything you can buy online is effectively that much cheaper. An iPhone costs the same in Arkansas as in San Jose, so you'd end up working many more hours to buy one in AR than in CA, on average.
Yes, housing is more expensive. A lot more. Everything else is way cheaper.
Thank you, so many people like to go about cost-of-living and pretending things are equal because of that, but the vast majority of goods people buy are not priced that way, and in truly remote places the cost of goods actually go up. The land or housing might be cheap, but pretty much everything else costs the same, so the lower paying job still hurts.
I would say the vast majority of spending is affected by COL, since it’s all incorporating price of labor. Maybe not the majority of goods but that’s often a smaller part of spending.
I will say though that travel is the main one that’s obviously independent of where you live (at least mostly). So that’s kind of nice.
The trick is to rent cheap and live like a college student in SF/bay area while young, save aggressively, invest intelligently, then move somewhere comfortable but more affordable (CO's front range is lovely) for your 30s/40s.
I'm so so so glad I didn't spend my twenties working and saving.
I've lived a thousand lives, spent most of the time as true quality time with people I love, and I still have a few years left in this decade of my life.
And I'm still further ahead, financially speaking, than >99% of other people my age. (To those asking, I tripled down on life after getting a remote job.)
The one year I spent 9-5 in an office as a traditional SWE was by far the quickest and least eventful year of my life. Also probably the saddest.
I'm very glad I just said "no" and walked away and simply lived. It was absolutely worth the risk. I would never trade these years for the ability to buy a house in the Bay Area suburbs.
I probably will be able to do that anyways, if I want to, even though I don't.
Except you’re a wage slave and your American Nightmare comes with a mortgage, your sizable interest payments are likely funding the retirement income of a boomer too (along with bankers too, they always get a cut)
90K is still 50% above the median income, not to mention the fact that you have twice as much as time available and using just a small amount of that can be used to cut costs significantly in other areas. It is more effectively a $150K income if we add in the median wage from the job you aren't doing.
This. I moved in a developing nation with a GDP smaller than most US states. I have access to excellent modern healthcare and facilities, get more than 5 minutes in front of my doctor, often 1/2 hour+, and my (nearly 60 years old) health insurance is less than 75 usd a month. Covers 90 percent plus, including mental health, limited dental, and optical. The healthcare sector is private / public hybrid, profitable, and growing. Hands down better in every way than the US state I left.
Dominican Republic. The medical tourism industry here is booming as well. The public sector facilities are not as nice, but you can get free care for the vast majority of basic things that a person needs, without worrying about a bill. Still, people that can usually use private clinics because the experience / comfort/convenience is much better.
What they do subsidize here is education. Anyone with the drive and family support to do so can become a doctor, but you have to do a rotation in the public medical facilities to maintain your licence, and all public hospitals are teaching hospitals, so your case will be observed by 10 to 15 students and a bunch of residents if it’s interesting.
The system seems to work well.
I should also clarify that 75 dollars is about a weeks wages here at minimum wage, so roughly equivalent to $400 in the us economy. That figure tracks for most cost of living expenses here, except luxury items which are typically more expensive here than in the USA.
lol no. Private health insurance in Germany is ~800-1000 for a 60 y.o. – public insurance might be cheaper, but you need to qualify for that when you move here by working as an employee when you're that old. Working permission will require you to work full time. So you'll end up working full time and pay ~600-1200 (based on your salary) in contributions.
I never said public healthcare is free for strangers. It’s rarely the case.
Most of the time if you are not a citizen you need to either work or pay taxes. In fact even if you are a citizen, you may not be covered if you live abroad.
It’s relatively easy to be covered as a stranger : in 99% of situations, if you just set up here seriously and not as a tourist, you’ll be covered. I count a 60yo who never contributed to the system or worked here as a tourist.
Yeah, I run a coffee /cacao farm that employs a few locals, but obviously I don’t qualify for the government insurance. My insurance is private/ un subsidized.
Except that through taxes, your coverage is not dependent on your contribution and your contribution depends on your revenue.
Typically you contribute nothing if you have no revenue and you are still as much covered as the next rich guy.
That’s a huge difference. It means that you can see a doctor or have an ambulance transport you to the hospital for an expensive emergency surgery for 0€ whoever you are. And for the expensive drugs you need after that ? That’s still 0€ with no paperwork.
But to be fair, I’m exaggerating. You may have a 1€ franchise when you see the doctor.
You pay for healthcare in -any- system, even a completely communist/socialist system. Healthcare costs resources which much be allocated to a greater or lesser extent.
Problem with the US system is WHOM do you pay. Ultimately, to a degree perhaps greater than almost any other nation - you're paying quite a lot to stock holders, both public and private, stock holders of insurance, stock holders of pharma companies, stock holders of pharmacy companies, stock holders of EMR software (private company, Epic), and I'm sure, many other for-profit companies. Hospitals tend to be the only technically not for profits in the equation, as well as healthcare groups, but even then these groups tend to operate in a for-profit manner in service of ambitions of regional growth
1/3 of US medical spending could be avoided by moving to an efficient single payer system.
But, a lost of ‘waste’ is diminishing returns where there’s some benefit to the procedures preformed. It’s easy to say paying 1 million for an extra week is a poor investment, until it’s you making that decision for a loved one.
Paying 1m/week is objectively a waste when you're refusing to pay 100k for a year, though. Healthcare is paid through insurance, so there's real meat to the loved one distinction - you're not actually making that decision for your loved ones in 99.9% of cases even in the US.
Even in China you’re looking at 6% of income. Of course taxes aren’t evenly distributed, but 90k means enough income to be worth taxing without the political power to offload the tax burden on others.
You’re misunderstanding what the issues with US healthcare are.
I’ve had significant medical issues in the US and received truly excellent care without significant out of pocket costs, the same is true for many of my friends and family. There’s a reason there’s significant medical tourism to the US and from the US. However on population wide measures like life expectancy you’re better off providing basic care for 100% of the population than world class care for 40%.
There’s also major underlying issues like decades of obesity and ignorance around ‘alternative medicine’, vaccines, etc.
That is a tenancy in common 2 bedroom apartment not a house. Shared ownership of a 100+ year old building with "leased" parking 2 blocks away. Not exactly the home ownership dream.
different strokes for different folks. I can't fucking stand hearing every breath of every neighbor in a 100yr old SF house and having to tiptoe at all times so as not to upset the other tenents
Redwood City is 20 mins from Palo Alto and has a lot of houses for $1-1.5M. $3M means you are paying extra for something optional. It’s not the minimum requirement.
Lots of people are paying millions extra just to live up winding roads on a hill, where the commute is longer, and you need a geotechnical engineer to design your patio.
School quality in the Bay Area is a red queen’s race, and a pressure cooker environment is not good for the kids. Apparently the solution is grade-separating Caltrain.
I remember being a young junior engineer, my manager had just bought a nice house in the good part of town (Charleston, SC) for about 350k. We had a good “be smart with your money and this could be you too in 5 years” conversation. I think by the time I was ready to buy that house had jumped to 600k valuation, these days it’s close to $1M in valuation.
Only way to get a nice house for 300k now is to work remote in some podunk town for a big city salary.
Some anecdotal data points from a guy who lived in the Bay Area when poor people could afford Redwood City and just returned from a family event.
1. The neighborhood I grew up in in San Jose has 3, 4, or even 5 cars in front of every house. My working thesis is that despite being small, these are multi-generational homes, probably with the notional homeowners being the ones that were living there back in the mid-80s.
2. My aunt lives in a much nicer part of San Jose in the house that her husband inherited from his parents. Many of the other neighborhood homeowners are in the same situation, although there has been some flipping going on.
3. Three more boomers at the family event are all living in inherited houses, including one couple that has a pair of houses that they each inherited from their respective parents. They're not renting out the surplus, but instead have turned both into animal rescue sites.
All of these folks are grandfathered in to extremely low Prop 13 property taxes.
I can’t help but miss it, even though I desperately needed to get out too.
I miss knowing where the darkest place is for 50 miles in all directions. I never got to bike highway 1 from SF to Big Sur. My boyfriend and I would have an easier time finding jobs there. There’s better roads for car enthusiasts.
There was a lot of depressing tech saturation in the Bay Area, but there’s still good pockets of the pre-software culture around there if you’re willing to live towards the edges and look for the weirdness.
5 plus years on, all that I really miss consistently is some of the food options there. Everything else you can get elsewhere, for cheaper, and in a lot of cases better. And I know I can't go back to my food options there because half the restaurants I used to like are gone and the other half have changed ownership
Are you the kind of person who refuses to go to the east bay or live next to middle class Asian Americans or Latinos? Because there are plenty of nice places for 3m 45 minutes from Palo Alto. Arguably you could get a house on the south side of the city and be 45 minutes from downtown PA by car or Caltrain.
Pitching a 45 minute commute as as something as acceptable for $3 million is insane. It has nothing to do with class. That’s a shit life driving that every day.
I've spent all my working life in jobs with the rule that the commute should not be more than 30 minutes by bike. I'm now 62, and that's one life choice I've never regretted.
Property tax rate in SF caps at 1.38%, which would be ~$40,000/year. How are you spending $60,000/year, every year, on maintenance and insurance? Are you saving up for a new solid gold roof for every decade?
My average has been around $30k/yr but my house is worth well under $3m so I could see it being closer to $60k. I do include some remodeling in that figure, but things wear out and you aren’t going to want to live with a decrepit interior in your $3m house…
Intrest rates for morgages in Switzerland are around 1% and for tax reasons most people only pay off a third of their property. The payments are very managable, as long as you have the downpayment. You can't fully compare this with a similar price in the US where interest rates are much higher and people pay off the full morgage.
of course that's an option. then you can get a house for a measly 2 million! public transport will only take an hour or more from there .. :)
my wife doesn't drive and we wanted to have access to good public schools and good transportation. this is not a given if you go more rural. The postbus goes maybe every hour or so.
the lakeside communities near Zurich are great and all of our friends live in one of them (on the same side of the lake of course). not living here would have severe effects on my wife's and our kids' social lives.
My point was that you could grind for 20 years and get $1 million payout. Or even a multi million dollar payout. And your reward is that you have to keep on grinding for the rest of your life.
At some point, aren't the C Suite and directors failing their fiduciary responsibility? I know they have broad freedoms, but when you're reducing an a minority shareholder's equity by 95%, it's well past "fiduciary responsibility" and looking like fraud.
I am convinced every executive and wanna-be executive is on the 'inside joke' of funneling money out of the company into their pockets.
I am also convinced that investors believe it's the C Suite's responsibility to tear away any equity from employees to leave the largest pot for investors.
Can confirm from my experience. Although not everyone is like this. Sent me into burnout that I didn't wanna be a dick and extract as much "value" from the employees by walking over them and fucking them over when the chance arises. It's always empty promises to string people along. From my experience, these people (the resource extraction dicks) are also some of the must unlikable and unhappy people I've ever met.
Of course. So if you’re the employee, you’re going to sue? If so you’re paying for your lawyer, and the company is paying for theirs. Guess who goes broke first.
Work for good people with a history of moral dealing. A family member just had a life-changing payout because leadership was generous. A friend walked away from a company pre-pivot without equity for what became one of the decade's biggest acquisitions.
This stuff is lottery tickets, but real ones. You need to be smart about who you make your limited bets on.
And agreed, big cautionary note here shows that Windsurf having "founder-friendly" investors does NOT mean employee-friendly ones.
No one will say: we are looking for cheap mediocre talent with no intention to grow, just to process assigned Jira tickets. Even if that is the actual truth in many cases.
I know this is HN but imo it's rarely ever a good deal to work at startups as an employee instead of a cofounder (with actual cofounder equity not just the title i.e. within the same order of magnitude as the largest-shareholding cofounder), over a bigger established company.
The only good reasons to do so are if you want to learn or make contacts so that you can found your own startup later.
In my pensive moments, one of the things about humans that makes me go "god damn" is how little money it takes for insanely talented people to just come and work for you.
The other good reason is that you might enjoy the experience more than you would enjoy the stultifying, oppressive, slow-moving environment of a big corporation. That's why I keep doing it: I'm not expecting to get rich, I'm just trying to live a good life, and it's proven to be much easier for me to do that when I work for a startup.
I value startup equity at ~$0, but if the salary is enough to live comfortably, that's fine.
You need to work with good people. There is no substitute for ethics.
Also you need not go for roles where they offer .3 % and make a big deal about it. Don’t take less than 1% minimum and as soon as two years pass by and you have carried your weight start looking for a new job. If they value you they will bump you up. It they don’t you will bump yourself up by going for a new job. And don’t be afraid to go for competitors if you believe in the value of the space.
The basic idea is that you either have stock, preferably founder levels from 10% up (which is itself a lottery ticket), or you hold retiree bingo cards. The retirement home provides the cards for your entertainment, but the real owners of the establishment, the founders and early investors, know the only way you can earn the big prize is at their expense, so they have a vested interest to see you fail - and they are the ones printing the bingo cards and setting the rules.
Paid more taxes on RSUs than I'm going to get post IPO. Company took investments on insane COVID valuation and then needed more money posts COVID which tanked it.
I worked for an ed-tech startup as employee number 4, joined when it was obscure; not even in the Alexa top 4 million rankings and almost no revenue. The founder was really good though and gave everyone shares instead of options. I got a bit under 0.2% equity in the company. The company grew (slowly and steadily) to $6.5 million USD revenue with about 10% net profit margins but its last valuation (over 10 years later) was like $8 million USD. They charge like $15 USD PER YEAR PER student for their product so very cheap; I feel like they could easily increase the prices given how widely used they are in my country (over 30% of students in my country use the app).
I had the option to sell some equity recently but it would have only been like $16K USD so I held... I had about $9K taken out of my salary to pay for those so it doesn't make sense to sell given the massive growth the app and not that much dilution... The financial gain barely covers the inflation.
It feels like both revenue and profits have been kept artificially low. $6.5 million per year revenue, still growing steadily, with a loyal customer base with 10% profit seems really good... A valuation of $8 million seems ridiculously low... Not even 2x revenue, for a tech platform with good lock-in factor (they sell a lot of licenses to schools)!
It's kind of amazing how bad a deal it is to work for someone else as an employee. Even if the founder is good and generous in many ways and the business side (which you have little control over as a developer) happens to work out pretty well, they can still pull all sorts of levers to make the deal bad. With this one, I'm going to wait it out 20 years if I must. A lot of the game is just timing, you gotta wait it out, sell at the top... Some people see a peak opportunity to cash-in multiple times in their lives, some people never see it! In my case, I haven't seen the top yet.
I never had any opportunity to make serious money ever. Never had an opportunity to pull the trigger and make even $100K. The best I ever got was in crypto, my crypto was worth $100K but I was earning like 100% annual yield and required a 1-month unlock period. So I made more than that by holding it for 3 years anyway...
I think my career story so far is quite interesting. Probably more interesting than 99% of the classic SV startup stories (at least what they say publicly). I've done some things nobody else has done. Made money in truly adverse environments where a lot of people hated my guts. I've seen people behave in strange ways. At times, I felt like I was almost breaking through the membrane of 'the matrix'; almost transcending my social class. But all I got for it was 3 years of passive income. I never had the opportunity to cash out big.
It's tough out there, so tough, it often feels fake/artificial. Often, it feels like you have to be 'chosen' and that's all that matters. Your work doesn't matter, how talented you are doesn't matter, how lucky you get doesn't matter (besides the luck of 'being chosen').
At the end of the day, money is like a river and people upstream from you get to decide whether or not the river will flow in your direction. When you understand that new money is created constantly and, just like the river, the water cycles between the mountain and the sea, you start to understand the value of positioning and 'being selected'. The people upstream will keep telling you that they don't control the flow of money; that the river flows naturally through the lowest valleys... It's your job to put yourself in that low valley... But really, they've built massive dams up there directing the water almost arbitrarily. You may be at the lowest valley but they're redirecting the water elsewhere artificially because it suits them better. Reality is that they can easily alter the path of the river anywhere they want and it has little to do with 'building something people want'. It's about building something the people upstream want... And sometimes they just want to help their existing friends; unfortunate for you if you are not their friend.
It's a catch-22; you need rich friends to get money but you need money to get rich friends. But I suspect it's way easier for a poor person to get rich by befriending a rich person than it is for a poor person to get rich without rich friends. The second approach feels like you're piercing through 'the matrix' because of all the weird almost conspiratorial resistance you might get (tech feels like one big club).
Sometimes you might accumulate some dirt on some rich people and that gives you some leverage over them but it's the kind of leverage where you have to keep coming back to them to get crumbs. I feel like you can never break through that way due to regulatory capture. You can only do limited damage to them and it's always costly to you. They still have the balance of power.
Sorry to break it to you but 10% profit on 6.5M rev is very low and will absolutely not fetch a high multiple, especially considering this is a mature 10 year old business. This is not a high growth business and you may have grown overly rose colored glasses by thinking it could be priced as one.
So much more. What assets/patents do they own? How much money is in the bank? What does their liability sheet look like? How “hot” is their industry right now?
Some time ago I found a good formula to plugin numbers and get a valuation multiple. The questions above were the ones that really moved the multiplier. A major lot of “startups” are in the 1-2x range. The hot ones will peak at 7-12x.
I suppose the industry is not hot right now. EdTech was never really very hot. It was 'luke warm' at best, a decade ago. They own a lot of software, also, they publish their own math textbook (both digital and print). They have licenses with thousands of schools across multiple countries. I don't recall they have any debt.
I feel like they could easily bump up profits by $2 million just by letting go of people... But they could probably double the license cost per student. Although schools don't have much money, they are kind of slow and bureaucratic; set in their ways. It's a small cost for them anyway, once a system is part of the curriculum, they'll probably pay extra to avoid reorganizing the lessons.
As you describe this is largely a cash flow business and the bulk of the value should be extracted via dividends to the benefit of major shareholders.
A tech enabled business needs gross margins north of 70% to be attractive from a leverage standpoint, unless revenue is scaling very rapidly. Without these there’s no attractive exit opportunities.
They have a lot of employees. I think over 50. Probably more than they need and they re-invest a lot in the business. Also, the cost of $15 per user per year is VERY LOW.
50 employees generating 6.5 mil in yearly sales means the business would barely cover payroll and basic expenses in a first world country. In a lower income country, they can be profitable by taking advantage of cheap labor, but that usually does not scale well to international markets in services.
Yes - equity should be an incentive to contribute the the company's success, and partial compensation for the risk of going to a startup. One should value it at precisely $0 in terms of life planning.
This becomes truer and truer the more of an employee and the less agency over the company's choices you have, but generally if you're not a co-founder (founding engineer doesn't count) equity traded off against salary is someone scamming you.
Not if you live in a country where you can end up paying more taxes than the equity is worth! Be a little careful with Options and RSUs depending on where you live, and even more so for certain companies etc
> equity should be an incentive to contribute the the company's success
the much bigger motivation is "keep the company afloat so i can keep drawing my salary", so just boring old non-equity paychecks provide plenty of motivation.
if you're an employee that thinks your contributions are so great that you are single-handedly juicing the stock price or valuation, you're probably wrong but if not... you should probably take those skills and found your own startup.
Indeed. Likewise with non-guaranteed bonuses (gotta love the "plus a discretionary bonus!" commentary during offer discussions).
It's always worth offering to take equity as long as they agree in writing to not ever dilute your shares and vest them immediately. However, it's unlikely that any company will agree.
It's best to imagine compensation as exactly one's salary. Then (virtually) all surprises are good.
> It's always worth offering to take equity as long as they agree in writing to not ever dilute your shares and vest them immediately. However, it's unlikely that any company will agree.
I think it makes perfect sense. It's a guaranteed incentive for a potential employee to increase the value of the company and act in its best interest.
Absent those guarantees, it's smoke, nothing, kaput: 1.5% equity or whatever % can become approximately 0% and there's nothing the employee can do about it.
They could structure the agreement in other ways to incentivize the potential employee: if additional shares are issued, pay a dividend to the employee.
the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.
But equity is often used in ways the employee does not understand and get screwed over. It's also why there are accredited investor requirements for VC/startup investments - so that only those who can afford to pay for a lawyer and such can partake in these deals. Unfortunately for an employee, the loophole is that they don't get this regulatory scrutiny, and also don't have or earn enough to hire a lawyer (and oft times not even access to the cap tables - it's just a literal number of shares, without context).
No wonder employees get screwed while investors (of the accredited kind) don't.
> the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.
Understood and it makes sense. Offering equity to a potential employee is a way for the employee to benefit potentially on future growth in the company.
I'm proposing that if there is a future funding round, pay the employee a dividend from part of the proceeds. Or maybe give them more shares or a combination; but put it in writing from the start.
I don't know how this works, but my question is, on a funding round, couldn't the C suite just allocate themselves additional equity in proportion so that their total value remains the same?
They could, but the shares represent value - and that money needs to come from somewhere. Simple, but extreme example: A company is valued at 10 million gobbledoks, and the C-Suite holds 10%, representing 1 Million valuation. Now the company takes 10 Million gobbledoks Investment that end up in cash on the companies bank account. This raises the the valuation to 20 Million.
Under simple dilution rules, the Investor takes 50%, and the existing shareholders are diluted to 50% of their stake - the C-Suite owns 5% of 2 Million, 10 million as before.
If the C-Suite demands that their equity proportion remains at 1%, they’d suddenly own a stake representing 2 million valuation. That difference needs to come from somewhere.
There is actually a sense to the dilution. If I have something I think is worth $10m, and I'm asking someone else to give me another $10m, doesn't it make sense for that person to own 50% of the company? Why would any investor give you $10m wile receiving no ownership of the company? How are you going to give these newer investors ownership, if you don't reduce the ownership of everyone else?
The claim in the tweet was that they got 1% of the value of the diluted shares: e.g., on paper they should own 1% of $100m, but somehow they only got $10k out of it. There does seem to be a culture of this going around now -- the VC version of "Hollywood accounting". In a lot of situations it doesn't make much sense to me -- is it really worth poisoning the well of startup talent for the VCs to get $95m instead of $85m?
> If the value of a company is $10m and the company asks an investor to give $10m in exchange for equity, the investor should own 100%.
That's not investing, that's buying. Buying means the buyer gives $10m to the previous owners, at which point as you say, the previous owner owns 0% and the new owner owns 100%. But the company is in the same position as it was before -- the same amount of cash on hand as it did before.
For investing, you're putting cash into the company's account, which raises the total value of the company.
Value of the company before investment: intangibles + pre-investment cash - debt = $10m
Suppose I own 10% pre-investment; 10% of $10m is $1m of estimated value.
Value of company after the investment: intangibles + pre-investment cash - debt + $10m == $20m
Now I own 5% of $20m, which is still $1m of estimated value. The investor owns 50% of $20m, which is still $10m of estimated value.
In practice of course, there are different classes of shares which end up being paid out differently.
Legally speaking, it’s probably possible. Practically speaking it almost certainly a guarantee that the company will never see outside investment. On every round someone would need to pony up the cash to fill that employees stock. Anti-dilution clauses exist, but they never work like that.
Such a privilege is also likely to be almost worthless - if the company succeeds and the round makes it worth more, you’ll win even with dilution. If the company doesn’t, then other clauses such as liquidation preferences will make your stock worthless, regardless of how much you own.
The difference is that if the company succeeds, an employee afforded this provision is guaranteed to make $X.
Without this provision, it's possible in many ways for the employee to be left with far less than $X, even if the company succeeds. In some ways <<<<<<$X.
Working at a startup pretty much always involves trading off money in the bank for other things. That’s the industry’s whole deal. Which is why I stay in Big Tech with liquid RSUs.
I would like to understand a bit here about what you are saying as having been involved in a few startups and I do not quite understand what you are getting at. My understanding based on experience (successful exits, small exits and crash and burns) follow.
First a 409A is generally engineered to keep the lowest value possible in order to allow the employees to exercise their options at the lowest value via an 83b election so at an exit they can be taxed at the long term capital gains rate. When someone joins a startup and is issued options the value of the stock is set via the 409A (which has to be renewed every year). The lower the number the more likely an employee can afford to write the check. 100K shares at $0.01 vs at $0.25 is a major factor for anyone to consider. Any startup worth their damn will make sure the facts in any 409A fit a low number for that reason. The reality of an exit where you are acquired will be based on other numbers that optimize for forward earns and value of your team and tech.
The questions you need to ask are:
What is the total authorized shares?
What is the required process to raise that number?
How are we funded?
Does funding include preferred shares?
What is the preference on those shares?
On an exit what is the payment order?
I agree about the salary bands and at my current company we provide them, as well as answering all the questions above upfront to any candidate with an offer.
The reality of windsurf is that the founders are scum and this is going to end up in court for years. Google should be ashamed.
I've tried to ask dozens of companies that wanted to hire me just for how many shares were outstanding and/or authorized. They almost always refused to share.
You can almost never get any info on equity until it's too late and you realize it's worth nothing.
> I've tried to ask dozens of companies that wanted to hire me just for how many shares were outstanding and/or authorized.
"Wanted to hire me" as in they made an offer, or an earlier step? At offer stage, I've never had a company refuse to answer these questions. I don't have "dozens of companies" worth of experience though, maybe one dozen if that.
Every time I hear this I think experiences and expectations are vastly different between SV and the rest of the country. 30ish years of working in New York and I haven't encountered a single company that isn't 100% opaque about their equity to employees until time of exit/IPO. And I keep a large network.
That said, everyone here treats equity of non-public companies as if it's toilet paper. Some of my coworkers got very lucky and very rich when our company went public, but that was also a long time ago now.
I worked at one for five years: Materialize. Based in NYC. Everyone knew how many shares they owned, what percentage of the total equity that represented, and what the rights of the preferred share classes were.
> I've tried to ask dozens of companies that wanted to hire me just for how many shares were outstanding and/or authorized.
Those questions are certainly worth asking but employees should also keep in mind that even if they do share that information your equity can still later be diluted away to worthlessness.
My 2c is these are almost always a consequence of the company not being a good business. Well, sometimes you get asshole founders/board members too that's not as common as the company just being an absolute money pit. So instead, I'd focus on asking about business fundamentals/strategy - if the company is money printer, everyone is likely going to do well financially
nope, it happens in "good businesses". once real money is on the line, everything is a dog fight. no one talks publicly because of the reputational repurcussions
not ime. you're also much more likely to get sued for this when real money is involved. cases that i know personally (and myself) either did ok and got pay out or everyone went to zero (below or close to strike price) but founders got secondaries (which screws VCs not the employees).
seen many many cases first hand in NYC. Also, as an individual its very hard to sue a company with a huge amount of VC funding. you need a 100k to burn on it to even have a basic chance, and most cases are a legal gray area, most lawyers wont even take the case.
even finding a lawyer with the expertise to handle a case like this is not easy, its a very small world among those types of lawyers
There is another variable. Find better companies to work for. If you don't think this is a unicorn, don't work for them. If this is another stablecoin startup leveraging quantum AI then you deserve what you get, cash comp or no.
It doesn’t matter if you think it is a unicorn or not, it is about risk management.
Early stage investors know that even the best startups have a fairly low chance of success, which is why they diversify by investing in a lot of them. The many failures are paid for by the few successes.
As an employee, you are only given stock in the one company you work for. Even if you think it will be a success, it isn’t smart to put all your eggs into that one basket. No investor would do that, and no employee should either.
If you are working at a startup, a lot of your eggs are already in that basket; your ongoing salary is dependent on the company continuing to succeed. If you take less cash for more equity, you are putting even more eggs into that same basket. If it fails, you are going to lose all the equity AND your salary.
You don’t want your investment risk and your salary risk to be that correlated.
> if the shares are truly worth X dollars they should buy them back from me
I always offer companies pushing equity hard to trade for cash at 10% of the highest number they try to get me to value it at. Nobody has ever taken me up on it, even when they really should have.
This may work for you, but in general isn’t good advice. You shouldn’t be confusing beliefs and risks. Risk should be managed - you should be comparing cash invested into the public market (or treasuries, or bitcoin, whichever you prefer) with equity in the startup, not with a savings account.
Maybe useful for VCs who have a portfolio of companies and need to put stuff in their presentations to LPs.
If you’re an employee you can’t look at this like an investor would. Your risk profile is completely different. The write up is correct in that it’s basically a call option, correctly point out there is no market for it and then ignore the fact that zero liquidity means you can land a 747 between the bid and ask (if you get anyone to buy from you at all).
There are more than enough stories about employees complaining that they didn't get a big enough payout on an acquisition or IPO to know that this isn't true. It all comes down to your risk reward preference.
Sure, if you don't want to take a risk then look for a higher salary, and probably at a more established company because even if you have mostly salary and little equity a startup is still risky (and you're making it even more so by putting cash pressure on the company at that stage).
On the other hand, if you want a chance at a bigger payout, you'll want more equity. And yes, you may well not get that payout.
> There are more than enough stories about employees complaining that they didn't get a big enough payout on an acquisition or IPO to know that this isn't true.
That's exactly why it is true. If every person who held early stage stock walked out of those events happy then no one would recommend they focus on salary.
The problem is that your risk is compounded because your equity risk is correlated with your salary risk - if one fails the other is likely to fail, too.
Even if each risk is a good one to make separately, it isn’t always good to make both risks.
I had some RSUs from a previous company (likely will not be worth anything) and some options at another, but I have no idea how to understand how dilution like this works. My understanding is surface level of that scene in The Social Network.
I feel like I understand _what_ an RSU is and what options are, but are there any good resources for me to learn from?
So you're working at this startup. Lets say it's worth $10 million. To make things simple, in this company, there are 2 people, the fucker, the CEO, the guy that started it all. He holds 90,000 RSUs, each worth $100, so $9 million, and the fuckee, you, who holds 10,000 RSUs, each worth $100, for a cool million.
Here's where the fucker fucks the fuckee, ie you. The company does a round, and then creates, out of thin air, a billion shares (1,000,000,000), and issues them to the new investors. Lets say the company reached unicorn status this round, which is to say a valuation of a billion.
Holy hell a billion! But wait now there's 1,000,100,000 total shares out there, and the valuation of a billion, divided by the new shares, means that each share, of which you only have 10,000 of, is now worth just under one dollar.
That's right, your $1 million just turned into $10,000. Which isn't nothing, I'd love to come across a random $10k I didn't know I had. But that's just, like, one really nice vacation for you and the kids, which you haven't seen enough of because you've been working so hard at this startup, and not, like, a college fund for the kid that's showing aptitude at engineering and that you were hoping was gonna go to MIT.
Dilution is inevitable, there's no avoiding it. The scenario I presented is just to show you an example of how dilution fucks you. If things go well, would you rather have 10% of $1 million or 0.1% of $1 billion?
For more, it depends on how you like your information. ChatGPT's got stuff like ISOs vs NSOs pretty well covered, Investopedia's got a lot of good stuff if you'd rather it that way.
You are misrepresenting how dilution works - and dilution usually is not what fucks you. Dilution is fairly straightforward - someone ponies up money and gets a share of the company. The valuation that gets handed around is usually what’s called “post money” - how much is the company worth after investors have paid in their money. In a simple example, matching your numbers, a company that is worth 10 million, with 10 million shares, each valued at 1 dollar with a 90/10 split finds someone who invests a billion dollars at 1 dollar per share. These shares are created as part of the acquisition. The value of the shares doesn’t change - the company, post money, now is valued at 1 billion 10 million and has 1 billion 10 million shares, each worth 1 dollar. It also happens to have 1 billion in cash at hand. No change in value for anyone here, but dilution happened - the person that owned 10% of the company pre-investment now only owns 0.1% - but the value of each share is still the same, which means they still own the same number of shares, each at the same valuation with the same total value.
The problem tends to be elsewhere - as part of the deal, the investor asked that his share get preferred treatment in the next round - a liquidation preference which grants them the right to first take their investment of the table and then, whatever is left is distributed. The company gets sold for 1 billion. The investor takes the billion that they invested off the table. There’s nothing left to be distributed. Your shares are suddenly worthless - just as the founders.
Under any normal circumstance I've ever seen, you should be taking the higher equity/lower salary combination and should focus on equity rather than salary.
The only time it ever makes sense to push for more salary instead is if you literally cannot get a job at a public company (or even a near IPO unicorn). Plenty of startup employees can, so clearly they believe their startup equity is worth something.
Financially speaking, startup equity is actually worth a lot as an employee (https://www.amafinance.org/startup_comp/). Yah, over 50% it's going nowhere but expectation needs to consider how huge the win is even if it is lower probability.
If I'm understanding your logic correctly, I think it's flawed.
It seems like you're saying: if you choose to work for a startup rather than a bigger company, it must be because you think their equity is valuable, so you should prefer to take more of your pay in the form of equity if you can.
But there are plenty of other reasons for choosing to work at a startup.
You might have chosen to work at that particular startup because the work interests you. You might prefer startups to bigger companies because they have less bureaucracy and can do (some) things faster. You might prefer startups to bigger companies because there are fewer layers of management above you and so you have a better view of why you're doing what you're doing.
Even if you're only in it for the money, I don't think your argument is valid, though this is more of a nitpick: it might happen that a startup particularly wants you or at least your skillset and is willing to pay more for it than any bigger company you've found. You might think the startup is likely to fail, but still prefer being paid twice as much. (This is kinda nitpicky because I don't think this situation is super-common, unlike the other ones I mentioned above.)
First, your stock has a much higher than 50% chance of being worth less, even at the best startups. This is why early stage investors invest in so many companies… a vast majority are worth zero, but the few that make it big pay for all those and more.
This is why you would never see an early stage investor invest in only one company. They need volume to be able to survive the high risk/high reward nature of startup investing.
Now, maybe you think you are a better judge of the probability of success for your startup than an investor, so the risk is lower. You would be wrong; if there was a way to reliably predict which startup would hit it big, then investors (who spend all their time trying to predict exactly that, and have a lot more data and history to use in their evaluation than you do as an employee) would have a much higher success rate.
So even if you have a very promising startup, your equity is a huge risk. Your company probably won’t hit it big, and if it does you have to hope you aren’t screwed out of your equity by the millions of tricks they use to screw employee shareholders; dilution, preferred shares, etc.
Even worse, you are taking double risk. Your startup is risking both your equity AND your salary. You want to diversify your risk, so you can use your investment when your salary fails and use your salary when your investment fails. In this case, those both will fail together if your company doesn’t make it.
Look, equity and stock options are great, but you REALLY have to discount its value as an employee because of the way the risk shakes out as an employee.
I've long preferred working for startups over big companies, but my equity has rarely been worth more than a day or two's salary equivalent.
I know a few people who did well working for unicorns, but that isn't most startups, and pretending that any given startup will be one is selling yourself short.
> Yah, over 50% it's going nowhere but expectation needs to consider how huge the win is even if it is lower probability.
yes that's literally the definition of expectation value...... so
ev = 1 bagillion * 0.0000000000000001 = ~0
hence you should absolutely not be taking higher equity/lower salary ever. hell i wouldn't even take that at a publically traded company if given the option.
The interesting thing going on is, stars align. The kind of person who has to think about this problem should take equity. The kind of person who would choose to take cash isn't going to be hired at the kind of VC backed business that will end up being worth something.
Yes, a company will do very well if it fills itself with naive employees who think that if they work insane hours and sacrifice their life for equity (which they'll never get an exit event for) will do very well.
The headline "startup bought for x million" is almost always a lie, either direct or by omission.
First, when a startup is bought, its generally not bought at the headline rate. So if you see a "bought for $45m" that doesn't mean People who own shares all got a % of 45m.
That number is normally bullshit, but also a "total package" which include share offers for joining the new company.
This means you will get say 1% of the headline buyout now, and then golden handcuffs to get the rest.
Also, it makes no sense to give employees that much money upfront. After all, if I'd been given $1m in one go, I wouldn't be fucking working now.
Yeah, I used to hear all the time that "a startup is worth $1 million per engineer in a pure acquihire", but learned the hard way this is a myth.
When we were talking to various companies about acquiring Sandstorm.io (my startup) in 2017, one of the companies told me, essentially: "We aren't interested in your IP, only the employees. We'll give you a set of job offers for them. We will then sum up the salary and equity grants from these offers, and call that the acquisition price. If you want to take some of that money and redirect it to your investors instead, that is up to you."
I was a bit taken aback. Obviously I wasn't about to take a cut of my employees' future comp and give it to investors.
Instead we ended up going to Cloudflare, but not as an acquisition. Cloudflare told us very honestly that they couldn't justify buying the IP, but they would be willing to acquire the company for $0 to wind it down for us. I decided to just take the job offers but keep the company independent as an open source side project, thinking maybe I'd revive it eventually. Turned out to be a mistake as some guy who was mad we didn't hire him sued Sandstorm six months later, and that was then my problem instead of Cloudflare's, oops. Should have sold for $0.
(Once it became clear to the plaintiff('s lawyer) that we weren't going to settle, they stopped pushing the case forward, but didn't drop it, so it just sat in limbo for 5 years before the judge finally threw it out it 2022. Meanwhile I couldn't dissolve the company and had to keep filing taxes for it. Ugh... lessons learned.)
That sucks. FWIW I had a sandstorm instance back in the day, and I think it was an idea ahead of it's time. The stuff you were trying to do I think got easier as containers became more widely adopted, and as enshittification has made the case for self-hosting more obvious. So... Thanks for trying!
Generally, when a startup is acquired, people get paid in a number of tranches:
- First, debts get cleared in order according to debt types. This could be cloud providers, lawyers, employees who deferred salary, etc, etc. If there's still cash left..
- Then preferred (generally earliest) investors get paid back. Some investors will have liquidation preferences where they get 2-5X their initial investment. If there's still cash left..
- Then execs get their preferred shares cashed out. Depending on how many rounds they'd raised, they may own less than you think. If there's still cash left..
- Finally, general stockholders get paid. This is where most employees may actually get cash.
To further complicate things, some people could be in multiple places here. A founding exec may have lent the company money to get started, have preferred shares, and have common shares so they could get paid out in early levels but not at the end.
*There are WAY MORE nuances in this but the point is: You don't just say "total price divided by shares times number of shares = the cash you get"
Sure, but if you're 10+ years into your career and have been financially conservative (i.e. have a positive net worth), a lump sum of $1m could be enough to retire to a lower-cost location.
If you're willing to be fiscally conservative, go to a cheaper location, and continue working on side projects you don't need the payout at all.
The question everyone seems to be asking is "is the payout worth spending the first ten years of your career in the West Coast startup scene." Ten years is quite a lot of time to spend somewhere you don't actually want to live.
Lean fire on $600k-$800k is taking an extreme gamble on the cost of health insurance continuing to be subsidized way beyond Medicaid levels. Which you might be fine with, but it's a pretty big risk.
Unsubsidized healthcare in a lot of places in the US costs $10k-$20k per person per year. For early retirement that eats up like $400k-$500k per person.
My parents live in the UK which has free healthcare. The situation is dire. The waitlist for chronic pain surgeries are 3-4 years long. Lots of people, including my parents, have resorted to flying out to other cheaper countries to get treatment.
Because politicians have made it their mission to chip away at the NHS over decades. This doesn’t say anything about the efficacy of statutory healthcare.
But it’s quite relevant to the question of whether you can just assume that some country will foot the bill for your health care needs at old age, and therefore you don’t need to worry about health expenses if you retire early. Rising costs of health care systems are a serious problem in most developed countries. “Eh, I’ll just move to Europe in old age” is not really a comprehensive plan to ensure you get good healthcare far in the future.
It does. In every public-healthcare country, this happens. Because incentives are stacked against delivering to the patient and for increasing spendings. It’s the tragedy of the commons.
I wouldn't use the Netherlands as a great example either. The family doctor model is slowly disappearing, replaced by private clinics. It is relatively difficult to get appropriate treatment for anything, and there are long waiting queues even for intake appointments. It has only been getting worse in the past decade.
> Public healthcare isn't a free for all, its regulated, actively managed and budgeted.
Not what I mean. It’s racist. Public jobs are being reassigned in a racist way to help whoever the currently-elected leader wants to favoritize, and, as the NHS ad says: “This is us, now”, clearly demonstrating a no-whites ideal (NHS’s intentions, not mine).
Public health funnels money from people who paid to get coverage, to, on one part, those would be rejected in a normal system (non-insured people) because it’s easier to say yes when it’s diluted; to to, for the second part, people self-selected by the group of currently-employed people, ie in the UK it means that normal people are selected with all criteria but protected classes (the legal term, “protected classes”, I mean) have priority for those jobs.
You may pretend the NHS is not racist, but the NHS actions speak for themselves.
Is chronic pain an outlier here, or representative of wider trends? My uninformed prior is that surgery is not a good approach for chronic pain, and that the NHS is more likely to cover surgeries with a more clear-cut cost/benefit ratio
For things like hip replacements, cancer treatment and other physical ailments the NHS is pretty awesome. Some stuff it fails at I am sure, but as you say that is in part down to the way that it prioritises care based on results.
Private healthcare is still much cheaper in the UK, so you're still better off retiring there. Might not always be the case of course, but I would bet the situation will continue to be better than in the US.
Medicare isn't that much cheaper than exchanges although the cost decreases over time as you aren't earning significantly any longer. And lots of issues associated with moving countries.
3.5% historically holds up over longer retirements (I ran a rough model and got ~98% success for 50 years). $21k is quite lean - you'd have to pick and choose luxuries like a car, no roommates, travel, etc. - but for a single person in many parts of the country it's doable. The big gamble is that Medicaid might get cut further, which would definitely force you back to work.
Yes, it’s doable if you rent a $500/month apartment/bedroom in a rural area or split a shitty $1000/month apartment in a mid tier city and don’t have a car, never travel, and don’t use medical care. My employer paid health insurance premiums are ~$15,000/yr.
That sounds like my personal idea of Hell, I’d like to be able to get treatment if I got cancer instead of being given a prescription for painkillers and a look of sorrow from a doctor that can’t treat me.
FWIW, I currently live in a shitty $1000/month apartment in a mid-tier city, not casting any aspersions on the living situation. But, I’ve lived in this same city without a car and it’s miserable.
Presumably, it would be cheaper if I had a fairly modern urban condo but my exurban property is a good $15K+ per year. Heck, I just had a kitchen fire and, even with good insurance, I'll probably be $50K out of pocket when all is said and done. I could probably have done things more on the cheap but didn't really make sense.
You are supposed to invest and keep the money working for you. Adjusted for inflation, S&P 500 returns 6.5% a year. That alone gets you above the poverty line. Recall, this is inflation adjusted so your $600,000 is growing with inflation and the poverty line income also grows over time. This does not account for any swings.
You can't actually draw down 6.5%/yr, though, because of sequence of returns risk. The number that is actually safe (historically) is something like 3.5%.
Keep in mind that almost all of the FIRE advice available online has been written in a bull stock market that is almost 2 decades long (COVID drawdown is a blip on the 2008-2025 chart).
Past performance is not indicative of future returns. Do you know anyone still running a risk parity 60% UPRO/40% TMF (3x long S&P 500, 3x long 20-year Treasury Bonds) portfolio? That portfolio composition had massive returns, until the Fed started hiking rates.
The annual implied volatility of SPX is around 15-20%, if you want to withdraw 6.5% a year at 40 and have to restart your career at 55, be my guest.
A 40% drawdown on 600k is -240k which puts you at 360k, 6.5% of which is $23,400. Starts getting pretty tight if you need to sell assets for cash which reduces your future returns.
> Keep in mind that almost all of the FIRE advice available online has been written in a secular bull market that is almost 2 decades long
Most of the reasonable FIRE advice (e.g. https://earlyretirementnow.com/ quality) suggests a ~3-3.5% withdrawal rate, which has been measured using historical data way before the current secular market.
Is your take that even such withdrawal rate wouldn't work anymore, moving forward?
For majority of the world population 1M is amount they will never earn through their entire life. And they live just fine. I'm sure anyone can have a really nice retirement with one 1M, just not in the US.
When I was a kid (early 80s) the receptionist at my mom's company drove a Porsche and didn't need to work anymore because of a past company hitting it big. This woman wasn't a financial genius and didn't hardball negotiate with the previous company for her receptionist job, it was just Silicon Valley didn't used to be so gross and actually paid out to people.
I went through an acquisition very early in my career, and for the longest time I believed it was the best outcome for everyone. Over time, I realized that my naive belief was purely due to the founders going way above and beyond to make sure each and every employee (including folks doing just data entry) got a good outcome (accelerated vesting, significant equity in new company, top of the band pay, etc.). It made me realize that if you ever want to work at a start up, bet on the founder, rather the company. Even with mediocre outcomes, you'll end up ahead in the long run compared to folks who're just looking out for themselves.
They must have had a strong position from which to negotiate those favorable terms, in addition to the experience to know to do so, and the integrity to actually do it. The type of people you should follow.
I don't believe they did. This acquisition was by Flipkart, the poster child startup in India, who had a very high bar for hiring. They wanted to interview the non-founders to make sure they met the standard. The founders said you get all or you get none. To be fair, it was a small team of 6-8 employees, so I doubt Flipkart cared. :)
Wait, what are the employee protections like in India that such a deal is enforceable? Why couldn't Flipkart just take them and then fire them a few weeks/months later?
> due to the founders going way above and beyond to make sure each and every employee (including folks doing just data entry) got a good outcome (accelerated vesting, significant equity in new company, top of the band pay, etc.)
Commendable of them. That should be normal decency by leaders. I wonder how common it is.
This is one of the most confusing things I've ever read.
Cognition acquired Windsurf. So how has he "joined Cognition"?
"I had a place at Google DeepMind as part of the deal." What does that mean? DeepMind doesn't have anything to do with Cognition or Windsurf, right?
Why would an offer at Google require forfeiting vested shares in Windsurf? Is that Windsurf policy or Cognition policy or Google policy?
"I was ultimately given a payout of only 1% of what my shares would have been worth at the time of the deal." So he took the payout and forfeited the shares? "In going to Cognition, I’ve chosen a different direction." Or not, he rejected the payout and kept the shares? I can't even tell what's hypothetical versus what actually happened.
I literally don't understand a single thing about this tweet. I've read all the comments here so far and my confusion seems to be shared. Can anyone who has context please help explain what's actually going on? And particularly how any company could force you to forfeit vested shares in a company?
Google poached windsurf employees and licensed their tech, paying out billions to upper management but apparently offering a fraction of the value of shares
This employee chose to stick with windsurf instead of moving to Google
Windsurf was then acquired by cognition for an unspecified but probably quite low amount
But so did he keep the shares or take the payout? Is the 1% payout an accurate reflection of Windsurf's value after having lost so many valuable employees? And why didn't he take the Google job? Was the 1% contingent on taking the Google job? But how could it be, since Google doesn't own Windsurf/Cognition? But if it did somehow, did it have a higher paycheck to compensate? Or was it contingent on staying at Windsurf/Cognition?
This thing needs an in-depth blog post analysis. The tweet by itself isn't providing even close to the information necessary to understand what's actually going on.
the board strokes is: Google should have bought the company. They didnt. They basically bought the employees. They call it a "acquihire". Without these employees, the real value of the company fell, allowing cognition to buy the company. Had the employee taken employement with Google, it's likely their shares in windsurf would have been voided, or otherwise not vested. Who knows, these private corporations are often doing a bunch of shady things to dilute share ownership.
In a private company, there's no "real" public valuation of a share, so an employee who has some kind of stake really only has two real options to dump their shares, either through a company buying it (cognition) or the company going public. Without either of these events, it's really difficult, even if there's no contract about it, to sell the shares.
So the value of the company took a nose dive in the private market through the hiring of windsurfs principals, and the employee either kept his shares and went with the company, or took a job with google. So the two values are:
1. Stay with Cognition and retain the private market shares of Windsurf and salary
2. Leave cognition, forfeit(?) the shares, get whatever salary google offered
Google should have bought the company. They didnt. They basically bought the employees. They call it a "acquihire".
That's just called "hiring". In order to "acquire-hire" employees of the target company, one must first "acquire" the company and the "hiring" part just comes along with the deal. In this case, Google skipped the "acquire" part.
Do you know what are the mechanics that allowed the VCs to get repayed, but not the employees who did not take the Google offer? Is this an issue with liquidation preference, or was there something more shady going on that truly allowed VCs to make a “big” exit, while the employees owning common shares did not?
Surely it needs to be called something else, because acquihire means "hire some employees by means of acquiring the company they currently work for" (it's in the name). Since Google did not acquire the company, it can't be an acquihire event. "bribehire" or something?
Thank you very much! So it seems like the crux of the issue still isn't clear, because:
> Had the employee taken employement with Google, it's likely their shares in windsurf would have been voided, or otherwise not vested.
That doesn't make any sense. The shares are already vested, they legally own them. How could they have been voided?
The idea of joining Google resulting in a "1% payout" doesn't seem to make any sense? Why would there even be any payout at all? And is it mandatory? How could it be?
And then it also doesn't even seem obviously terrible. If the valuation of Windsurf tanked, then is keeping the shares (now presumably converted to Cognition shares at a rate determined by the purchase?) even a better financial outcome?
I agree that Google acquiring the talent rather than buying the company seems shady. But the "1% payout" still isn't making much sense here and needs a lot more details. Because it's still not even clear if the payout is from Google (huh?) or Cognition (why?), or how it could be a mandatory condition of employment at Google.
Options vest, but you have to exercise them to purchase the underlying shares. This is nominally cheap, but from the IRS’ perspective you have just spent $1 to purchase a share worth $100, so that’s $99 of income. Multiply by a large number of options and you can easily have a real multimillion dollar tax bill even though you have no way to sell the shares to recoup their value.
Worse, if the company loses its value before you can sell, you’re still out those taxes with zero recourse. It’s an enormous risk.
If you leave a company with vested but unexercised shares, you generally forfeit them.
While you're right that exercising options can be very expensive and are a risky tax bet, we're talking about employee #2 in this case. They should've been able to buy in early at a low price and tax bill if they really believed in the company:
- Jan 2021: 3M seed round
- Jan 2024: Series B valuing the company at 500M
That's 3 years of vesting below a 1B company valuation, and 75% of a typical vesting schedule. There was plenty of opportunity to buy when valuations were low.
There's also 83(b) election that allows one to prepay tax liabilities on stock options before they vest.
Not buying stock options or doing a 83(b) election is also a bet that can place a cap on losses if the company goes downhill, but the risk flips if everything goes right.
I encourage you to put yourself in that person's shoes. It is never a simple decision.
Yes, there is plenty of opportunity to exercise when valuations were low. But that also means you're buying before there's clear evidence that the company will be successful. It also still means you're out the cash to exercise the options before there's a market for those options and before you know that the company will actually go public and not crater for whatever reason. You also have no idea how much your shares will be diluted.
Yes, exercising on day 1 optimizes your outcome in the case of a successful exit. But it is absolutely comically a poor choice for the 95% of cases where your equity ends up being worth next to nothing.
IME the real issue is people don't know what or how to do it. If you're a pre-seed employee, you're going to be able to exercise 100% of your shares for a minuscule amount of money. But you need to know what to do and do it right away.
In other cases, you may be later but have a higher strike price (expensive-ish to exercise), but its at least close to the valued price and in that case you can exercise without a major tax hit. But again usually people learn this after the valuation goes up and there's no way to go in reverse. So best we can do is share information here I guess, and perhaps advocate for some kind of regulation.
I'm speaking from experience. Yes, it means buying in before there's clear evidence of success, that's the risk! The lower the risk the lower the reward.
Waiting until the company is worth billions of dollars before buying its stock is one of several options available, and each has its own risk/reward profile.
My point is that exercising the company’s stock early is fraught with risk and is in almost all cases a -EV play.
Yes, the option technically exists. But without perfect foresight it’s not a good option. It’s not even an okay one. It’s an exceedingly bad one in most cases.
Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous.
Stock options are—as they currently stand—a lottery ticket that startups dangle in front of people’s faces that allow candidates to believe they will get fairly compensated for their labor, but with so much wiggle room that the company rarely has to ever make good on it. And I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.
I did pretty good. And this was a rare raging success story. Most people did worse than me.
> Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous.
Once again we’re talking about employee #2, exercising early would not have been that expensive! They had access to a strike price and low tax liability that the vast majority of later employees would ever see. You are correct in that most shares in startups are worthless, but that’s orthogonal to exercise price and tax consequences.
The calculus changes if/when the company becomes a unicorn, but by then the risk profile is much more favorable than when it was a scrappy startup, and returns are lower.
> I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.
Well one has to stay long enough to vest in order to keep the equity, being early isn’t enough.
I don’t know your specifics so maybe you did make it out better than earlier employees, but some tricks companies use once they hit unicorn status (and have hundreds of employees) is stock splits. They want to pad their share grants for newer employees to make it seem more attractive and make the strike price lower. Of course earlier employees that exercised and left get their shares multiplied too.
> Once again we’re talking about employee #2, exercising early would not have been that expensive!
Exercising early almost certainly would have cost hundreds of thousands of dollars. For employee #2 of a startup, you’re almost certainly already working for mostly equity and not salary.
You are high as a kite if you think it’s reasonable to dump large sums of money into a five-person company while getting paid peanuts in return.
A -EV investment like early-stage startup equity is still -EV for every incremental dollar spent. Paying upfront for equity whose terms can be rewritten out from under you with zero input is not smart from any angle.
You’re basically criticizing the guy for not having perfect foresight, when the real issue is that startup equity is trivially manipulable by upper-level management. It’s a carrot they can dangle in front of people while only rarely having to pay even a fraction of what was promised in the rare event of a profitable exit.
You want to say exercising options. Buying options is paying to have an option; you can easily buy options on publically traded stocks, for example. Exercising options is delivering money that covers the strike price to receive the shares... or delivering the shares to receive the strike price, if it was a sell/put option (which employment related options wouldn't be)
Sure, but I'm not really clear on what that has to do with the situation described?
And he calls them vested shares though, not vested options, though maybe he's incorrect.
And it's not like you forfeit them instantly after leaving anyways. You usually have at least 90 days. And the fact that the value of the company is so much lower now is favorable, if you think the value will recover.
But again, none of this has anything to do with the "1% payout" here that is still totally unexplained.
It’s possible that in the Google deal you had to agree to sell back the shares (at a low value like par or original strike price) and the 1% refers to either those proceeds or the size of the Google employment package. If you didn’t agree then you would be left holding your shares of a company that is now gutted.
I've literally never heard of a company demanding you give up shares in another company as a precondition of being hired, for an engineering role.
At the executive level they may not want you holding shares in a direct competitor because it presents a conflict of interest. But even then you generally have a period to divest.
Can nobody explain what the actual demand was here? What did Google offer vs. what did they demand, and why? And why would Google be buying your shares...? None of this makes any sense the way it's been presented.
AMT income happens when the option is exercised (vests and paid for), the difference between the value and the strike price is income at that time. The AMT cost basis is the value at that time ... or you can think of it as the strike price plus the amount of income.
At the same time, if it's an ISO option, there is no assessment of ordinary tax until the stock is disposed. If there's a merger and the proper forms are followed, you can be issued stock from the acquirer that retains the basis (the strike price) of the original shares. If the forms are not followed, the acquisition is a taxable disposition.
There's a credit for the difference between AMT tax and ordinary tax on ISOs, but it can take many years for that to fully work out, and you have to have paid the AMT in the meantime.
Early exercise with 83(b) at time of grant (or while the value hasn't changed) or exercise-and-sell make the taxes make the taxes simplest, but tax simplicity isn't always the best strategy.
Vested options haven’t been exercised and are typically voided when leaving a company. Just because you vested the options doesn’t mean they are permanently yours, unless you choose to exercise them before leaving.
My read was that Garry Tan implied "you sacrificed a lot of money in order to grandstand". I felt that was a knee-jerk dismissal of a founding employee's legitimate concern.
I'm not sure, but my interpretation is that Gary is implying that Prem Qu Nair received $20 million from the deal, and that by posting this tweet, he has violated the terms of the agreement, which generally have non disparagement clauses, and Gary will see to it that he won't receive anything.
When you were younger and learned about history did you form a mental image of what kind of people the famous financiers, capitalists, and robber barons were?
These are those people. Oil and railroads were high technology too.
They want you to think they’re Lazlo Hollyfield, but they’re Daniel Plainview.
I believe Tan's words were mis-represented. I believe he is saying that it cost Prim $20M and he then wrote that post. I don't think he is insinuating anything else.
He's misrepresenting his own words when he writes a vague tweet like that. Tan is a serial shitposter and is known for blocking thousands of people that even slightly disagree with him.
Even if the OP considers the full headline number of $2.4b to be the value of the company, and taking his "1% of fair" number as truth, seven figure payouts would imply all 40 founding engineers had >4% equity which is nonsensical.
Let’s do a simple math. Assume this employee gets 5% of the company (which is super unlikely, but let’s go with it), that is 150m for what could be worth if OpenAI deal went through. 1% of that would be 1.5m.
That is still 7 figure. But this person spent 3 years in a startup, which turned out to be a unicorn and super highly successful, and he bagged a FAANG salary man pay at the end of the deal.
Basically this just proved startup model for normies are completely broken, if your goal is money, don’t join a startup
I think we would be back to historical norm, that startup will start falling behind in attracting talents.
The founders of Windsurf had already gotten their bags, they won't have to work a single day later in their life if they don't want to. The consequences will be bared by the ecosystem.
For the time being I think they are going to be OK, the labor market is employer friendly.
No, what Garry is saying DIRECTLY correlates with the outlined opportunity.
For his assertion to be right, 40 people need to get paid out at least 1 million. That's 1.67% of the company or 0.04% evenly. Its not hard for me to image that up to 10% of this cap table was distributed among the 40 people.
Why would you believe extremely motivated hearsay from Garry Tan? The man is already very untrustworthy before we get into the "I heard" and conflict of interest.
It is possible that 7 figure number included the offer to join Google, and since this engineer didn't accept that offer, they would not have recieved the compensation for doing so. It sounds like Garry Yan was getting his information second hand, so it may not include all of the context.
Hilarious that the best case positive spin highlighted is 40 people cleared at least $1m, so $40m out of $2.4 billion and $240m funding. He's praising "look 2% of the payout went to people in the company".
Nevermind that $1m over ~4 years is approximately the same as the differential other public tech co's pay. ($150k + equity at YC co, $350k TC at G/Amzn/FB/Uber/etc.) So when they tell everyone they should work at YC co's, they're saying they're proud when in the absolute best case scenario you make just as much as at the public co's they rail against working for.
If you want to come across as genuine, directly say how much % of the payout went to employees that weren't the founders. They won't, because it's likely 3%, which correctly sounds horrible
Garry Tan's job is bullshitting. Lying isn't very far from it, and he even covers his ass with "I heard".
Who did you hear it from Garry, the founder that made out with all the money ? Or the other VC that made a few hundred million from the sale and stands to gain even more if the lie of "founding engineers get rewarded" is perpetuated?
"Founder" and "founding engineer" are two entirely different things. One of those phrases is a glorified substitute for "early engineer". Kind of like when you buy a "founders edition" Nvidia GPU. You are certainly not a founder of anything.
I'm waking up personally to the unethical side of Software development as well. You can either do little and get paid pocket change or you can provide a ton of value for pocket change next to some promises lulling you in, where the value of your work exponentially increases, but you will see nothing of it and whatever you do: you are still a replaceable cell in excel to them and there will be ways where you get dragged over the table. If the money isn't directly in your bank account, it might as well not exist or was a lie.
Sooner or later you are the horse behind the barn anyway.
As an engineer if you are gonna be a rank and file employee you need to do it for your own reasons. I think the main good reasons to do it are:
1. It's relatively chill and you value the stability. You deliver competence from 9-5 then go home to your family or some other thing that's more important to you than work.
2. You really enjoy the pure engineering side and find meaning in the technical artifact you're creating. Probably it's open source and has some value/community outside of your employer.
3. You're gaining valuable experience that you can later leverage into something else. Probably you're in the first 5 years of your career.
If the main thing driving you is growing a business, and you don't directly own (not options or RSUs or whatever, actual real equity) a significant slice of it, you are very likely misdirecting your energy.
(I guess there are also cases where the mission of your organisation is not profit and you care about that. I don't know any engineers in this position but I might be quite happy working in the public sector).
Okay, but how much do you think you deserve as an employee who has invested none of your money in the company and decided to join on a 6-figure salary only after the company is already through YC, is funded by top investors and looks attractive?
If you’re instantly replaceable by any dime-a-dozen engineer than can install packages on npm and use react components and add a thumbs up to slack messages…to not get accidentally rich because you just took a high paid tech job a year ago…seems fair?
I just fail to see why everyone in the comments here believes they deserve to be compensated at the level of the top 0.01% of all people without starting their own business.
Start your own company if you think it’s so easy to be a founder instead of an employee. Nobody is stopping you.
I also think it’s some crazy cognitive dissonance to assume you’d be able to walk right into a FAANG sr. eng gig instead. As if most startup employees haven’t tried before joining [insert startup].
If I join a lottery syndicate and it wins 100m but I only put in 1% of the syndicate amount say $100 do I not deserve $1m because I'm just a "whatever I am just"???
If it’s so easy to do that instead (and if you think that’s how startups work), why the hell would you join as an early employee instead of starting your own company?
Being a founder is a job as much as being an engineer is and being an investor is - especially if you get investors early and don’t take debt to capitalize the company (which you shouldn’t if you like your life.) If you did take debt as a founder, don’t brag about your bad decisions as if they make you special.
> I just fail to see why everyone in the comments here believes they deserve to be compensated at the level of the top 0.01% of all people without starting their own business.
No one is saying this.
There is no question that the Windsurf and Scale AI ploys effectively left employees with ownership in the company high and dry.
> but how much do you think you deserve as an employee
You deserve what you are promised. If a founder says you will get rich if the company goes to the moon, and they instead do some strange maneuver so only they cash out, the founder is a scumbag.
You are acting like early startup employees risk nothing working for a startup, and invest nothing of their own. Again, that is a weird assumption.
You do sometimes get the 0.31% of a relatively big number under a promise you tag along for two years and some more pocket change on top. Still better than just pocket change zo
These stories really kill the golden goose because it means a lot of talent just won't work at a startup.
YC isn't particularly great here either, they are pro founder but not pro startup employee. Most YC companies offer pretty paltry equity to even the first few hires - and that is even assuming you aren't going to get screwed down the line.
The risk-reward equation for startups vs boring-big-tech has turned completely upside-down. Back in the day, startups were the only lottery ticket to riches, not to mention do interesting work. But now, the tables are turned. For experienced engineers big-tech comps are attractive enough to put up with the office politics, and if you lucky do some interesting work.
The people who go to work for start-ups are usually young. There comes a certain time in life when you have a family that relies on you and you get old enough that you start to make plans for retirement.
That's when you get a real job at a very boring stable company and stop being delusional.
Well, that depends. I'm working in a startup and I'm in my 40's. Although it's a bit different than a typical startup, because it pays quite well compared to 95% of other offers in EU to live a very comfortable life in a not too expensive European city.
Yeah, the hours can be crazy but not too often. Yes, you're expected to give your best all the time but that's part of the fun. And the best part is the challenges are always interesting.
Maybe it makes it easier for me that I'm not at all interested in normal family life and never want to have kids.
This is a fair cautionary tale but it's worth understanding the specifics of the situation – Windsurf maintained a relatively easy to replicate product with no moat, and employed a bunch of attractive talent. The company got gutted of these employees and lost its valuation because no suitable buyer thought their IP was exceptionally valuable on its own. Just because this was the outcome for Windsurf does not mean there are no longer opportunities to join startups building sticky customer bases with valuable IP and walk away wealthier when they exit – yes there is a liquidity problem[1] but let'a be honest with ourselves about the specifics of the case for Windsurf.
I don’t understand why the specifics of the situation matters here. We know the company got acquihired for $2.4B, the problem is, why did all of it go to investors and founders and nothing for employees?
I’m not sure customer churn rate has any impact on liquidation preference.
Since others are sharing their doom and gloom stories - Mine is the opposite. I was hired at a startup, and I didn't even know what a startup was. I just liked the industry they were in and applied to join.
In negotiations I tried to get more salary, by taking less equity. It kinda worked, but later they doubled my equity to match other hires of the same era (but with a new vesting schedule for the new options). Then at some point I was fired without reason. The company went on to become worth a lot, and I was able to get out with enough to never work again and live pretty luxuriously. AFAIK others that were in my era at this startup did equally well, or many times better. It can happen, but I didn't ever think it was even possible because I didn't understand what 'options' even were when I was hired.
This was just a preference cliff, plain+simple. Windsurf got paid maybe $3B for itself. But the investors and senior management got their cut first. How? Well, the preferences they negotiated.
No one really knows how the game is played
The art of the trade
How the sausage gets made
We just assume that it happens
But no one else is in the room where it happens
#2 wasn't in the room when it happened. In a very real sense, he's lucky he got anything. Management owes a fiduciary duty to the shareholders and #2 is a shareholder. But negotiating the $3B covers that duty.
Doesn't seem that simple. They raised a total of ~$250m and acquisition price was almost 10x that. The preference cliff means that employees get nothing before investors get an X% return on their investment (100%, 150%, maybe 200%). After that, the payout should be proportional to common stock ownership. Surely the preference guarantee was not 10x?
Would be curious to see the breakdown of the $2.4b:
1. How much to the founders in Google employment incentives
2. How much in licensing fee to the company itself
3. How of the licensing fee went to immediate payout to VC investors (+ employees)
4. How much got left on the balance sheet of the remaining company
I don't understand how #3 can be so large and common stock holders walk away with almost nothing without breaching fiduciary duty?
The August 2024 Series C round (last of 4 rounds) for $150M could dilute+smoke the preference stack for any earlier investors of which #2 nominally was basically the earliest class member of. C gets preferences+participation. B+A get preferences+participation+anti-dilution. Common gets what's left which apparently wasn't much.
Fiduciary duty is very low bar. Management has to act in the best interests of The Company, as in, as a whole. The company != #2. Lawyers are not taking this case.
I'm certain the accounting was done properly, maybe even by a Perl script, and this is how it penciled out. The question for us stiffs is what can we learn from it?
My base salary was fine but the magic was in the stock.
I got a payout on acquisition by a FAANG+ (as first employee). It was only 300K but I put 50K of that into Nvidia. Actually I invested all my payout from my startup stock into tech stocks. And I got a terrific golden handcuffs deal.
- Did he take the offer or not?
- Did he forfeit the vested shares because he took the offer or because he didn't?
- What was he offered in return for forfeiting the vested shares?
- Did he get a payout of 1% because he took the offer or because he didn't?
- The 1% comment implies that Google didn't use the $2.4B to buy the shares of Windsurf; if not shares, then what did Google get in return?
Original citation: "I was given an offer that would explode same day. I had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf. I was ultimately given a payout of only 1% of what my shares would have been worth at the time of the deal."
That’s why founding engineers are such a raw deal. They take just as much risk as the founders but much less payout. Also on the hook to do most of the work.
It's complicated. The difference between a founder and founding engineer - I think you mean early employee - is pretty big. The fact that they are getting a "raw deal" in your POV should inform you that the equity grants are not related to risk.
This is coming from someone who programs for a living: contrary to what you are saying, the money guys take too little equity. The money guy being, the reason you are raising money at all, and not just dipping into your own savings.
No. The engineers build the product. They do the actual work. Let's flip your 'reason' around: the engineers are the reason the VCs have a job at all, since the entire point of the job is to find people building big things and funding them to get a cut. They are secondary, the actual product -- and the people who build it -- are what matters, morally and economically.
An engineer in a non-startup also builds the project and does the actual work. It's not special. Trading money and opportunity cost for sweat is what makes it equity.
Also, engineers are not the reason VCs have a job.
actually the big scam is the difference is not big at all, alot of times founding engineers do more work than the CEO. a startup that raises 1-3 million alot of times doesnt even have revenue. sometimes its just that the founder went to stanford, hires engineers, gives them lottery tickets, and hopes they produce good work
The details here remain unclear to me, and even this tweet is somewhat vague.
> I was given an offer that would explode same day. I had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf. I was ultimately given a payout of only 1% of what my shares would have been worth at the time of the deal.
Was forfeiting the vested shares conditional on accepting the offer, or did he have no choice over the matter? Was the payout what he was offered as part of accepting the deal, or was that his consolation for not accepting it? The wording is genuinely unclear to me.
I literally see 3 interpretations here:
1. Offer was to forfeit shares in exchange for 1% payout, but OP rejected and still has shares
2. Offer was to forfeit shares in exchange for undisclosed payout, but OP rejected and got 1% payout instead and still has shares
3. He had to forfeit shares regardless of accepting offer, got 1% payout
(1) and (3) are both shitty offers from Google, but (2) is reasonable. Exploding offers are not uncommon in tech acquisitions. My guess is that (2) is what happened, since that's not in contradiction with prior reporting.
The company should have been worth at least the cash it had on hand, which has been reported as ~$100M. It's also been reported that all vested equity and VC shares were bought out (although apparently perhaps with a few exceptions for people who declined the offer), which meant that the employee unvested equity stakes were "undiluted" from whatever they were before (hard to judge, but maybe 5-10%), to 100%. So every employee had their stake in the company increase 10x-20x. So if the company had then decided to simply close up and distribute the remaining cash as dividends to the employees, it would be as if each employee had simply been bought out pre-deal at a $1-2B valuation. And that was the absolute worst case scenario - clearly Windsurf found a better deal with Cognition.
Having been aquihired three times by FAANG+, the biggest take away is have accelerated vesting. To do that you got be lucky or in the C-suite. Being bought out usually sounds better then reality for everyone but a few that get that accelerated vesting clause.
Was this a scenario where he lost them because some sort of “cause” event occurred, like leaving to work for a competitor? I can’t imagine that would even be valid under CA law?
I’m not even sure who was forcing him to forfeit his shares…
Vest has two meanings: If it's a stock option, then it means you have the ability to purchase a share at a pre-determined price, no matter the current public price of the stock (or even if there is no public price). If it's a Restricted Stock Unit, it means you own that share.
I must be misunderstanding what he is saying, but I can't figure out what. Once his shares have vested, they are his. What entity forced him to sell his shares for 1% of what they are worth and how could they possibly do that?
Google did a weird thing where they poached windsurf employees, licensed their tech and hired the CEO and upper management, leaving a shelled out company behind
Looks like employees were given an exploding offer to join Google and sacrifice windsurf shares at a low valuation, or stick with windsurf
If you stuck with windsurf you then joined cognition in a later acquisition
Seems like that makes options completely useless. If they had actual shares they could at least sue because majority shareholders have a duty not to completely screw over the minority.
It has always been possible (and sometimes happens) for VCs and mgmt to screw the early employees.
The question is will it become more common now?
Also, people equate these to aquihire deals. But they are not really. Most aquihire deals are when the company is out of runway, or it seems growth has slowed/stopped and there are no good ways out. There is not mucH value left.
Here there is clearly billions in value, it’s just not being distributed in the normal way.
It’s breaking my brain a little bit that this isn’t a straightforward breach of fiduciary duties to the corporation and its common stockholders. If an acquirer can deal with top management and holders of preferred shares, and scoop out the crown jewels of the corporation, then what’s even the point of using a Delaware corporation to raise capital? Might as well just form a Nevada LLC using an LLC agreement that just says “good luck.”
Do you mean the Scale AI acquihire? I took it at face value that Alex Wang just joined Meta, but come to think of it now, the company's just a husk of itself, customers no longer trust them, etc. So, it seems you're referring to Scale.
It's not entirely clear, but I think Google/DeepMind offered him 1% of (what he thought) the shares were worth and then he refused and then the shares became worth almost nothing because Windsurf was just a husk of its former self.
Cognition made him a lightning offer it sounds like, valid one day only.
I think if I understand what he is saying he could either stick with the product and team giving up the shares, or keep the shares and try his luck getting money for them another way.
I appreciate that his choice shows that he is in it for the product and the team, but also ouch.
Whichever entity ended up buying Windsurf, the corporation. They get to declare the exchange rate, and for what. Sometimes it's cash, sometimes it's stock, usually it's some mix of both.
When joining a startup, the most important factor isn’t the idea, product, or the VCs: it’s the founder(s).
Think like an investor. Would you back this person? Are they ethical? Are they resilient?
Also stock options should not be high on the list. Most startups fail before founders or VCs even get the chance to screw you over. In 99% of cases, nobody wins.
When people give you a percentage (1%), that is a ratio and they are not telling you either number. So, that makes me a little suspicious. I wonder how much he got in the end?
I feel like there needs to be the analogue of open source licenses for equity offers. Something standardized, so that both employees and management could negotiate in good faith with high confidence that the terms are as advertised.
Because right now, there has been too much innovation in ways to screw over employees and the only reasonable assumption is that equity will vanish.
For some startups (mostly dealing with local and self-hosted software), it may be a better option to offer perpetual license grants to the product being worked on as opposed to equity in the startup itself. This encourages employees to make the best software if they know that they are also going to be the end user as well.
I am surprised that the employment agreements between execs/founders and Windsurf didn't address this. A cautious investor--or even a cautious key employee joining the team--would have locked the founders and key employees down to prevent them from being hired away without some recourse. This is especially important when all of the value was in the employees. There should be lawsuits forthcoming...
Non competes are illegal in California, there is no legal way investors can lock founders and employees down. This is venture capital investment risk. The employees, who are most of the value (aside from potential IP and customer contracts), can walk at any time.
I understand your clarification. You should be able to use vesting schedules, right of first refusal to counter, careful definition of IP and trade secrets with assignment to the company, right of repurchase of shares, etc.
This is indeed venture capital risk, but this case lays bare the exorbitant amount of risk for investing in these types of companies--perhaps especially in California?
Unless investors and management are unwilling or unable to counter a superior offer. “Pay them more” works when willing and able. Otherwise, bounce. Comp is king during a gold rush you’re unsure how long will last.
I’m afraid behavior like this will only get more common and really shines a light on what a bad deal startups are for anyone but VCs and founders. Windsurf founders should be ashamed of themselves, but of course won’t be.
Can someone explain how that worked? How was the CEO allowed to sell license AND talent to another company? Wouldn’t that screw investors? Why would they allow it if their stock becomes worthless after that?
i had many startups reaching out over the years but i just could not make the numbers work to make the shift.
it's not uncommon that a regular salary from a big tech in the bay area would amount to ~$2M total after 4 years (considering stock appreciation).
if you were given 1% of equity of the startup then start up has to worth $200M after 4 years. or more likely you would be given 0.1% of equity of the startup, and then it has to worth more than $2B, in order for it to make sense for you.
Title should be changed. Sounds like this was a choice not a fuckover.
That said...
Don't be a fool for all these AI startups that want you to burn out on 100 hour weeks. Many YC and non-YC startups are using this bravado based hiring strategy trying to get cheap labour to fuel their rockets to the moon. Don't be no fool!
Every time... The salary or fee what you trade your life for, shares might multiply that. Might. If your base salary is low 'because you have shares', you will probably never see a return: the idea this is loyalty or something is some weird thing; don't do it unless you love it and want to spend that life blood without a return.
So if one was to start a company today and wanted to enshrine employee-and-founder-friendly terms in their company, how should things be structured? Make the founders' shares be of the same class as the employees? Something special?
Where can I real the actual post you are mentioning? The tweet only mentions "had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf", which seems to conflict with your "before his shares were vested" statement.
Financially speaking, is it even worth joining a startup anymore? Compared to just going to any of the big companies. The latter will likely pay you more, with less risk involved.
Seems like the best shot is to strive toward becoming financially independent, and then just go for the startup route and follow your passion. If you it doesn't work out, no big deal - if things turn out great, you'll just be even better off.
Has it been worth it in a while? This is a legitimate question as I am on the east coast and wonder if it differs from the west coast environment.
At least in my anecdotal experience, everytime I’ve entertained a startups offer in the past decade it’s been either something like engineer #1, 3% equity and no you cannot see the cap table or other agreements with investors, or something like 10k units at 25 a share when we’re on series z, and you lose them if you leave, and you can’t sell for 6 months if you leave, and the investors have priority on payment if we sell for less than our valuation and yadda yadda yadda.
I mentally just valued the equity as 0 in the compensation with all those limitations on liquidating them and never understood why anyone joined a startup
Oh also there is the trick where the startup gets sold a little under its strike price and the execs each get signing bonuses > book value of company as sold
Was there ever a time when you could reasonably expect to make more money by joining a startup? That has never been the case so far as I am aware, and I'm currently on my seventh tour through startup-land...
It was always a bad deal. It was supported by urban legends of janitors and cafeteria workers getting seven-figure payouts because they negotiated a few shares of a company that went IPO and went "unicorn". But the reality was, most startup companies failed, and most shares became worthless. In 1995, 2005, 2015, etc. it was the same story.
The only thing that changed recently is the "unicorns" stopped happening altogether.
The startup I did in the 90s provided me enough money to buy a car when they IPOed. Feh! Not worth the dreams I still have about having to return to working there.
It feels like it is worse now than it used to be. Back in 2010, you would be giving up a nice salary but not a much nicer salary by working at a startup.
So, startup base compensation hasn't kept up, and the career and financial risk of working for one has gone up due to higher interest rate and higher open-market asset prices.
I did a startup circa 2010, early number employee, given our (failed) attempt and my equity I would have conservatively walked away with a $500k sum had the Founders’ plans worked. That would have bought me a fine house in the nicest part of town with cash to spare.
Having done two more, the best outcome I’ve seen is a 50k post tax payoff for 5 years of shitty startup conditions. Great, I got a down payment on a house now worth 800k.
So that reason the best play, if you’re not a founder doings cash out early, is to just play it safe in a big job and dock money away in equities and real estate.
Base salaries aren't terrible at startups, it's the RSUs and ESPP they can't match. I can deal with a terrible IT department preventing progress for double the money, it's fine.
I really cannot, so - good for you! It takes all kinds.
There is nothing I could do for pleasure, even with double my salary, which would compensate for the misery I would feel working a job I hated. But that's who I am, and we're not all the same!
2010s startups were a lottery ticket with bad aggregate odds but real upside. If you wanted to make a risky bet, or if you believed you were better at picking winners than the rest of the market, there were some real opportunities to be had. If the new trend is a cabal of investors and executives hollowing out all the upside, in the rare event of a success, that's stark.
I am of the firm belief the solopreneurship is the future, especially with the power of AI. I don't believe corporations of any type, from startup to tech giant have the interests of anyone but the majority shareholders in mind. Employees, customers, partners, all get the shaft. When money is involved, startups aren't product companies, they're financial instruments.
> Seems like the best shot is to strive toward becoming financially independent, and then just go for the startup route and follow your passion.
This is what I’m trying to do now. Having worked in startups and big tech; I think the best thing one can do is to attempt to forge their own path. For independence, financial gain and sanity
It's generally not a good sign to me that this is the case. But I think you're right. Something needs to change to make startups feel more viable again.
That stinks. I'm sorry. The founders could have taken part of the proceeds to at least adjust your upside with a transaction bonus. It's pretty easy to do.
A lot of bias against startups in the comments. These are missing (1) how terrible the working conditions in bigco have become in the meantime (2) truly good startups (they exist) that pay solid base salaries
The odds are clear as day. ~90% of startups fail, and the truly good ones are very rare. Do small pockets of good exist? Yes, absolutely. But most of the startup ecosystem is convincing employees to grind for peanuts until founders and investors (whether that's accelerators or institutional) hit liquidity (if ever). Of course, if you find the unicorn (good comp, target work life balance, meaningful work [to you]), hold on tight and don't mess it up.
What I find amusing is that YC’s Garry Tan is going around explaining to Prem how he actually got a good deal and that the Windsurf founders were very generous to their early employees. Meanwhile from his perspective he joins a company with friends he’s known for years, takes on basically the same risk that the founders did, probably gets some fraction of the equity they did for that work (10%? Less?) and then when payoff time comes he gets cheated out of that too.
If I was a venture capitalist dependent on 20-somethings believing in the dream I sold them maybe I wouldn’t write snarky replies on them on Twitter when this happens and actually look into fixing things for early employees (like, maybe, giving them similar terms that the founders get), but that’s just me I guess.
Holy shit. We need need better early phase governance tools than handshakes and winks. The SAFE was written to streamline things so that everyone can get to work right now with a reasonable basis of trust. How can we have that basis of trust among founders and early hires when stuff like this happens?
If no founders can be trusted, sweat equity partnerships will become rare. If the only people who can build companies are VC funded founders who hire employees who treat the whole thing like a game, there will not be a good crop of companies to come out of that environment.
Founding is freaking hard. It needs to be reliably and fairly rewarded. Otherwise the people trying to bootstrap and make things happen have nowhere to go if the idea they are completely convinced MUST be built is also a hard hard sell to VC hive minds... because it's too oddly shaped (innovative).
We all have an interest to put the instruments and paperwork into place to make stories like this NOT happen so that sweat equity startups founded on personal convictions and strong cooperative incentive alignment will happen.
this is something that my feeble European brain will never understand: why people in American start-up keeps getting scammed with pseudo "private" equities, stock options, that are not on a market, and therefore cannot be priced? equities surrounded by very obscure (or no) legislation, that if you get fired or decided to leave you cannot keep. it just make no sense but americans loves them.
European salaries are laughably low even compared to low ball offers from US startups.
Essentially options for good (but not great) sr engineers are
1. Get 120k salary in Europe (on higher end)
2. 500k at FAANG in US (salary + RSU)
3. ~200k at startup in US + lottery tickets
Both option 2 and 3 strictly beat option 1 (especially after taxes) so European should get off the high horse and recognize reality that they are poor and exploited by companies and government.
why would anyone work in startups as early devs anymore. Tell me what is the upside? There seems to be only downsides.
Startup Fails , you loose - Gets acquired - you loose
What is the motivation to perform .
If you want to write new code and have a lot of influence over the overall implementation instead of fixing bugs on a years old steaming pile of tech debt.
Not all places with large existing codebases are that bad, but if you are experienced, it can be very personally satisfying doing something well before it has degraded over time.
I have worked in quite a few. One is a household name down here in Australia. I was the first engineer with the two founders. I worked 2 years 24/7 for half the salary I got when I left. I'll never get my money back but that's ok as I loved the time there.
You can do that at established companies. If the cool thing comes to an end you'll often have a boring job you can keep or stay at while you find something else.
faang has sucked the oxygen in the air. For experienced engineers, the one upside to startups is if you are a founder and you are creating a change you want to see in the world. But this delusion is shattered as time goes by and you realize that you are only a cog in a smaller wheel, whereas, in bigtech you are a cog in a bigger one.
On average, startups tend to have a better culture due to the incentives at play compared to big-tech. And that attracts engineers regardless of the comp.
A lot of this industry is focused on early stage startups as a path to financial success. The rules and laws around this don’t tend to protect even early employees much at all. People depend on social norms for what to expect. Shifts in the norms are of interest.
Everyone thinks they are the next random person who wins the startup lottery. Dreams of 50 million dollar paydays are brought crashing down when they realise they will be lucky to get 50,000.
Engineers: always negotiate for higher base salaries. In the vast majority of cases—especially during acquihires—your equity will be worth little or nothing. Founders and VCs still get paid; employees rarely do.
Don't just accept promises. Ask for the 409A valuation, liquidation preferences, and pay bands. If a company won’t provide transparency, that’s your signal.
Equity is a lottery ticket. Salary is money in the bank.
my equity from 2years pre-acquisition: ~$2800. Then the CEO gave out bonuses when everyone threatened to quit. Then after his 3 month vacation to Italy, he came back driving his new Ferrari.
My equity from 4 years ( employee ~60, grew to over 500 ): worthless. No one is able to exercise any options. They also readjusted when the valuation came below the total raised, making the value of my vested shares ~$13k ( down from ~$200,000 ) . They 'made us whole' by giving more shares with a new 4 year vesting schedule.
Startups have found ways to fuck everyone but the investors with equity. It's confederate dollars; funny money. Maybe some people get great deals, I don't know. From my limited experience at very successful startups, the only people who made real money were those able to parley huge bonuses or base salaries.
The fun part comes when you put in 20 years doing this, and your dream is to buy a nice house, and you finally get your seven-figure payout, and.... it's not enough to buy a house. Because now a house is 3 million dollars.
What kind of house had you been dreaming of? I live in SF, and even here $3M goes an awfully freaking long way.
I'm in Santa Barbara, CA. Good friend of mine just bought a shithole 3-2 1300sqft for $2.2m. $3M doesn't go very far considering 30 years ago it was retirement status almost anywhere.
I could retire on 3 million right now.
I don’t get it, at this point you move to Baja or Portugal (for similar climate) and live like a king without ever having to work again (unless you want to). Or a cheaper east coast state if you wanna stay in the US on the coast and have access to to all the same fast food and Walmarts.
Here's a $2M 4-3 2279sqft very-nice-looking home in Santa Barbara:
https://www.zillow.com/homedetails/5436-Agana-Dr-Santa-Barba...
offtopic, but I love comparing realtor glamour shots HDR'd out the wazoo with StreetView
https://maps.app.goo.gl/2aEXsdH9hU3o4SZw5 (winter, March 2012)
Aside to the offtopic: I'm surprised the google street view footage is 13 years old.
that's not a glamour shot, that's just a sunny day. the dirty little secret of the southern california coast is it is cloudy more than half the time. west la, downright depressing. they call it "the marine layer", i call it cloudy as fuck.
Still not bad
so much space lost to cars...
You're making his point.
4br in only 2k sqft? For 2M? Please...
I'm not saying the prices are reasonable.
I'm saying $2.2M for a "shithole 1300sqft" doesn't make sense when you can pay $2M for a nice 2279sqft.
I have to ask, if they have access to get a loan of $2.2m then the friend could likely save for 5-7 years and just retire someplace cheap. Like, spending that much seems wild given the implied access to straight cash.
But you can always sell the house later if you want to retire somewhere cheaper. It’s not like you losing the money forever.
You do have to pay interest taxes and maintenance, whether that exceeds the rent for an equivalent property is another question.
Yeah but let's keep the ponzi going people!
Yeah they been printing alot of $
His stupid idea to buy in a place that has gotten more expensive than almost anywhere in the country.
I can cry that my dream flat in London is more expensive than I expected 30 years ago but that just shows how stupid I’ve been the last 30 years
anything within 45 minutes of your office in palo alto (where you are mandated to show up 5 days a week). this will get you a 1300sqft piece of shit built in 1964 with asbestos and lead paint and lead pipes and a cracked foundation (also some dipshit realtor had them paint all the original wood beams and paneling inside gloss white and replace the original wood and slate floors with grey vinyl) from some baby boomer forklift driver or mailman who paid 40k for it (you will pay 40k per year in property taxes for it), all for the privilege of “only” spending an hour of your life a day commuting so you can sit in your assigned area of your open concept office with noise canceling headphones on zoom meetings for 4 hours a day surrounded by other people on zoom meetings who also just expended a collective 5000 man hours and countless CO2 emissions to be there.
Every now and then I dream about how much more money I'd be making if I lived in the Bay Area, but then I read something like this and realize that earning ~half as much working remotely from a cheaper (at least when I bought) city maybe isn't so bad.
They are greatly exaggerating. One tangible advantage to living somewhere expensive with higher salaries is that anything you can buy online is effectively that much cheaper. An iPhone costs the same in Arkansas as in San Jose, so you'd end up working many more hours to buy one in AR than in CA, on average.
Yes, housing is more expensive. A lot more. Everything else is way cheaper.
Thank you, so many people like to go about cost-of-living and pretending things are equal because of that, but the vast majority of goods people buy are not priced that way, and in truly remote places the cost of goods actually go up. The land or housing might be cheap, but pretty much everything else costs the same, so the lower paying job still hurts.
I would say the vast majority of spending is affected by COL, since it’s all incorporating price of labor. Maybe not the majority of goods but that’s often a smaller part of spending.
I will say though that travel is the main one that’s obviously independent of where you live (at least mostly). So that’s kind of nice.
Services are also more expensive because the person performing the service must pay the high rents, too.
Not proportionally more, in my experience, and surely not for people moving here for the kinds of jobs we’re talking about.
I forgot to factor in the time/quality of life cost of dealing with snow, winter heating, shoveling drive/roof, driving and driving risk.
The trick is to rent cheap and live like a college student in SF/bay area while young, save aggressively, invest intelligently, then move somewhere comfortable but more affordable (CO's front range is lovely) for your 30s/40s.
Just watch you don't get overly acclimated to the weather, or you'll end up with a single-digit number of cities in the world you find comfortable
I'm so so so glad I didn't spend my twenties working and saving.
I've lived a thousand lives, spent most of the time as true quality time with people I love, and I still have a few years left in this decade of my life.
And I'm still further ahead, financially speaking, than >99% of other people my age. (To those asking, I tripled down on life after getting a remote job.)
The one year I spent 9-5 in an office as a traditional SWE was by far the quickest and least eventful year of my life. Also probably the saddest.
I'm very glad I just said "no" and walked away and simply lived. It was absolutely worth the risk. I would never trade these years for the ability to buy a house in the Bay Area suburbs.
I probably will be able to do that anyways, if I want to, even though I don't.
Or you could spend half that in the heart of SF and have a nice place in a decent neighborhood: https://www.zillow.com/homedetails/1265-Union-St-San-Francis...
It's not that it's cheap here, not by any measure, but it's not nearly so dire as y'all want to claim.
With $3MM you could just stop working and live in many other nice enough places without ever having to work again.
Buying a $3M house does not mean they have $3M cash
Except you’re a wage slave and your American Nightmare comes with a mortgage, your sizable interest payments are likely funding the retirement income of a boomer too (along with bankers too, they always get a cut)
3% of 3 million is 90k which sounds better than it actually is as you need to pay for health insurance.
Plenty of people live in any city with less than that, but it is below the average income in many nice counties in the US.
90K is still 50% above the median income, not to mention the fact that you have twice as much as time available and using just a small amount of that can be used to cut costs significantly in other areas. It is more effectively a $150K income if we add in the median wage from the job you aren't doing.
Nationwide, the US median income for full-time workers is over 62k without considering benefits, but many areas are well above that.
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This. I moved in a developing nation with a GDP smaller than most US states. I have access to excellent modern healthcare and facilities, get more than 5 minutes in front of my doctor, often 1/2 hour+, and my (nearly 60 years old) health insurance is less than 75 usd a month. Covers 90 percent plus, including mental health, limited dental, and optical. The healthcare sector is private / public hybrid, profitable, and growing. Hands down better in every way than the US state I left.
May I ask which nation?
Dominican Republic. The medical tourism industry here is booming as well. The public sector facilities are not as nice, but you can get free care for the vast majority of basic things that a person needs, without worrying about a bill. Still, people that can usually use private clinics because the experience / comfort/convenience is much better.
What they do subsidize here is education. Anyone with the drive and family support to do so can become a doctor, but you have to do a rotation in the public medical facilities to maintain your licence, and all public hospitals are teaching hospitals, so your case will be observed by 10 to 15 students and a bunch of residents if it’s interesting.
The system seems to work well.
I should also clarify that 75 dollars is about a weeks wages here at minimum wage, so roughly equivalent to $400 in the us economy. That figure tracks for most cost of living expenses here, except luxury items which are typically more expensive here than in the USA.
That’s the description of most European countries.
lol no. Private health insurance in Germany is ~800-1000 for a 60 y.o. – public insurance might be cheaper, but you need to qualify for that when you move here by working as an employee when you're that old. Working permission will require you to work full time. So you'll end up working full time and pay ~600-1200 (based on your salary) in contributions.
I never said public healthcare is free for strangers. It’s rarely the case.
Most of the time if you are not a citizen you need to either work or pay taxes. In fact even if you are a citizen, you may not be covered if you live abroad.
It’s relatively easy to be covered as a stranger : in 99% of situations, if you just set up here seriously and not as a tourist, you’ll be covered. I count a 60yo who never contributed to the system or worked here as a tourist.
Yeah, I run a coffee /cacao farm that employs a few locals, but obviously I don’t qualify for the government insurance. My insurance is private/ un subsidized.
I think you mean “immigrant” rather than “stranger”
You pay for health insurance in every single county, either directly or through higher taxes.
Except that through taxes, your coverage is not dependent on your contribution and your contribution depends on your revenue.
Typically you contribute nothing if you have no revenue and you are still as much covered as the next rich guy.
That’s a huge difference. It means that you can see a doctor or have an ambulance transport you to the hospital for an expensive emergency surgery for 0€ whoever you are. And for the expensive drugs you need after that ? That’s still 0€ with no paperwork.
But to be fair, I’m exaggerating. You may have a 1€ franchise when you see the doctor.
In the United States in particular, though, you pay twice - once for the healthcare, a second time for all the bloat and waste that comes with it.
Yea, exactly.
You pay for healthcare in -any- system, even a completely communist/socialist system. Healthcare costs resources which much be allocated to a greater or lesser extent.
Problem with the US system is WHOM do you pay. Ultimately, to a degree perhaps greater than almost any other nation - you're paying quite a lot to stock holders, both public and private, stock holders of insurance, stock holders of pharma companies, stock holders of pharmacy companies, stock holders of EMR software (private company, Epic), and I'm sure, many other for-profit companies. Hospitals tend to be the only technically not for profits in the equation, as well as healthcare groups, but even then these groups tend to operate in a for-profit manner in service of ambitions of regional growth
1/3 of US medical spending could be avoided by moving to an efficient single payer system.
But, a lost of ‘waste’ is diminishing returns where there’s some benefit to the procedures preformed. It’s easy to say paying 1 million for an extra week is a poor investment, until it’s you making that decision for a loved one.
Paying 1m/week is objectively a waste when you're refusing to pay 100k for a year, though. Healthcare is paid through insurance, so there's real meat to the loved one distinction - you're not actually making that decision for your loved ones in 99.9% of cases even in the US.
Yep. And it's about 2% of my tax, which isn't noticable.
Unlike getting anything more serious than a cold in an idiotic, backward country without public health care.
US is an outlier by spending 17% of GDP on healthcare requiring high insurance costs by 9-12% is common in most developed countries requiring not 2% of your taxes by ~10% of your income. https://en.wikipedia.org/wiki/Health_spending_as_percent_of_...
Even in China you’re looking at 6% of income. Of course taxes aren’t evenly distributed, but 90k means enough income to be worth taxing without the political power to offload the tax burden on others.
Looking at that table you shared, it seems the US spends about 50% higher (17.2% vs 12.3% and less) than any other country on that list.
And it still has extreme problems for anyone with an illness more serious than (say) a cold.
You’re misunderstanding what the issues with US healthcare are.
I’ve had significant medical issues in the US and received truly excellent care without significant out of pocket costs, the same is true for many of my friends and family. There’s a reason there’s significant medical tourism to the US and from the US. However on population wide measures like life expectancy you’re better off providing basic care for 100% of the population than world class care for 40%.
There’s also major underlying issues like decades of obesity and ignorance around ‘alternative medicine’, vaccines, etc.
That is a tenancy in common 2 bedroom apartment not a house. Shared ownership of a 100+ year old building with "leased" parking 2 blocks away. Not exactly the home ownership dream.
Luckily you can live in a city and then later sell that appartment and buy another house in the sticks that is the dream.
Then click around to find something more your liking. There are a lot of places for sale for under $3M that aren’t exactly a tent under a bridge.
I own one unit in a 2-unit condo built in the 1910s in SF. It’s pretty fucking dreamy if you ask me.
different strokes for different folks. I can't fucking stand hearing every breath of every neighbor in a 100yr old SF house and having to tiptoe at all times so as not to upset the other tenents
I am almost never aware of my upstairs neighbors, through two pairs of them, including a dog and a baby.
That too for $1.5 million. 99% of Americans would picture a mansion when they think of a $1.5 million home.
Hey now, around 15% of the population live in CA or NY so I think your estimate is too high
Redwood City is 20 mins from Palo Alto and has a lot of houses for $1-1.5M. $3M means you are paying extra for something optional. It’s not the minimum requirement.
Lots of people are paying millions extra just to live up winding roads on a hill, where the commute is longer, and you need a geotechnical engineer to design your patio.
Redwood City has terrible schools (relatively) and many people consider excellent schools for their kids as hard requirement.
School quality in the Bay Area is a red queen’s race, and a pressure cooker environment is not good for the kids. Apparently the solution is grade-separating Caltrain.
it’s more like 30-50 min with traffic
30 mins - possible with traffic, especially to a far corner of Palo Alto.
50 mins - what on earth? Take the train. Even a bicycle would be faster.
And here I thought I had it bad when houses went from 400k to 800k for the same house pre- vs post-pandemic in Raleigh, NC.
I remember being a young junior engineer, my manager had just bought a nice house in the good part of town (Charleston, SC) for about 350k. We had a good “be smart with your money and this could be you too in 5 years” conversation. I think by the time I was ready to buy that house had jumped to 600k valuation, these days it’s close to $1M in valuation.
Only way to get a nice house for 300k now is to work remote in some podunk town for a big city salary.
The median income in the Bay Area is around 120-180k. You aren’t buying a 3m house for that, so how is it all those people somehow survive?
Some anecdotal data points from a guy who lived in the Bay Area when poor people could afford Redwood City and just returned from a family event.
1. The neighborhood I grew up in in San Jose has 3, 4, or even 5 cars in front of every house. My working thesis is that despite being small, these are multi-generational homes, probably with the notional homeowners being the ones that were living there back in the mid-80s.
2. My aunt lives in a much nicer part of San Jose in the house that her husband inherited from his parents. Many of the other neighborhood homeowners are in the same situation, although there has been some flipping going on.
3. Three more boomers at the family event are all living in inherited houses, including one couple that has a pair of houses that they each inherited from their respective parents. They're not renting out the surplus, but instead have turned both into animal rescue sites.
All of these folks are grandfathered in to extremely low Prop 13 property taxes.
I don't think of it this way often, but damn am I glad I left the bay area
I can’t help but miss it, even though I desperately needed to get out too.
I miss knowing where the darkest place is for 50 miles in all directions. I never got to bike highway 1 from SF to Big Sur. My boyfriend and I would have an easier time finding jobs there. There’s better roads for car enthusiasts.
There was a lot of depressing tech saturation in the Bay Area, but there’s still good pockets of the pre-software culture around there if you’re willing to live towards the edges and look for the weirdness.
5 plus years on, all that I really miss consistently is some of the food options there. Everything else you can get elsewhere, for cheaper, and in a lot of cases better. And I know I can't go back to my food options there because half the restaurants I used to like are gone and the other half have changed ownership
I think you just illegally accessed my brain…
Are you the kind of person who refuses to go to the east bay or live next to middle class Asian Americans or Latinos? Because there are plenty of nice places for 3m 45 minutes from Palo Alto. Arguably you could get a house on the south side of the city and be 45 minutes from downtown PA by car or Caltrain.
Pitching a 45 minute commute as as something as acceptable for $3 million is insane. It has nothing to do with class. That’s a shit life driving that every day.
I do a minimum of 2 hours a day. I think people in this particular conversation might be just a little divorced from reality.
I've spent all my working life in jobs with the rule that the commute should not be more than 30 minutes by bike. I'm now 62, and that's one life choice I've never regretted.
So? My point is that’s a miserable life to put up with when you can afford a $3 million dollar home.
8% of your waking life going to and from work without getting paid for it is dumb
I honestly don't have a lot of options. I've got bills to pay.
i live in RWC
And those who live in Silicon Valley are the supposed winners.
It just doesn't stack up. This world is cooked. The steak used to be medium rare once upon a time, but now it's pure charcoal.
All of this
You should have bought in when Prop 13 went into effect, you’d only be paying $3k in property taxes today instead of $40k.
Or inherit the Prop 13 rate from your parents.
There’s some restrictions on this now though. It’s not as great as it was before.
I voted against prop 13, but now I like it living in a house in Westchester for 44 years.
$3m cash will get you a house that you have to still pay $60k-$100k a year to stay in property tax and maintanence
Property tax rate in SF caps at 1.38%, which would be ~$40,000/year. How are you spending $60,000/year, every year, on maintenance and insurance? Are you saving up for a new solid gold roof for every decade?
My average has been around $30k/yr but my house is worth well under $3m so I could see it being closer to $60k. I do include some remodeling in that figure, but things wear out and you aren’t going to want to live with a decrepit interior in your $3m house…
$3m mortgage as well
for a standalone house in my area (lakeside near Zurich, Switzerland) you'd pay way more than 3M... apartments go for 2+.
Intrest rates for morgages in Switzerland are around 1% and for tax reasons most people only pay off a third of their property. The payments are very managable, as long as you have the downpayment. You can't fully compare this with a similar price in the US where interest rates are much higher and people pay off the full morgage.
Couldn't you just not live "lakeside"?
of course that's an option. then you can get a house for a measly 2 million! public transport will only take an hour or more from there .. :)
my wife doesn't drive and we wanted to have access to good public schools and good transportation. this is not a given if you go more rural. The postbus goes maybe every hour or so.
the lakeside communities near Zurich are great and all of our friends live in one of them (on the same side of the lake of course). not living here would have severe effects on my wife's and our kids' social lives.
Maybe OP wants a house in atherton next to andreessen.
I'm guessing it's a very select group of people who want a house next to Andreessen...
If I had to, I would pay just to live away from that select group.
This is the cheapest house in Atherton at this moment
$4.888
https://www.zillow.com/homedetails/86-Rittenhouse-Ave-Athert...
$3m is a pretty decent down payment for that.
My point was that you could grind for 20 years and get $1 million payout. Or even a multi million dollar payout. And your reward is that you have to keep on grinding for the rest of your life.
$3M is this 2,240 sq ft home on a 5k sq ft lot in San Mateo, and as far as house amenities/quality, this is pretty unimpressive.
https://www.zillow.com/homedetails/221-Woodbridge-Cir-San-Ma...
One block from the freeway, no less.
Convenient for the commute.
At some point, aren't the C Suite and directors failing their fiduciary responsibility? I know they have broad freedoms, but when you're reducing an a minority shareholder's equity by 95%, it's well past "fiduciary responsibility" and looking like fraud.
I am convinced every executive and wanna-be executive is on the 'inside joke' of funneling money out of the company into their pockets.
I am also convinced that investors believe it's the C Suite's responsibility to tear away any equity from employees to leave the largest pot for investors.
ive been in these rooms and heard the conversations, employees are seen as disposable liabilities
YUP
Terms and phrases I've heard verbatim from investors and/or founders:
"There's a thousand ways to screw minority shareholdeers."
"Cram-down" (repeatedly, like it is an ordinary thing to do, effectively repudiating or diluting away entire classes of debt and/or equity)
"I hate to lie, but you often have to." (said as if there is no choice in the matter)
"You have to screw the other guy before he screws you."
"If there's a problem in a joint venture and you put out the resources to fix it, you're the chump."
It is a good idea to not do business with people who say these kinds of things.
It is delusional to think you will be the special one who they actually treat fairly and not be targeted by their greed and lack of ethics.
If you are really lucky, you will escape and find an attny willing to take your case and win a lawsuit and still get to chase them for the judgement.
The only winning move is to not play.
(Not to say there are no honest ones, but it is really getting scarce, and many honest ones have left the biz.)
[dead]
Can confirm from my experience. Although not everyone is like this. Sent me into burnout that I didn't wanna be a dick and extract as much "value" from the employees by walking over them and fucking them over when the chance arises. It's always empty promises to string people along. From my experience, these people (the resource extraction dicks) are also some of the must unlikable and unhappy people I've ever met.
This is what it means to own
Anyone that doesn't think this is delusional.
Of course. So if you’re the employee, you’re going to sue? If so you’re paying for your lawyer, and the company is paying for theirs. Guess who goes broke first.
Sorry to hear that =/
Work for good people with a history of moral dealing. A family member just had a life-changing payout because leadership was generous. A friend walked away from a company pre-pivot without equity for what became one of the decade's biggest acquisitions.
This stuff is lottery tickets, but real ones. You need to be smart about who you make your limited bets on.
And agreed, big cautionary note here shows that Windsurf having "founder-friendly" investors does NOT mean employee-friendly ones.
I often see job postings here looking for "top <1% engineer talent" paying $100k and <1% equity and I wonder who is actually applying.
they have to say this to safe face. people who're interviewing most of the time can't even tell if it's a 50% engineer
Not a 1% engineer
No one will say: we are looking for cheap mediocre talent with no intention to grow, just to process assigned Jira tickets. Even if that is the actual truth in many cases.
I know this is HN but imo it's rarely ever a good deal to work at startups as an employee instead of a cofounder (with actual cofounder equity not just the title i.e. within the same order of magnitude as the largest-shareholding cofounder), over a bigger established company.
The only good reasons to do so are if you want to learn or make contacts so that you can found your own startup later.
In my pensive moments, one of the things about humans that makes me go "god damn" is how little money it takes for insanely talented people to just come and work for you.
The other good reason is that you might enjoy the experience more than you would enjoy the stultifying, oppressive, slow-moving environment of a big corporation. That's why I keep doing it: I'm not expecting to get rich, I'm just trying to live a good life, and it's proven to be much easier for me to do that when I work for a startup.
I value startup equity at ~$0, but if the salary is enough to live comfortably, that's fine.
I don’t think that’s entirely correct.
You need to work with good people. There is no substitute for ethics.
Also you need not go for roles where they offer .3 % and make a big deal about it. Don’t take less than 1% minimum and as soon as two years pass by and you have carried your weight start looking for a new job. If they value you they will bump you up. It they don’t you will bump yourself up by going for a new job. And don’t be afraid to go for competitors if you believe in the value of the space.
The startup I work for keeps my employment because they keep bidding competitively with the investment banks I would otherwise work for.
They have the cash, if you have the leverage. Use it.
The basic idea is that you either have stock, preferably founder levels from 10% up (which is itself a lottery ticket), or you hold retiree bingo cards. The retirement home provides the cards for your entertainment, but the real owners of the establishment, the founders and early investors, know the only way you can earn the big prize is at their expense, so they have a vested interest to see you fail - and they are the ones printing the bingo cards and setting the rules.
Paid more taxes on RSUs than I'm going to get post IPO. Company took investments on insane COVID valuation and then needed more money posts COVID which tanked it.
I worked for an ed-tech startup as employee number 4, joined when it was obscure; not even in the Alexa top 4 million rankings and almost no revenue. The founder was really good though and gave everyone shares instead of options. I got a bit under 0.2% equity in the company. The company grew (slowly and steadily) to $6.5 million USD revenue with about 10% net profit margins but its last valuation (over 10 years later) was like $8 million USD. They charge like $15 USD PER YEAR PER student for their product so very cheap; I feel like they could easily increase the prices given how widely used they are in my country (over 30% of students in my country use the app).
I had the option to sell some equity recently but it would have only been like $16K USD so I held... I had about $9K taken out of my salary to pay for those so it doesn't make sense to sell given the massive growth the app and not that much dilution... The financial gain barely covers the inflation.
It feels like both revenue and profits have been kept artificially low. $6.5 million per year revenue, still growing steadily, with a loyal customer base with 10% profit seems really good... A valuation of $8 million seems ridiculously low... Not even 2x revenue, for a tech platform with good lock-in factor (they sell a lot of licenses to schools)!
It's kind of amazing how bad a deal it is to work for someone else as an employee. Even if the founder is good and generous in many ways and the business side (which you have little control over as a developer) happens to work out pretty well, they can still pull all sorts of levers to make the deal bad. With this one, I'm going to wait it out 20 years if I must. A lot of the game is just timing, you gotta wait it out, sell at the top... Some people see a peak opportunity to cash-in multiple times in their lives, some people never see it! In my case, I haven't seen the top yet.
I never had any opportunity to make serious money ever. Never had an opportunity to pull the trigger and make even $100K. The best I ever got was in crypto, my crypto was worth $100K but I was earning like 100% annual yield and required a 1-month unlock period. So I made more than that by holding it for 3 years anyway...
I think my career story so far is quite interesting. Probably more interesting than 99% of the classic SV startup stories (at least what they say publicly). I've done some things nobody else has done. Made money in truly adverse environments where a lot of people hated my guts. I've seen people behave in strange ways. At times, I felt like I was almost breaking through the membrane of 'the matrix'; almost transcending my social class. But all I got for it was 3 years of passive income. I never had the opportunity to cash out big.
It's tough out there, so tough, it often feels fake/artificial. Often, it feels like you have to be 'chosen' and that's all that matters. Your work doesn't matter, how talented you are doesn't matter, how lucky you get doesn't matter (besides the luck of 'being chosen').
At the end of the day, money is like a river and people upstream from you get to decide whether or not the river will flow in your direction. When you understand that new money is created constantly and, just like the river, the water cycles between the mountain and the sea, you start to understand the value of positioning and 'being selected'. The people upstream will keep telling you that they don't control the flow of money; that the river flows naturally through the lowest valleys... It's your job to put yourself in that low valley... But really, they've built massive dams up there directing the water almost arbitrarily. You may be at the lowest valley but they're redirecting the water elsewhere artificially because it suits them better. Reality is that they can easily alter the path of the river anywhere they want and it has little to do with 'building something people want'. It's about building something the people upstream want... And sometimes they just want to help their existing friends; unfortunate for you if you are not their friend.
It's a catch-22; you need rich friends to get money but you need money to get rich friends. But I suspect it's way easier for a poor person to get rich by befriending a rich person than it is for a poor person to get rich without rich friends. The second approach feels like you're piercing through 'the matrix' because of all the weird almost conspiratorial resistance you might get (tech feels like one big club).
Sometimes you might accumulate some dirt on some rich people and that gives you some leverage over them but it's the kind of leverage where you have to keep coming back to them to get crumbs. I feel like you can never break through that way due to regulatory capture. You can only do limited damage to them and it's always costly to you. They still have the balance of power.
Sorry to break it to you but 10% profit on 6.5M rev is very low and will absolutely not fetch a high multiple, especially considering this is a mature 10 year old business. This is not a high growth business and you may have grown overly rose colored glasses by thinking it could be priced as one.
So much more. What assets/patents do they own? How much money is in the bank? What does their liability sheet look like? How “hot” is their industry right now?
Some time ago I found a good formula to plugin numbers and get a valuation multiple. The questions above were the ones that really moved the multiplier. A major lot of “startups” are in the 1-2x range. The hot ones will peak at 7-12x.
I suppose the industry is not hot right now. EdTech was never really very hot. It was 'luke warm' at best, a decade ago. They own a lot of software, also, they publish their own math textbook (both digital and print). They have licenses with thousands of schools across multiple countries. I don't recall they have any debt.
I feel like they could easily bump up profits by $2 million just by letting go of people... But they could probably double the license cost per student. Although schools don't have much money, they are kind of slow and bureaucratic; set in their ways. It's a small cost for them anyway, once a system is part of the curriculum, they'll probably pay extra to avoid reorganizing the lessons.
As you describe this is largely a cash flow business and the bulk of the value should be extracted via dividends to the benefit of major shareholders.
A tech enabled business needs gross margins north of 70% to be attractive from a leverage standpoint, unless revenue is scaling very rapidly. Without these there’s no attractive exit opportunities.
This is one of the best things I have read today. It resonates deeply with my realizations and experience working in early stage startups.
Why are the margins so low?
They have a lot of employees. I think over 50. Probably more than they need and they re-invest a lot in the business. Also, the cost of $15 per user per year is VERY LOW.
50 employees generating 6.5 mil in yearly sales means the business would barely cover payroll and basic expenses in a first world country. In a lower income country, they can be profitable by taking advantage of cheap labor, but that usually does not scale well to international markets in services.
0.2 % of that is nothing.
Then after his 3 month vacation to Italy, he came back driving his new Ferrari.
Hey, at least he’s taking his LARPing as a douchebag ceo seriously. Easy vip invite for DND nights.
Yes - equity should be an incentive to contribute the the company's success, and partial compensation for the risk of going to a startup. One should value it at precisely $0 in terms of life planning.
This becomes truer and truer the more of an employee and the less agency over the company's choices you have, but generally if you're not a co-founder (founding engineer doesn't count) equity traded off against salary is someone scamming you.
> equity should be an incentive [...] and partial compensation for [...] One should value it at precisely $0 in terms of life planning.*
Not very good incentive or compensation, if you have to value it at $0.
Still better than a lottery ticket.
Given opportunity costs, you could easily argue that it should have negative value.
Not if you live in a country where you can end up paying more taxes than the equity is worth! Be a little careful with Options and RSUs depending on where you live, and even more so for certain companies etc
> equity should be an incentive to contribute the the company's success
the much bigger motivation is "keep the company afloat so i can keep drawing my salary", so just boring old non-equity paychecks provide plenty of motivation.
if you're an employee that thinks your contributions are so great that you are single-handedly juicing the stock price or valuation, you're probably wrong but if not... you should probably take those skills and found your own startup.
This is a brilliant move by Google: it makes joining any AI startup even less appealing.
Stock options were always a lottery. But this takes the shenanigans to a whole new level.
Additional resource:
Ask HN: How to negotiate stock options? - https://news.ycombinator.com/item?id=28401655 - September 2021
Indeed. Likewise with non-guaranteed bonuses (gotta love the "plus a discretionary bonus!" commentary during offer discussions).
It's always worth offering to take equity as long as they agree in writing to not ever dilute your shares and vest them immediately. However, it's unlikely that any company will agree.
It's best to imagine compensation as exactly one's salary. Then (virtually) all surprises are good.
> It's always worth offering to take equity as long as they agree in writing to not ever dilute your shares and vest them immediately. However, it's unlikely that any company will agree.
Well, yes, because that’s insane.
I think it makes perfect sense. It's a guaranteed incentive for a potential employee to increase the value of the company and act in its best interest.
Absent those guarantees, it's smoke, nothing, kaput: 1.5% equity or whatever % can become approximately 0% and there's nothing the employee can do about it.
They could structure the agreement in other ways to incentivize the potential employee: if additional shares are issued, pay a dividend to the employee.
> pay a dividend to the employee.
the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.
But equity is often used in ways the employee does not understand and get screwed over. It's also why there are accredited investor requirements for VC/startup investments - so that only those who can afford to pay for a lawyer and such can partake in these deals. Unfortunately for an employee, the loophole is that they don't get this regulatory scrutiny, and also don't have or earn enough to hire a lawyer (and oft times not even access to the cap tables - it's just a literal number of shares, without context).
No wonder employees get screwed while investors (of the accredited kind) don't.
> the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.
Understood and it makes sense. Offering equity to a potential employee is a way for the employee to benefit potentially on future growth in the company.
I'm proposing that if there is a future funding round, pay the employee a dividend from part of the proceeds. Or maybe give them more shares or a combination; but put it in writing from the start.
And yet they agree to pay salary immediately.
No one pays 4 years of salary immediately.
I don’t see how a company could promise this. Everyone gets diluted for every funding round, for example.
I don't know how this works, but my question is, on a funding round, couldn't the C suite just allocate themselves additional equity in proportion so that their total value remains the same?
They could, but the shares represent value - and that money needs to come from somewhere. Simple, but extreme example: A company is valued at 10 million gobbledoks, and the C-Suite holds 10%, representing 1 Million valuation. Now the company takes 10 Million gobbledoks Investment that end up in cash on the companies bank account. This raises the the valuation to 20 Million.
Under simple dilution rules, the Investor takes 50%, and the existing shareholders are diluted to 50% of their stake - the C-Suite owns 5% of 2 Million, 10 million as before.
If the C-Suite demands that their equity proportion remains at 1%, they’d suddenly own a stake representing 2 million valuation. That difference needs to come from somewhere.
They can easily, they just don't.
There is actually a sense to the dilution. If I have something I think is worth $10m, and I'm asking someone else to give me another $10m, doesn't it make sense for that person to own 50% of the company? Why would any investor give you $10m wile receiving no ownership of the company? How are you going to give these newer investors ownership, if you don't reduce the ownership of everyone else?
The claim in the tweet was that they got 1% of the value of the diluted shares: e.g., on paper they should own 1% of $100m, but somehow they only got $10k out of it. There does seem to be a culture of this going around now -- the VC version of "Hollywood accounting". In a lot of situations it doesn't make much sense to me -- is it really worth poisoning the well of startup talent for the VCs to get $95m instead of $85m?
I don't think I understand.
If the value of a company is $10m and the company asks an investor to give $10m in exchange for equity, the investor should own 100%.
If the value of a company is $20m and the company asks an investor to give $10m in exchange for equity, the investor should own 50%.
> If the value of a company is $10m and the company asks an investor to give $10m in exchange for equity, the investor should own 100%.
That's not investing, that's buying. Buying means the buyer gives $10m to the previous owners, at which point as you say, the previous owner owns 0% and the new owner owns 100%. But the company is in the same position as it was before -- the same amount of cash on hand as it did before.
For investing, you're putting cash into the company's account, which raises the total value of the company.
Value of the company before investment: intangibles + pre-investment cash - debt = $10m
Suppose I own 10% pre-investment; 10% of $10m is $1m of estimated value.
Value of company after the investment: intangibles + pre-investment cash - debt + $10m == $20m
Now I own 5% of $20m, which is still $1m of estimated value. The investor owns 50% of $20m, which is still $10m of estimated value.
In practice of course, there are different classes of shares which end up being paid out differently.
Legally speaking, it’s probably possible. Practically speaking it almost certainly a guarantee that the company will never see outside investment. On every round someone would need to pony up the cash to fill that employees stock. Anti-dilution clauses exist, but they never work like that.
Such a privilege is also likely to be almost worthless - if the company succeeds and the round makes it worth more, you’ll win even with dilution. If the company doesn’t, then other clauses such as liquidation preferences will make your stock worthless, regardless of how much you own.
The difference is that if the company succeeds, an employee afforded this provision is guaranteed to make $X.
Without this provision, it's possible in many ways for the employee to be left with far less than $X, even if the company succeeds. In some ways <<<<<<$X.
Yes, maximize cash and use it to acquire a diversified portfolio.
Working at a startup pretty much always involves trading off money in the bank for other things. That’s the industry’s whole deal. Which is why I stay in Big Tech with liquid RSUs.
I would like to understand a bit here about what you are saying as having been involved in a few startups and I do not quite understand what you are getting at. My understanding based on experience (successful exits, small exits and crash and burns) follow.
First a 409A is generally engineered to keep the lowest value possible in order to allow the employees to exercise their options at the lowest value via an 83b election so at an exit they can be taxed at the long term capital gains rate. When someone joins a startup and is issued options the value of the stock is set via the 409A (which has to be renewed every year). The lower the number the more likely an employee can afford to write the check. 100K shares at $0.01 vs at $0.25 is a major factor for anyone to consider. Any startup worth their damn will make sure the facts in any 409A fit a low number for that reason. The reality of an exit where you are acquired will be based on other numbers that optimize for forward earns and value of your team and tech.
The questions you need to ask are:
What is the total authorized shares? What is the required process to raise that number? How are we funded? Does funding include preferred shares? What is the preference on those shares? On an exit what is the payment order?
I agree about the salary bands and at my current company we provide them, as well as answering all the questions above upfront to any candidate with an offer.
The reality of windsurf is that the founders are scum and this is going to end up in court for years. Google should be ashamed.
I've tried to ask dozens of companies that wanted to hire me just for how many shares were outstanding and/or authorized. They almost always refused to share.
You can almost never get any info on equity until it's too late and you realize it's worth nothing.
> I've tried to ask dozens of companies that wanted to hire me just for how many shares were outstanding and/or authorized.
"Wanted to hire me" as in they made an offer, or an earlier step? At offer stage, I've never had a company refuse to answer these questions. I don't have "dozens of companies" worth of experience though, maybe one dozen if that.
Every time I hear this I think experiences and expectations are vastly different between SV and the rest of the country. 30ish years of working in New York and I haven't encountered a single company that isn't 100% opaque about their equity to employees until time of exit/IPO. And I keep a large network.
That said, everyone here treats equity of non-public companies as if it's toilet paper. Some of my coworkers got very lucky and very rich when our company went public, but that was also a long time ago now.
I worked at one for five years: Materialize. Based in NYC. Everyone knew how many shares they owned, what percentage of the total equity that represented, and what the rights of the preferred share classes were.
Glad to see this data point. This is a company founded relatively recently and I hope this means that some kind of change is happening regionally.
> I've tried to ask dozens of companies that wanted to hire me just for how many shares were outstanding and/or authorized.
Those questions are certainly worth asking but employees should also keep in mind that even if they do share that information your equity can still later be diluted away to worthlessness.
There's other gotchas too. Ratchets, liquidation preferences, restructurings (recapitalizations) etc etc
There's many opportunities for VCs and founders to screw you over. And that's assuming things go well enough for that to be an option lol
My 2c is these are almost always a consequence of the company not being a good business. Well, sometimes you get asshole founders/board members too that's not as common as the company just being an absolute money pit. So instead, I'd focus on asking about business fundamentals/strategy - if the company is money printer, everyone is likely going to do well financially
nope, it happens in "good businesses". once real money is on the line, everything is a dog fight. no one talks publicly because of the reputational repurcussions
not ime. you're also much more likely to get sued for this when real money is involved. cases that i know personally (and myself) either did ok and got pay out or everyone went to zero (below or close to strike price) but founders got secondaries (which screws VCs not the employees).
seen many many cases first hand in NYC. Also, as an individual its very hard to sue a company with a huge amount of VC funding. you need a 100k to burn on it to even have a basic chance, and most cases are a legal gray area, most lawyers wont even take the case.
even finding a lawyer with the expertise to handle a case like this is not easy, its a very small world among those types of lawyers
Make friends with lawyers.
I tell every engineer always to maximize their cash comp and every founder and investor always says "No, that's such a bad idea! Get more equity!"
Yeah, because that is in your interests, not the engineer's.
There is another variable. Find better companies to work for. If you don't think this is a unicorn, don't work for them. If this is another stablecoin startup leveraging quantum AI then you deserve what you get, cash comp or no.
It doesn’t matter if you think it is a unicorn or not, it is about risk management.
Early stage investors know that even the best startups have a fairly low chance of success, which is why they diversify by investing in a lot of them. The many failures are paid for by the few successes.
As an employee, you are only given stock in the one company you work for. Even if you think it will be a success, it isn’t smart to put all your eggs into that one basket. No investor would do that, and no employee should either.
If you are working at a startup, a lot of your eggs are already in that basket; your ongoing salary is dependent on the company continuing to succeed. If you take less cash for more equity, you are putting even more eggs into that same basket. If it fails, you are going to lose all the equity AND your salary.
You don’t want your investment risk and your salary risk to be that correlated.
I remember when my old employer was doing another round of funding
They offered to sell me more shares
I countered that I'd been trying to dump the shares they already gave me and if the shares are truly worth X dollars they should buy them back from me
Anyway glad I quit
> if the shares are truly worth X dollars they should buy them back from me
I always offer companies pushing equity hard to trade for cash at 10% of the highest number they try to get me to value it at. Nobody has ever taken me up on it, even when they really should have.
Not everything is adversarial. More cash pressure on the company itself can be bad for the company which is bad for you too.
I always take more equity. I wouldn't work for you in the first place if I didn't believe in your equity.
This may work for you, but in general isn’t good advice. You shouldn’t be confusing beliefs and risks. Risk should be managed - you should be comparing cash invested into the public market (or treasuries, or bitcoin, whichever you prefer) with equity in the startup, not with a savings account.
Startup equity is worth a lot:https://www.amafinance.org/startup_comp/
Maybe useful for VCs who have a portfolio of companies and need to put stuff in their presentations to LPs.
If you’re an employee you can’t look at this like an investor would. Your risk profile is completely different. The write up is correct in that it’s basically a call option, correctly point out there is no market for it and then ignore the fact that zero liquidity means you can land a 747 between the bid and ask (if you get anyone to buy from you at all).
This a feel good number generator.
There are more than enough stories about employees complaining that they didn't get a big enough payout on an acquisition or IPO to know that this isn't true. It all comes down to your risk reward preference.
Sure, if you don't want to take a risk then look for a higher salary, and probably at a more established company because even if you have mostly salary and little equity a startup is still risky (and you're making it even more so by putting cash pressure on the company at that stage).
On the other hand, if you want a chance at a bigger payout, you'll want more equity. And yes, you may well not get that payout.
> There are more than enough stories about employees complaining that they didn't get a big enough payout on an acquisition or IPO to know that this isn't true.
That's exactly why it is true. If every person who held early stage stock walked out of those events happy then no one would recommend they focus on salary.
The problem is that your risk is compounded because your equity risk is correlated with your salary risk - if one fails the other is likely to fail, too.
Even if each risk is a good one to make separately, it isn’t always good to make both risks.
I had some RSUs from a previous company (likely will not be worth anything) and some options at another, but I have no idea how to understand how dilution like this works. My understanding is surface level of that scene in The Social Network.
I feel like I understand _what_ an RSU is and what options are, but are there any good resources for me to learn from?
RSUs are much better than options, they’re actually properly shares, will go to zero when the company is bankrupt and even then not necessarily.
Options go to zero much more often.
Dilution is where things get fucky.
So you're working at this startup. Lets say it's worth $10 million. To make things simple, in this company, there are 2 people, the fucker, the CEO, the guy that started it all. He holds 90,000 RSUs, each worth $100, so $9 million, and the fuckee, you, who holds 10,000 RSUs, each worth $100, for a cool million.
Here's where the fucker fucks the fuckee, ie you. The company does a round, and then creates, out of thin air, a billion shares (1,000,000,000), and issues them to the new investors. Lets say the company reached unicorn status this round, which is to say a valuation of a billion.
Holy hell a billion! But wait now there's 1,000,100,000 total shares out there, and the valuation of a billion, divided by the new shares, means that each share, of which you only have 10,000 of, is now worth just under one dollar.
That's right, your $1 million just turned into $10,000. Which isn't nothing, I'd love to come across a random $10k I didn't know I had. But that's just, like, one really nice vacation for you and the kids, which you haven't seen enough of because you've been working so hard at this startup, and not, like, a college fund for the kid that's showing aptitude at engineering and that you were hoping was gonna go to MIT.
Dilution is inevitable, there's no avoiding it. The scenario I presented is just to show you an example of how dilution fucks you. If things go well, would you rather have 10% of $1 million or 0.1% of $1 billion?
For more, it depends on how you like your information. ChatGPT's got stuff like ISOs vs NSOs pretty well covered, Investopedia's got a lot of good stuff if you'd rather it that way.
You are misrepresenting how dilution works - and dilution usually is not what fucks you. Dilution is fairly straightforward - someone ponies up money and gets a share of the company. The valuation that gets handed around is usually what’s called “post money” - how much is the company worth after investors have paid in their money. In a simple example, matching your numbers, a company that is worth 10 million, with 10 million shares, each valued at 1 dollar with a 90/10 split finds someone who invests a billion dollars at 1 dollar per share. These shares are created as part of the acquisition. The value of the shares doesn’t change - the company, post money, now is valued at 1 billion 10 million and has 1 billion 10 million shares, each worth 1 dollar. It also happens to have 1 billion in cash at hand. No change in value for anyone here, but dilution happened - the person that owned 10% of the company pre-investment now only owns 0.1% - but the value of each share is still the same, which means they still own the same number of shares, each at the same valuation with the same total value.
The problem tends to be elsewhere - as part of the deal, the investor asked that his share get preferred treatment in the next round - a liquidation preference which grants them the right to first take their investment of the table and then, whatever is left is distributed. The company gets sold for 1 billion. The investor takes the billion that they invested off the table. There’s nothing left to be distributed. Your shares are suddenly worthless - just as the founders.
If you are gonna do that just work for a FAANG really right?
Pro tip: do both.
Under any normal circumstance I've ever seen, you should be taking the higher equity/lower salary combination and should focus on equity rather than salary.
The only time it ever makes sense to push for more salary instead is if you literally cannot get a job at a public company (or even a near IPO unicorn). Plenty of startup employees can, so clearly they believe their startup equity is worth something.
Financially speaking, startup equity is actually worth a lot as an employee (https://www.amafinance.org/startup_comp/). Yah, over 50% it's going nowhere but expectation needs to consider how huge the win is even if it is lower probability.
If I'm understanding your logic correctly, I think it's flawed.
It seems like you're saying: if you choose to work for a startup rather than a bigger company, it must be because you think their equity is valuable, so you should prefer to take more of your pay in the form of equity if you can.
But there are plenty of other reasons for choosing to work at a startup.
You might have chosen to work at that particular startup because the work interests you. You might prefer startups to bigger companies because they have less bureaucracy and can do (some) things faster. You might prefer startups to bigger companies because there are fewer layers of management above you and so you have a better view of why you're doing what you're doing.
Even if you're only in it for the money, I don't think your argument is valid, though this is more of a nitpick: it might happen that a startup particularly wants you or at least your skillset and is willing to pay more for it than any bigger company you've found. You might think the startup is likely to fail, but still prefer being paid twice as much. (This is kinda nitpicky because I don't think this situation is super-common, unlike the other ones I mentioned above.)
First, your stock has a much higher than 50% chance of being worth less, even at the best startups. This is why early stage investors invest in so many companies… a vast majority are worth zero, but the few that make it big pay for all those and more.
This is why you would never see an early stage investor invest in only one company. They need volume to be able to survive the high risk/high reward nature of startup investing.
Now, maybe you think you are a better judge of the probability of success for your startup than an investor, so the risk is lower. You would be wrong; if there was a way to reliably predict which startup would hit it big, then investors (who spend all their time trying to predict exactly that, and have a lot more data and history to use in their evaluation than you do as an employee) would have a much higher success rate.
So even if you have a very promising startup, your equity is a huge risk. Your company probably won’t hit it big, and if it does you have to hope you aren’t screwed out of your equity by the millions of tricks they use to screw employee shareholders; dilution, preferred shares, etc.
Even worse, you are taking double risk. Your startup is risking both your equity AND your salary. You want to diversify your risk, so you can use your investment when your salary fails and use your salary when your investment fails. In this case, those both will fail together if your company doesn’t make it.
Look, equity and stock options are great, but you REALLY have to discount its value as an employee because of the way the risk shakes out as an employee.
I didn't claim my risk is lower, but as my link notes I can quit and recall my investment while the investors cannot.
I've long preferred working for startups over big companies, but my equity has rarely been worth more than a day or two's salary equivalent.
I know a few people who did well working for unicorns, but that isn't most startups, and pretending that any given startup will be one is selling yourself short.
> Yah, over 50% it's going nowhere but expectation needs to consider how huge the win is even if it is lower probability.
yes that's literally the definition of expectation value...... so
hence you should absolutely not be taking higher equity/lower salary ever. hell i wouldn't even take that at a publically traded company if given the option.The interesting thing going on is, stars align. The kind of person who has to think about this problem should take equity. The kind of person who would choose to take cash isn't going to be hired at the kind of VC backed business that will end up being worth something.
Yes, a company will do very well if it fills itself with naive employees who think that if they work insane hours and sacrifice their life for equity (which they'll never get an exit event for) will do very well.
But you don't want to be that employee...
Man this is a ridiculously naive take.
Man what level of weird delusion is this? Windsurf was an app for code completion not interstellar space travel lol.
I was aquihired by a FAANG.
The headline "startup bought for x million" is almost always a lie, either direct or by omission.
First, when a startup is bought, its generally not bought at the headline rate. So if you see a "bought for $45m" that doesn't mean People who own shares all got a % of 45m.
That number is normally bullshit, but also a "total package" which include share offers for joining the new company.
This means you will get say 1% of the headline buyout now, and then golden handcuffs to get the rest.
Also, it makes no sense to give employees that much money upfront. After all, if I'd been given $1m in one go, I wouldn't be fucking working now.
Yeah, I used to hear all the time that "a startup is worth $1 million per engineer in a pure acquihire", but learned the hard way this is a myth.
When we were talking to various companies about acquiring Sandstorm.io (my startup) in 2017, one of the companies told me, essentially: "We aren't interested in your IP, only the employees. We'll give you a set of job offers for them. We will then sum up the salary and equity grants from these offers, and call that the acquisition price. If you want to take some of that money and redirect it to your investors instead, that is up to you."
I was a bit taken aback. Obviously I wasn't about to take a cut of my employees' future comp and give it to investors.
Instead we ended up going to Cloudflare, but not as an acquisition. Cloudflare told us very honestly that they couldn't justify buying the IP, but they would be willing to acquire the company for $0 to wind it down for us. I decided to just take the job offers but keep the company independent as an open source side project, thinking maybe I'd revive it eventually. Turned out to be a mistake as some guy who was mad we didn't hire him sued Sandstorm six months later, and that was then my problem instead of Cloudflare's, oops. Should have sold for $0.
(Once it became clear to the plaintiff('s lawyer) that we weren't going to settle, they stopped pushing the case forward, but didn't drop it, so it just sat in limbo for 5 years before the judge finally threw it out it 2022. Meanwhile I couldn't dissolve the company and had to keep filing taxes for it. Ugh... lessons learned.)
That sucks. FWIW I had a sandstorm instance back in the day, and I think it was an idea ahead of it's time. The stuff you were trying to do I think got easier as containers became more widely adopted, and as enshittification has made the case for self-hosting more obvious. So... Thanks for trying!
So many bitter aholes in this business.
sorry that happened to you. what taxes do you have to pay on a company making 0? just delaware franchise tax?
That and $800 CA franchise tax. But the money wasn't really significant. It was just annoying to have to prepare the returns every year.
Did your legal counsel at the time not mention that was a possibility?
Yes, of course. But given the circumstances we all believed it was highly unlikely he'd actually sue.
Whoa, bummer but interesting. It can be hard to let go. Thanks for sharing.
Some of the mechanics on this one..
Generally, when a startup is acquired, people get paid in a number of tranches:
- First, debts get cleared in order according to debt types. This could be cloud providers, lawyers, employees who deferred salary, etc, etc. If there's still cash left..
- Then preferred (generally earliest) investors get paid back. Some investors will have liquidation preferences where they get 2-5X their initial investment. If there's still cash left..
- Then execs get their preferred shares cashed out. Depending on how many rounds they'd raised, they may own less than you think. If there's still cash left..
- Finally, general stockholders get paid. This is where most employees may actually get cash.
To further complicate things, some people could be in multiple places here. A founding exec may have lent the company money to get started, have preferred shares, and have common shares so they could get paid out in early levels but not at the end.
*There are WAY MORE nuances in this but the point is: You don't just say "total price divided by shares times number of shares = the cash you get"
$1M in one shot leaves you with around $600K after taxes in most states. That’s enough to pay you around $24-30k/yr.
Unless you already had several other million saved already, I bet you’d be working again.
$25k/yr can be decent living in some places.
In no place where you’re getting a 1M pretax offer.
Yeah but what if - hear me out - you move after you get the money?
Yeah man, I'm sure that's exactly what they meant when talking about a decent living for $25k/year.
Sure but not in North America, where i assume most readers of this site are from.
Just out of pedantry, all of Mexico is in North America.
Not in any decent places.
I read this in a British accent.
Sure, buts its a solid career break for a year.
1m isn't enough to really retire in in silicon valley
Sure, but if you're 10+ years into your career and have been financially conservative (i.e. have a positive net worth), a lump sum of $1m could be enough to retire to a lower-cost location.
If you're willing to be fiscally conservative, go to a cheaper location, and continue working on side projects you don't need the payout at all.
The question everyone seems to be asking is "is the payout worth spending the first ten years of your career in the West Coast startup scene." Ten years is quite a lot of time to spend somewhere you don't actually want to live.
Hell, roughly $600,000-800,000 is enough to lean FIRE, the last time I checked.
Lean fire on $600k-$800k is taking an extreme gamble on the cost of health insurance continuing to be subsidized way beyond Medicaid levels. Which you might be fine with, but it's a pretty big risk.
Unsubsidized healthcare in a lot of places in the US costs $10k-$20k per person per year. For early retirement that eats up like $400k-$500k per person.
This is why you don't retire in a country with private healthcare
My parents live in the UK which has free healthcare. The situation is dire. The waitlist for chronic pain surgeries are 3-4 years long. Lots of people, including my parents, have resorted to flying out to other cheaper countries to get treatment.
Because politicians have made it their mission to chip away at the NHS over decades. This doesn’t say anything about the efficacy of statutory healthcare.
But it’s quite relevant to the question of whether you can just assume that some country will foot the bill for your health care needs at old age, and therefore you don’t need to worry about health expenses if you retire early. Rising costs of health care systems are a serious problem in most developed countries. “Eh, I’ll just move to Europe in old age” is not really a comprehensive plan to ensure you get good healthcare far in the future.
It does. In every public-healthcare country, this happens. Because incentives are stacked against delivering to the patient and for increasing spendings. It’s the tragedy of the commons.
> In every public-healthcare country, this happens.
Outside of Canada and the UK this isn't true.
> Because incentives are stacked against delivering to the patient and for increasing spendings.
Germany, The Netherlands and Japan all have regulated competition models.
> It’s the tragedy of the commons.
Public healthcare isn't a free for all, its regulated, actively managed and budgeted.
I wouldn't use the Netherlands as a great example either. The family doctor model is slowly disappearing, replaced by private clinics. It is relatively difficult to get appropriate treatment for anything, and there are long waiting queues even for intake appointments. It has only been getting worse in the past decade.
> > It’s the tragedy of the commons.
> Public healthcare isn't a free for all, its regulated, actively managed and budgeted.
Not what I mean. It’s racist. Public jobs are being reassigned in a racist way to help whoever the currently-elected leader wants to favoritize, and, as the NHS ad says: “This is us, now”, clearly demonstrating a no-whites ideal (NHS’s intentions, not mine).
Public health funnels money from people who paid to get coverage, to, on one part, those would be rejected in a normal system (non-insured people) because it’s easier to say yes when it’s diluted; to to, for the second part, people self-selected by the group of currently-employed people, ie in the UK it means that normal people are selected with all criteria but protected classes (the legal term, “protected classes”, I mean) have priority for those jobs.
You may pretend the NHS is not racist, but the NHS actions speak for themselves.
Is chronic pain an outlier here, or representative of wider trends? My uninformed prior is that surgery is not a good approach for chronic pain, and that the NHS is more likely to cover surgeries with a more clear-cut cost/benefit ratio
For things like hip replacements, cancer treatment and other physical ailments the NHS is pretty awesome. Some stuff it fails at I am sure, but as you say that is in part down to the way that it prioritises care based on results.
Private healthcare is still much cheaper in the UK, so you're still better off retiring there. Might not always be the case of course, but I would bet the situation will continue to be better than in the US.
Medicare isn't that much cheaper than exchanges although the cost decreases over time as you aren't earning significantly any longer. And lots of issues associated with moving countries.
Sure, if you are single with no family and wiling to live outside California.
If I retired at 40 I don’t think I’d want to remove more than 2% a year from the principal amount, which is.. $12,000-$16,000 a year.
How is that possible? Even with a fully paid off house, you still have property taxes, utilities, maintenance.
Even 4% a year which is recommended for a 30 year retirement, you’re only taking out $24,000-$36,000 a year.
3.5% historically holds up over longer retirements (I ran a rough model and got ~98% success for 50 years). $21k is quite lean - you'd have to pick and choose luxuries like a car, no roommates, travel, etc. - but for a single person in many parts of the country it's doable. The big gamble is that Medicaid might get cut further, which would definitely force you back to work.
Yes, it’s doable if you rent a $500/month apartment/bedroom in a rural area or split a shitty $1000/month apartment in a mid tier city and don’t have a car, never travel, and don’t use medical care. My employer paid health insurance premiums are ~$15,000/yr.
That sounds like my personal idea of Hell, I’d like to be able to get treatment if I got cancer instead of being given a prescription for painkillers and a look of sorrow from a doctor that can’t treat me.
FWIW, I currently live in a shitty $1000/month apartment in a mid-tier city, not casting any aspersions on the living situation. But, I’ve lived in this same city without a car and it’s miserable.
Presumably, it would be cheaper if I had a fairly modern urban condo but my exurban property is a good $15K+ per year. Heck, I just had a kitchen fire and, even with good insurance, I'll probably be $50K out of pocket when all is said and done. I could probably have done things more on the cheap but didn't really make sense.
You are supposed to invest and keep the money working for you. Adjusted for inflation, S&P 500 returns 6.5% a year. That alone gets you above the poverty line. Recall, this is inflation adjusted so your $600,000 is growing with inflation and the poverty line income also grows over time. This does not account for any swings.
You can't actually draw down 6.5%/yr, though, because of sequence of returns risk. The number that is actually safe (historically) is something like 3.5%.
Keep in mind that almost all of the FIRE advice available online has been written in a bull stock market that is almost 2 decades long (COVID drawdown is a blip on the 2008-2025 chart).
Past performance is not indicative of future returns. Do you know anyone still running a risk parity 60% UPRO/40% TMF (3x long S&P 500, 3x long 20-year Treasury Bonds) portfolio? That portfolio composition had massive returns, until the Fed started hiking rates.
The annual implied volatility of SPX is around 15-20%, if you want to withdraw 6.5% a year at 40 and have to restart your career at 55, be my guest.
A 40% drawdown on 600k is -240k which puts you at 360k, 6.5% of which is $23,400. Starts getting pretty tight if you need to sell assets for cash which reduces your future returns.
> Keep in mind that almost all of the FIRE advice available online has been written in a secular bull market that is almost 2 decades long
Most of the reasonable FIRE advice (e.g. https://earlyretirementnow.com/ quality) suggests a ~3-3.5% withdrawal rate, which has been measured using historical data way before the current secular market.
Is your take that even such withdrawal rate wouldn't work anymore, moving forward?
probably right, but I'm not in SV. So its enough to pay off the mortgage and provide enough monthly income to not care what job I'm doing
Or in any big city tbh.
Cleveland not big enough for you???
Cities like Cleveland have reasonable pricing built into their appeal. Without it, there isn't much left.
Don’t retire in Silicon Valley then
Take a million, go live literally anywhere that isn't Silicon Valley, remote work for a company that interests you, or your own project.
There's very few currencies in the world in which 1M isn't enough to retire. USD isn't one of them.
>There's very few currencies in the world in which 1M isn't enough to retire. USD isn't one of them.
Unless you're planning on retiring as cheaply as humanly possible, 1M is not enough to retire for the large majority of the currencies in the world.
$1M is enough to "Ramen Retire" in most of the US. If you're willing to eat noodles and make some lifestyle sacrifices, it's kinda sorta doable.
For majority of the world population 1M is amount they will never earn through their entire life. And they live just fine. I'm sure anyone can have a really nice retirement with one 1M, just not in the US.
When I was a kid (early 80s) the receptionist at my mom's company drove a Porsche and didn't need to work anymore because of a past company hitting it big. This woman wasn't a financial genius and didn't hardball negotiate with the previous company for her receptionist job, it was just Silicon Valley didn't used to be so gross and actually paid out to people.
I went through an acquisition very early in my career, and for the longest time I believed it was the best outcome for everyone. Over time, I realized that my naive belief was purely due to the founders going way above and beyond to make sure each and every employee (including folks doing just data entry) got a good outcome (accelerated vesting, significant equity in new company, top of the band pay, etc.). It made me realize that if you ever want to work at a start up, bet on the founder, rather the company. Even with mediocre outcomes, you'll end up ahead in the long run compared to folks who're just looking out for themselves.
They must have had a strong position from which to negotiate those favorable terms, in addition to the experience to know to do so, and the integrity to actually do it. The type of people you should follow.
I don't believe they did. This acquisition was by Flipkart, the poster child startup in India, who had a very high bar for hiring. They wanted to interview the non-founders to make sure they met the standard. The founders said you get all or you get none. To be fair, it was a small team of 6-8 employees, so I doubt Flipkart cared. :)
Wait, what are the employee protections like in India that such a deal is enforceable? Why couldn't Flipkart just take them and then fire them a few weeks/months later?
I genuinely wonder how people like yourself sleep at night.
> due to the founders going way above and beyond to make sure each and every employee (including folks doing just data entry) got a good outcome (accelerated vesting, significant equity in new company, top of the band pay, etc.)
Commendable of them. That should be normal decency by leaders. I wonder how common it is.
This is one of the most confusing things I've ever read.
Cognition acquired Windsurf. So how has he "joined Cognition"?
"I had a place at Google DeepMind as part of the deal." What does that mean? DeepMind doesn't have anything to do with Cognition or Windsurf, right?
Why would an offer at Google require forfeiting vested shares in Windsurf? Is that Windsurf policy or Cognition policy or Google policy?
"I was ultimately given a payout of only 1% of what my shares would have been worth at the time of the deal." So he took the payout and forfeited the shares? "In going to Cognition, I’ve chosen a different direction." Or not, he rejected the payout and kept the shares? I can't even tell what's hypothetical versus what actually happened.
I literally don't understand a single thing about this tweet. I've read all the comments here so far and my confusion seems to be shared. Can anyone who has context please help explain what's actually going on? And particularly how any company could force you to forfeit vested shares in a company?
You have to know some of the background
Google poached windsurf employees and licensed their tech, paying out billions to upper management but apparently offering a fraction of the value of shares
This employee chose to stick with windsurf instead of moving to Google
Windsurf was then acquired by cognition for an unspecified but probably quite low amount
So this employee is now at cognition
Thank you, that helps!
But so did he keep the shares or take the payout? Is the 1% payout an accurate reflection of Windsurf's value after having lost so many valuable employees? And why didn't he take the Google job? Was the 1% contingent on taking the Google job? But how could it be, since Google doesn't own Windsurf/Cognition? But if it did somehow, did it have a higher paycheck to compensate? Or was it contingent on staying at Windsurf/Cognition?
This thing needs an in-depth blog post analysis. The tweet by itself isn't providing even close to the information necessary to understand what's actually going on.
the board strokes is: Google should have bought the company. They didnt. They basically bought the employees. They call it a "acquihire". Without these employees, the real value of the company fell, allowing cognition to buy the company. Had the employee taken employement with Google, it's likely their shares in windsurf would have been voided, or otherwise not vested. Who knows, these private corporations are often doing a bunch of shady things to dilute share ownership.
In a private company, there's no "real" public valuation of a share, so an employee who has some kind of stake really only has two real options to dump their shares, either through a company buying it (cognition) or the company going public. Without either of these events, it's really difficult, even if there's no contract about it, to sell the shares.
So the value of the company took a nose dive in the private market through the hiring of windsurfs principals, and the employee either kept his shares and went with the company, or took a job with google. So the two values are:
1. Stay with Cognition and retain the private market shares of Windsurf and salary
2. Leave cognition, forfeit(?) the shares, get whatever salary google offered
So those are the payouts being compared.
Google should have bought the company. They didnt. They basically bought the employees. They call it a "acquihire".
That's just called "hiring". In order to "acquire-hire" employees of the target company, one must first "acquire" the company and the "hiring" part just comes along with the deal. In this case, Google skipped the "acquire" part.
The VCs all got paid their multiples.
Google put a ton of money into the company which then repurchased select people's stock while leaving everyone else high and dry.
Do you know what are the mechanics that allowed the VCs to get repayed, but not the employees who did not take the Google offer? Is this an issue with liquidation preference, or was there something more shady going on that truly allowed VCs to make a “big” exit, while the employees owning common shares did not?
> They call it a "acquihire"
Surely it needs to be called something else, because acquihire means "hire some employees by means of acquiring the company they currently work for" (it's in the name). Since Google did not acquire the company, it can't be an acquihire event. "bribehire" or something?
Replying to myself because I discovered someone coined the term "Bizhire"[1]
[1] https://medium.com/@villispeaks/the-blitzhire-acquisition-e3...
Interesting article! "Blitzhire" he calls it
Thank you very much! So it seems like the crux of the issue still isn't clear, because:
> Had the employee taken employement with Google, it's likely their shares in windsurf would have been voided, or otherwise not vested.
That doesn't make any sense. The shares are already vested, they legally own them. How could they have been voided?
The idea of joining Google resulting in a "1% payout" doesn't seem to make any sense? Why would there even be any payout at all? And is it mandatory? How could it be?
And then it also doesn't even seem obviously terrible. If the valuation of Windsurf tanked, then is keeping the shares (now presumably converted to Cognition shares at a rate determined by the purchase?) even a better financial outcome?
I agree that Google acquiring the talent rather than buying the company seems shady. But the "1% payout" still isn't making much sense here and needs a lot more details. Because it's still not even clear if the payout is from Google (huh?) or Cognition (why?), or how it could be a mandatory condition of employment at Google.
Vested is not exercised.
Options vest, but you have to exercise them to purchase the underlying shares. This is nominally cheap, but from the IRS’ perspective you have just spent $1 to purchase a share worth $100, so that’s $99 of income. Multiply by a large number of options and you can easily have a real multimillion dollar tax bill even though you have no way to sell the shares to recoup their value.
Worse, if the company loses its value before you can sell, you’re still out those taxes with zero recourse. It’s an enormous risk.
If you leave a company with vested but unexercised shares, you generally forfeit them.
While you're right that exercising options can be very expensive and are a risky tax bet, we're talking about employee #2 in this case. They should've been able to buy in early at a low price and tax bill if they really believed in the company:
- Jan 2021: 3M seed round
- Jan 2024: Series B valuing the company at 500M
That's 3 years of vesting below a 1B company valuation, and 75% of a typical vesting schedule. There was plenty of opportunity to buy when valuations were low.
There's also 83(b) election that allows one to prepay tax liabilities on stock options before they vest.
Not buying stock options or doing a 83(b) election is also a bet that can place a cap on losses if the company goes downhill, but the risk flips if everything goes right.
I encourage you to put yourself in that person's shoes. It is never a simple decision.
Yes, there is plenty of opportunity to exercise when valuations were low. But that also means you're buying before there's clear evidence that the company will be successful. It also still means you're out the cash to exercise the options before there's a market for those options and before you know that the company will actually go public and not crater for whatever reason. You also have no idea how much your shares will be diluted.
Yes, exercising on day 1 optimizes your outcome in the case of a successful exit. But it is absolutely comically a poor choice for the 95% of cases where your equity ends up being worth next to nothing.
IME the real issue is people don't know what or how to do it. If you're a pre-seed employee, you're going to be able to exercise 100% of your shares for a minuscule amount of money. But you need to know what to do and do it right away.
In other cases, you may be later but have a higher strike price (expensive-ish to exercise), but its at least close to the valued price and in that case you can exercise without a major tax hit. But again usually people learn this after the valuation goes up and there's no way to go in reverse. So best we can do is share information here I guess, and perhaps advocate for some kind of regulation.
I'm speaking from experience. Yes, it means buying in before there's clear evidence of success, that's the risk! The lower the risk the lower the reward.
Waiting until the company is worth billions of dollars before buying its stock is one of several options available, and each has its own risk/reward profile.
My point is that exercising the company’s stock early is fraught with risk and is in almost all cases a -EV play.
Yes, the option technically exists. But without perfect foresight it’s not a good option. It’s not even an okay one. It’s an exceedingly bad one in most cases.
Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous.
Stock options are—as they currently stand—a lottery ticket that startups dangle in front of people’s faces that allow candidates to believe they will get fairly compensated for their labor, but with so much wiggle room that the company rarely has to ever make good on it. And I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.
I did pretty good. And this was a rare raging success story. Most people did worse than me.
> Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous.
Once again we’re talking about employee #2, exercising early would not have been that expensive! They had access to a strike price and low tax liability that the vast majority of later employees would ever see. You are correct in that most shares in startups are worthless, but that’s orthogonal to exercise price and tax consequences.
The calculus changes if/when the company becomes a unicorn, but by then the risk profile is much more favorable than when it was a scrappy startup, and returns are lower.
> I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.
Well one has to stay long enough to vest in order to keep the equity, being early isn’t enough.
I don’t know your specifics so maybe you did make it out better than earlier employees, but some tricks companies use once they hit unicorn status (and have hundreds of employees) is stock splits. They want to pad their share grants for newer employees to make it seem more attractive and make the strike price lower. Of course earlier employees that exercised and left get their shares multiplied too.
> Once again we’re talking about employee #2, exercising early would not have been that expensive!
Exercising early almost certainly would have cost hundreds of thousands of dollars. For employee #2 of a startup, you’re almost certainly already working for mostly equity and not salary.
You are high as a kite if you think it’s reasonable to dump large sums of money into a five-person company while getting paid peanuts in return.
Without details we’ll just have to agree to disagree, but exercising options is not an all-or-nothing affair and can be done with a budget in mind.
A -EV investment like early-stage startup equity is still -EV for every incremental dollar spent. Paying upfront for equity whose terms can be rewritten out from under you with zero input is not smart from any angle.
You’re basically criticizing the guy for not having perfect foresight, when the real issue is that startup equity is trivially manipulable by upper-level management. It’s a carrot they can dangle in front of people while only rarely having to pay even a fraction of what was promised in the rare event of a profitable exit.
You want to say exercising options. Buying options is paying to have an option; you can easily buy options on publically traded stocks, for example. Exercising options is delivering money that covers the strike price to receive the shares... or delivering the shares to receive the strike price, if it was a sell/put option (which employment related options wouldn't be)
Sure, but I'm not really clear on what that has to do with the situation described?
And he calls them vested shares though, not vested options, though maybe he's incorrect.
And it's not like you forfeit them instantly after leaving anyways. You usually have at least 90 days. And the fact that the value of the company is so much lower now is favorable, if you think the value will recover.
But again, none of this has anything to do with the "1% payout" here that is still totally unexplained.
It’s possible that in the Google deal you had to agree to sell back the shares (at a low value like par or original strike price) and the 1% refers to either those proceeds or the size of the Google employment package. If you didn’t agree then you would be left holding your shares of a company that is now gutted.
> It’s possible that in the Google deal you had to agree to sell back the shares
But how could Google require that?
> If you didn’t agree then you would be left holding your shares of a company that is now gutted.
Which is what is sounds like he wound up doing anyways? Which I don't even understand why.
Google can just refuse to hire you if you don't
I've literally never heard of a company demanding you give up shares in another company as a precondition of being hired, for an engineering role.
At the executive level they may not want you holding shares in a direct competitor because it presents a conflict of interest. But even then you generally have a period to divest.
Can nobody explain what the actual demand was here? What did Google offer vs. what did they demand, and why? And why would Google be buying your shares...? None of this makes any sense the way it's been presented.
How would they even know if you were still holding those shares in another company? This scenario is pure fantasy.
Doesn’t income happen when you sell the shares ? What is the cost basis of the shares you purchase if not the strike price of the option ?
AMT income happens when the option is exercised (vests and paid for), the difference between the value and the strike price is income at that time. The AMT cost basis is the value at that time ... or you can think of it as the strike price plus the amount of income.
At the same time, if it's an ISO option, there is no assessment of ordinary tax until the stock is disposed. If there's a merger and the proper forms are followed, you can be issued stock from the acquirer that retains the basis (the strike price) of the original shares. If the forms are not followed, the acquisition is a taxable disposition.
There's a credit for the difference between AMT tax and ordinary tax on ISOs, but it can take many years for that to fully work out, and you have to have paid the AMT in the meantime.
Early exercise with 83(b) at time of grant (or while the value hasn't changed) or exercise-and-sell make the taxes make the taxes simplest, but tax simplicity isn't always the best strategy.
https://taxsharkinc.com/when-are-vested-shares-taxable/
Its different for vesting. Othrrwise even more toxic greed and tax avoidance would occur.
Vested options haven’t been exercised and are typically voided when leaving a company. Just because you vested the options doesn’t mean they are permanently yours, unless you choose to exercise them before leaving.
Writing for LinkedIn metrics means never having to make an understandable statement that someone could take exception to.
https://x.com/ahmaurya/status/1948491614160122308 Garry Tan posted "sounds like a tweet that cost $20M" which he later deleted.
Smells like a strong bias against employees in favor of management and founders.
Tan is someone who can't handle disagreement or criticism. It likely leads him to live in an information bubble.
That is YCombinator & Garry Tan for you. Disrupting the screwing over employees (and founders if they can but its just much harder) as a sport.
Could you expand what's going on there?
My read was that Garry Tan implied "you sacrificed a lot of money in order to grandstand". I felt that was a knee-jerk dismissal of a founding employee's legitimate concern.
I'm not sure, but my interpretation is that Gary is implying that Prem Qu Nair received $20 million from the deal, and that by posting this tweet, he has violated the terms of the agreement, which generally have non disparagement clauses, and Gary will see to it that he won't receive anything.
Don't upset pac
When you were younger and learned about history did you form a mental image of what kind of people the famous financiers, capitalists, and robber barons were?
These are those people. Oil and railroads were high technology too.
They want you to think they’re Lazlo Hollyfield, but they’re Daniel Plainview.
That was really shady.
I believe Tan's words were mis-represented. I believe he is saying that it cost Prim $20M and he then wrote that post. I don't think he is insinuating anything else.
He's misrepresenting his own words when he writes a vague tweet like that. Tan is a serial shitposter and is known for blocking thousands of people that even slightly disagree with him.
i read it the same way but i have no context to be confident in that reading
Directly contradicts Garry Tan's post saying that all forty founding engineers got seven figure payouts from the Google acquisition: https://x.com/garrytan/status/1947072583092052406
Even if the OP considers the full headline number of $2.4b to be the value of the company, and taking his "1% of fair" number as truth, seven figure payouts would imply all 40 founding engineers had >4% equity which is nonsensical.
Not contracting.
Let’s do a simple math. Assume this employee gets 5% of the company (which is super unlikely, but let’s go with it), that is 150m for what could be worth if OpenAI deal went through. 1% of that would be 1.5m.
That is still 7 figure. But this person spent 3 years in a startup, which turned out to be a unicorn and super highly successful, and he bagged a FAANG salary man pay at the end of the deal.
Basically this just proved startup model for normies are completely broken, if your goal is money, don’t join a startup
Yes, but 40 people cannot each have 5% of the company.
Nobody said all 40 of those engineers got 1% of fair.
It's bizarre to see tech bros, YC, and megacorporations kill the startup talent pipeline that they rely on so much.
Who is gonna want to work at a startup in a non-founder role after this and Scale AI?
This continuing degradation of, and flagrant disregard for social norms is destructive for society.
I think we would be back to historical norm, that startup will start falling behind in attracting talents.
The founders of Windsurf had already gotten their bags, they won't have to work a single day later in their life if they don't want to. The consequences will be bared by the ecosystem.
For the time being I think they are going to be OK, the labor market is employer friendly.
Young engineers who don’t know how this works yet.
I will make them this then. I will inform new talent about how VC lies with puting all proof too. New website and SM coming for this
the market doing what the market does: price discovery. yes, this is a cynical take, but so is the money in this market.
This is not a new dynamic. This situation has existed for 10+ years, you can even read the same comments in the same HN threads from 10 years ago.
Equity is only to be valued at greater than $0 if the business is publicly traded.
No, what Garry is saying DIRECTLY correlates with the outlined opportunity.
For his assertion to be right, 40 people need to get paid out at least 1 million. That's 1.67% of the company or 0.04% evenly. Its not hard for me to image that up to 10% of this cap table was distributed among the 40 people.
Why would you believe extremely motivated hearsay from Garry Tan? The man is already very untrustworthy before we get into the "I heard" and conflict of interest.
Garry Tan allegedly replied to this tweet, but later deleted it
https://x.com/dvassallo/status/1948635445233156239
It is possible that 7 figure number included the offer to join Google, and since this engineer didn't accept that offer, they would not have recieved the compensation for doing so. It sounds like Garry Yan was getting his information second hand, so it may not include all of the context.
Hilarious that the best case positive spin highlighted is 40 people cleared at least $1m, so $40m out of $2.4 billion and $240m funding. He's praising "look 2% of the payout went to people in the company".
Nevermind that $1m over ~4 years is approximately the same as the differential other public tech co's pay. ($150k + equity at YC co, $350k TC at G/Amzn/FB/Uber/etc.) So when they tell everyone they should work at YC co's, they're saying they're proud when in the absolute best case scenario you make just as much as at the public co's they rail against working for.
If you want to come across as genuine, directly say how much % of the payout went to employees that weren't the founders. They won't, because it's likely 3%, which correctly sounds horrible
> the absolute best case scenario you make just as much as at the public co's they rail against working for
that matches my experience working at 2 non-public venture funded companies.
Garry Tan's job is bullshitting. Lying isn't very far from it, and he even covers his ass with "I heard".
Who did you hear it from Garry, the founder that made out with all the money ? Or the other VC that made a few hundred million from the sale and stands to gain even more if the lie of "founding engineers get rewarded" is perpetuated?
> 40 founding engineers
Forty founding engineers? Seriously?
They must have a very expansive definition of founder.
"Founder" and "founding engineer" are two entirely different things. One of those phrases is a glorified substitute for "early engineer". Kind of like when you buy a "founders edition" Nvidia GPU. You are certainly not a founder of anything.
'Founding engineer' is the new 'Vice president'
I'm waking up personally to the unethical side of Software development as well. You can either do little and get paid pocket change or you can provide a ton of value for pocket change next to some promises lulling you in, where the value of your work exponentially increases, but you will see nothing of it and whatever you do: you are still a replaceable cell in excel to them and there will be ways where you get dragged over the table. If the money isn't directly in your bank account, it might as well not exist or was a lie. Sooner or later you are the horse behind the barn anyway.
As an engineer if you are gonna be a rank and file employee you need to do it for your own reasons. I think the main good reasons to do it are:
1. It's relatively chill and you value the stability. You deliver competence from 9-5 then go home to your family or some other thing that's more important to you than work.
2. You really enjoy the pure engineering side and find meaning in the technical artifact you're creating. Probably it's open source and has some value/community outside of your employer.
3. You're gaining valuable experience that you can later leverage into something else. Probably you're in the first 5 years of your career.
If the main thing driving you is growing a business, and you don't directly own (not options or RSUs or whatever, actual real equity) a significant slice of it, you are very likely misdirecting your energy.
(I guess there are also cases where the mission of your organisation is not profit and you care about that. I don't know any engineers in this position but I might be quite happy working in the public sector).
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Okay, but how much do you think you deserve as an employee who has invested none of your money in the company and decided to join on a 6-figure salary only after the company is already through YC, is funded by top investors and looks attractive?
If you’re instantly replaceable by any dime-a-dozen engineer than can install packages on npm and use react components and add a thumbs up to slack messages…to not get accidentally rich because you just took a high paid tech job a year ago…seems fair?
I just fail to see why everyone in the comments here believes they deserve to be compensated at the level of the top 0.01% of all people without starting their own business.
Start your own company if you think it’s so easy to be a founder instead of an employee. Nobody is stopping you.
I also think it’s some crazy cognitive dissonance to assume you’d be able to walk right into a FAANG sr. eng gig instead. As if most startup employees haven’t tried before joining [insert startup].
Take the moralising out it.
If I join a lottery syndicate and it wins 100m but I only put in 1% of the syndicate amount say $100 do I not deserve $1m because I'm just a "whatever I am just"???
You didn’t put anything in though, the lottery syndicate paid you to work as a janitor.
And the point is the syndicate didnt win??
You pay by getting 120k/y for 60hr week instead of 300k/y for 45hr week in Bay area.
Pretty expensive.
Do you think founders deserve 100x more money because six weeks ago they sat in a few meetings with Y Combinator that went well?
If it’s so easy to do that instead (and if you think that’s how startups work), why the hell would you join as an early employee instead of starting your own company?
Hint: it’s not as easy as you think.
Thank you for your comment, it proves my point!
Being a founder is a job as much as being an engineer is and being an investor is - especially if you get investors early and don’t take debt to capitalize the company (which you shouldn’t if you like your life.) If you did take debt as a founder, don’t brag about your bad decisions as if they make you special.
> I just fail to see why everyone in the comments here believes they deserve to be compensated at the level of the top 0.01% of all people without starting their own business.
No one is saying this.
There is no question that the Windsurf and Scale AI ploys effectively left employees with ownership in the company high and dry.
> but how much do you think you deserve as an employee
You deserve what you are promised. If a founder says you will get rich if the company goes to the moon, and they instead do some strange maneuver so only they cash out, the founder is a scumbag.
You are acting like early startup employees risk nothing working for a startup, and invest nothing of their own. Again, that is a weird assumption.
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To state the obvious, software developers are doing just fine.
You do sometimes get the 0.31% of a relatively big number under a promise you tag along for two years and some more pocket change on top. Still better than just pocket change zo
Welcome to the real world. It is the case with pretty much every job, not only IT.
how much change fits in your pockets?
These stories really kill the golden goose because it means a lot of talent just won't work at a startup.
YC isn't particularly great here either, they are pro founder but not pro startup employee. Most YC companies offer pretty paltry equity to even the first few hires - and that is even assuming you aren't going to get screwed down the line.
The risk-reward equation for startups vs boring-big-tech has turned completely upside-down. Back in the day, startups were the only lottery ticket to riches, not to mention do interesting work. But now, the tables are turned. For experienced engineers big-tech comps are attractive enough to put up with the office politics, and if you lucky do some interesting work.
The people who go to work for start-ups are usually young. There comes a certain time in life when you have a family that relies on you and you get old enough that you start to make plans for retirement.
That's when you get a real job at a very boring stable company and stop being delusional.
Not everyone decides to have a family. For some getting that boring and stable job is the only way to get to take some risks later in life.
Well, that depends. I'm working in a startup and I'm in my 40's. Although it's a bit different than a typical startup, because it pays quite well compared to 95% of other offers in EU to live a very comfortable life in a not too expensive European city.
Yeah, the hours can be crazy but not too often. Yes, you're expected to give your best all the time but that's part of the fun. And the best part is the challenges are always interesting.
Maybe it makes it easier for me that I'm not at all interested in normal family life and never want to have kids.
This is a fair cautionary tale but it's worth understanding the specifics of the situation – Windsurf maintained a relatively easy to replicate product with no moat, and employed a bunch of attractive talent. The company got gutted of these employees and lost its valuation because no suitable buyer thought their IP was exceptionally valuable on its own. Just because this was the outcome for Windsurf does not mean there are no longer opportunities to join startups building sticky customer bases with valuable IP and walk away wealthier when they exit – yes there is a liquidity problem[1] but let'a be honest with ourselves about the specifics of the case for Windsurf.
[1] https://techcrunch.com/2024/01/11/us-startups-have-a-liquidi...
I don’t understand why the specifics of the situation matters here. We know the company got acquihired for $2.4B, the problem is, why did all of it go to investors and founders and nothing for employees?
I’m not sure customer churn rate has any impact on liquidation preference.
Actually, their recent acquirer is now raising at a $10B valuation from Founder's Fund.
They had plenty of value left even after getting gutted.
Since others are sharing their doom and gloom stories - Mine is the opposite. I was hired at a startup, and I didn't even know what a startup was. I just liked the industry they were in and applied to join.
In negotiations I tried to get more salary, by taking less equity. It kinda worked, but later they doubled my equity to match other hires of the same era (but with a new vesting schedule for the new options). Then at some point I was fired without reason. The company went on to become worth a lot, and I was able to get out with enough to never work again and live pretty luxuriously. AFAIK others that were in my era at this startup did equally well, or many times better. It can happen, but I didn't ever think it was even possible because I didn't understand what 'options' even were when I was hired.
This was just a preference cliff, plain+simple. Windsurf got paid maybe $3B for itself. But the investors and senior management got their cut first. How? Well, the preferences they negotiated.
#2 wasn't in the room when it happened. In a very real sense, he's lucky he got anything. Management owes a fiduciary duty to the shareholders and #2 is a shareholder. But negotiating the $3B covers that duty.Doesn't seem that simple. They raised a total of ~$250m and acquisition price was almost 10x that. The preference cliff means that employees get nothing before investors get an X% return on their investment (100%, 150%, maybe 200%). After that, the payout should be proportional to common stock ownership. Surely the preference guarantee was not 10x?
Would be curious to see the breakdown of the $2.4b:
1. How much to the founders in Google employment incentives
2. How much in licensing fee to the company itself
3. How of the licensing fee went to immediate payout to VC investors (+ employees)
4. How much got left on the balance sheet of the remaining company
I don't understand how #3 can be so large and common stock holders walk away with almost nothing without breaching fiduciary duty?
The August 2024 Series C round (last of 4 rounds) for $150M could dilute+smoke the preference stack for any earlier investors of which #2 nominally was basically the earliest class member of. C gets preferences+participation. B+A get preferences+participation+anti-dilution. Common gets what's left which apparently wasn't much.
Fiduciary duty is very low bar. Management has to act in the best interests of The Company, as in, as a whole. The company != #2. Lawyers are not taking this case.
I'm certain the accounting was done properly, maybe even by a Perl script, and this is how it penciled out. The question for us stiffs is what can we learn from it?
> in the room where it happens
Great song from Hamilton. Sorry for being off topic.
Lin Manuel Miranda is a poet and a scholar. Original cast video of the song in question:
https://www.youtube.com/watch?v=e_FWUW6SnDo
In a moment of carelessness I have misspelled the man's name. His name is Lin-Manuel Miranda. I can't edit this anymore so I hope this helps.
https://en.wikipedia.org/wiki/Lin-Manuel_Miranda
https://www.imdb.com/name/nm0592135/
My base salary was fine but the magic was in the stock.
I got a payout on acquisition by a FAANG+ (as first employee). It was only 300K but I put 50K of that into Nvidia. Actually I invested all my payout from my startup stock into tech stocks. And I got a terrific golden handcuffs deal.
After that I could afford to retire and I did.
Did you also post this recently in Blind ? If it is so you might want to fuzz the numbers a bit.
Less than 10 years ago but not recent.
Some more context from Ali Partovi, founder of Neo accelerator:
https://x.com/apartovi/status/1948444826674102732
bad look all around.
I don't understand the twitter post.
- Did he take the offer or not? - Did he forfeit the vested shares because he took the offer or because he didn't? - What was he offered in return for forfeiting the vested shares? - Did he get a payout of 1% because he took the offer or because he didn't? - The 1% comment implies that Google didn't use the $2.4B to buy the shares of Windsurf; if not shares, then what did Google get in return?
Original citation: "I was given an offer that would explode same day. I had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf. I was ultimately given a payout of only 1% of what my shares would have been worth at the time of the deal."
The comments here taught me about startup acquisitions more than any article/video I have watched in the last 5 years.
Deep appreciation to everyone who shared their story, thank you!
That’s why founding engineers are such a raw deal. They take just as much risk as the founders but much less payout. Also on the hook to do most of the work.
It's complicated. The difference between a founder and founding engineer - I think you mean early employee - is pretty big. The fact that they are getting a "raw deal" in your POV should inform you that the equity grants are not related to risk.
This is coming from someone who programs for a living: contrary to what you are saying, the money guys take too little equity. The money guy being, the reason you are raising money at all, and not just dipping into your own savings.
No. The engineers build the product. They do the actual work. Let's flip your 'reason' around: the engineers are the reason the VCs have a job at all, since the entire point of the job is to find people building big things and funding them to get a cut. They are secondary, the actual product -- and the people who build it -- are what matters, morally and economically.
An engineer in a non-startup also builds the project and does the actual work. It's not special. Trading money and opportunity cost for sweat is what makes it equity.
Also, engineers are not the reason VCs have a job.
actually the big scam is the difference is not big at all, alot of times founding engineers do more work than the CEO. a startup that raises 1-3 million alot of times doesnt even have revenue. sometimes its just that the founder went to stanford, hires engineers, gives them lottery tickets, and hopes they produce good work
https://xcancel.com/premqnair/status/1948420769945682413
The details here remain unclear to me, and even this tweet is somewhat vague.
> I was given an offer that would explode same day. I had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf. I was ultimately given a payout of only 1% of what my shares would have been worth at the time of the deal.
Was forfeiting the vested shares conditional on accepting the offer, or did he have no choice over the matter? Was the payout what he was offered as part of accepting the deal, or was that his consolation for not accepting it? The wording is genuinely unclear to me.
I literally see 3 interpretations here:
1. Offer was to forfeit shares in exchange for 1% payout, but OP rejected and still has shares
2. Offer was to forfeit shares in exchange for undisclosed payout, but OP rejected and got 1% payout instead and still has shares
3. He had to forfeit shares regardless of accepting offer, got 1% payout
(1) and (3) are both shitty offers from Google, but (2) is reasonable. Exploding offers are not uncommon in tech acquisitions. My guess is that (2) is what happened, since that's not in contradiction with prior reporting.
what are those shares worth with the company gutted? Seems like not much of a choice if leadership and IP are gone...
The company should have been worth at least the cash it had on hand, which has been reported as ~$100M. It's also been reported that all vested equity and VC shares were bought out (although apparently perhaps with a few exceptions for people who declined the offer), which meant that the employee unvested equity stakes were "undiluted" from whatever they were before (hard to judge, but maybe 5-10%), to 100%. So every employee had their stake in the company increase 10x-20x. So if the company had then decided to simply close up and distribute the remaining cash as dividends to the employees, it would be as if each employee had simply been bought out pre-deal at a $1-2B valuation. And that was the absolute worst case scenario - clearly Windsurf found a better deal with Cognition.
Having been aquihired three times by FAANG+, the biggest take away is have accelerated vesting. To do that you got be lucky or in the C-suite. Being bought out usually sounds better then reality for everyone but a few that get that accelerated vesting clause.
Not much of a story here. The guy got a better offer and he took it:
> I was given an offer that would explode same day. I had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf.
It's still pretty shocking to have to forfeit shares that have vested.
It’s like, what does vesting even mean?
Was this a scenario where he lost them because some sort of “cause” event occurred, like leaving to work for a competitor? I can’t imagine that would even be valid under CA law?
I’m not even sure who was forcing him to forfeit his shares…
Vest has two meanings: If it's a stock option, then it means you have the ability to purchase a share at a pre-determined price, no matter the current public price of the stock (or even if there is no public price). If it's a Restricted Stock Unit, it means you own that share.
The author refers to them as "my shares" which implies he has possession of the shares.
I must be misunderstanding what he is saying, but I can't figure out what. Once his shares have vested, they are his. What entity forced him to sell his shares for 1% of what they are worth and how could they possibly do that?
Google did a weird thing where they poached windsurf employees, licensed their tech and hired the CEO and upper management, leaving a shelled out company behind
Looks like employees were given an exploding offer to join Google and sacrifice windsurf shares at a low valuation, or stick with windsurf
If you stuck with windsurf you then joined cognition in a later acquisition
Wow. How did the Windsurf investors feel about that?
They got paid out as well. Meta pulled the same thing recently.
So, a new trend where big tech “buys out” a startup in a way that only early VCs, founders and top managers get any value.
Seems like that makes options completely useless. If they had actual shares they could at least sue because majority shareholders have a duty not to completely screw over the minority.
It has always been possible (and sometimes happens) for VCs and mgmt to screw the early employees.
The question is will it become more common now?
Also, people equate these to aquihire deals. But they are not really. Most aquihire deals are when the company is out of runway, or it seems growth has slowed/stopped and there are no good ways out. There is not mucH value left.
Here there is clearly billions in value, it’s just not being distributed in the normal way.
It feels like it will become more common if Google gets away with this with no real backlash.
I mean why would anyone honor employee options when buying out a company if you can just poach all the key employees and assets.
As you said there was so much money involved. I can’t think of a similar situation where employees were screwed out of billions like this.
You can, and maybe should, exercise 1 option as soon as you get it to turn yourself into a shareholder.
Thanks for the response.
It’s breaking my brain a little bit that this isn’t a straightforward breach of fiduciary duties to the corporation and its common stockholders. If an acquirer can deal with top management and holders of preferred shares, and scoop out the crown jewels of the corporation, then what’s even the point of using a Delaware corporation to raise capital? Might as well just form a Nevada LLC using an LLC agreement that just says “good luck.”
Sounds like a breach of fiduciary duty to the common shareholders.
>Meta pulled the same thing recently.
Do you mean the Scale AI acquihire? I took it at face value that Alex Wang just joined Meta, but come to think of it now, the company's just a husk of itself, customers no longer trust them, etc. So, it seems you're referring to Scale.
Yeah, that must be the one. What did other employees get?
Why would they give the CEO a bunch of money to join Google, but not employee #2? Is it possible the CEO is just worth way more for what ever reason?
I reckon it has something to do with what % of the company was owned by the CEO vs employee #2.
It's not entirely clear, but I think Google/DeepMind offered him 1% of (what he thought) the shares were worth and then he refused and then the shares became worth almost nothing because Windsurf was just a husk of its former self.
Cognition made him a lightning offer it sounds like, valid one day only.
I think if I understand what he is saying he could either stick with the product and team giving up the shares, or keep the shares and try his luck getting money for them another way.
I appreciate that his choice shows that he is in it for the product and the team, but also ouch.
Vested options can be voided when you leave a company, unless you want to exercise them.
Whichever entity ended up buying Windsurf, the corporation. They get to declare the exchange rate, and for what. Sometimes it's cash, sometimes it's stock, usually it's some mix of both.
Where would the 99% haircut have come into play?
Nobody willing to pay as much as OpenAI was offering initially? Of course that valuation was about as absurd as it gets…
The classic article on this topic is https://steveblank.com/2019/04/10/startup-stock-options-why-...
Nothing has substantially improved since the article was written. With “forever private” companies it’s only gotten worse.
When joining a startup, the most important factor isn’t the idea, product, or the VCs: it’s the founder(s).
Think like an investor. Would you back this person? Are they ethical? Are they resilient?
Also stock options should not be high on the list. Most startups fail before founders or VCs even get the chance to screw you over. In 99% of cases, nobody wins.
When people give you a percentage (1%), that is a ratio and they are not telling you either number. So, that makes me a little suspicious. I wonder how much he got in the end?
It doesn't really matter if he got less than what the acquihired founders did proportionately to his percentage.
I feel like there needs to be the analogue of open source licenses for equity offers. Something standardized, so that both employees and management could negotiate in good faith with high confidence that the terms are as advertised.
Because right now, there has been too much innovation in ways to screw over employees and the only reasonable assumption is that equity will vanish.
For some startups (mostly dealing with local and self-hosted software), it may be a better option to offer perpetual license grants to the product being worked on as opposed to equity in the startup itself. This encourages employees to make the best software if they know that they are also going to be the end user as well.
I am surprised that the employment agreements between execs/founders and Windsurf didn't address this. A cautious investor--or even a cautious key employee joining the team--would have locked the founders and key employees down to prevent them from being hired away without some recourse. This is especially important when all of the value was in the employees. There should be lawsuits forthcoming...
Non competes are illegal in California, there is no legal way investors can lock founders and employees down. This is venture capital investment risk. The employees, who are most of the value (aside from potential IP and customer contracts), can walk at any time.
I understand your clarification. You should be able to use vesting schedules, right of first refusal to counter, careful definition of IP and trade secrets with assignment to the company, right of repurchase of shares, etc.
This is indeed venture capital risk, but this case lays bare the exorbitant amount of risk for investing in these types of companies--perhaps especially in California?
It doesn't have to be a lawsuit preventing them from leaving. Golden handcuffs usually work pretty well for such a situation.
Unless investors and management are unwilling or unable to counter a superior offer. “Pay them more” works when willing and able. Otherwise, bounce. Comp is king during a gold rush you’re unsure how long will last.
I’m afraid behavior like this will only get more common and really shines a light on what a bad deal startups are for anyone but VCs and founders. Windsurf founders should be ashamed of themselves, but of course won’t be.
Buy the ticket, take the ride.
But also understand who broke the ride in mid-air, and treat them with according levels of scorn in future.
Can someone explain how that worked? How was the CEO allowed to sell license AND talent to another company? Wouldn’t that screw investors? Why would they allow it if their stock becomes worthless after that?
i had many startups reaching out over the years but i just could not make the numbers work to make the shift.
it's not uncommon that a regular salary from a big tech in the bay area would amount to ~$2M total after 4 years (considering stock appreciation).
if you were given 1% of equity of the startup then start up has to worth $200M after 4 years. or more likely you would be given 0.1% of equity of the startup, and then it has to worth more than $2B, in order for it to make sense for you.
how likely is that going to happen?
Title should be changed. Sounds like this was a choice not a fuckover.
That said...
Don't be a fool for all these AI startups that want you to burn out on 100 hour weeks. Many YC and non-YC startups are using this bravado based hiring strategy trying to get cheap labour to fuel their rockets to the moon. Don't be no fool!
The value of the options was destroyed in the deal. He had a choice between getting 1% or getting nothing.
It was a fuckover.
Every time... The salary or fee what you trade your life for, shares might multiply that. Might. If your base salary is low 'because you have shares', you will probably never see a return: the idea this is loyalty or something is some weird thing; don't do it unless you love it and want to spend that life blood without a return.
So if one was to start a company today and wanted to enshrine employee-and-founder-friendly terms in their company, how should things be structured? Make the founders' shares be of the same class as the employees? Something special?
Make it a cooperative. https://tech-coops.xyz/
Kind of a non-starter. No one is going to found and invest in a cooperative.
He elected to move on before his shares were vested.
Many interesting, and probably true, replies about investors cheating out employees, but it seems very few people read the actual post.
Where can I real the actual post you are mentioning? The tweet only mentions "had to forfeit all of my vested shares earned over my 3.5+ years at Windsurf", which seems to conflict with your "before his shares were vested" statement.
Financially speaking, is it even worth joining a startup anymore? Compared to just going to any of the big companies. The latter will likely pay you more, with less risk involved.
Seems like the best shot is to strive toward becoming financially independent, and then just go for the startup route and follow your passion. If you it doesn't work out, no big deal - if things turn out great, you'll just be even better off.
Has it been worth it in a while? This is a legitimate question as I am on the east coast and wonder if it differs from the west coast environment.
At least in my anecdotal experience, everytime I’ve entertained a startups offer in the past decade it’s been either something like engineer #1, 3% equity and no you cannot see the cap table or other agreements with investors, or something like 10k units at 25 a share when we’re on series z, and you lose them if you leave, and you can’t sell for 6 months if you leave, and the investors have priority on payment if we sell for less than our valuation and yadda yadda yadda.
I mentally just valued the equity as 0 in the compensation with all those limitations on liquidating them and never understood why anyone joined a startup
Oh also there is the trick where the startup gets sold a little under its strike price and the execs each get signing bonuses > book value of company as sold
Was there ever a time when you could reasonably expect to make more money by joining a startup? That has never been the case so far as I am aware, and I'm currently on my seventh tour through startup-land...
It was always a bad deal. It was supported by urban legends of janitors and cafeteria workers getting seven-figure payouts because they negotiated a few shares of a company that went IPO and went "unicorn". But the reality was, most startup companies failed, and most shares became worthless. In 1995, 2005, 2015, etc. it was the same story.
The only thing that changed recently is the "unicorns" stopped happening altogether.
The startup I did in the 90s provided me enough money to buy a car when they IPOed. Feh! Not worth the dreams I still have about having to return to working there.
It feels like it is worse now than it used to be. Back in 2010, you would be giving up a nice salary but not a much nicer salary by working at a startup.
So, startup base compensation hasn't kept up, and the career and financial risk of working for one has gone up due to higher interest rate and higher open-market asset prices.
I did a startup circa 2010, early number employee, given our (failed) attempt and my equity I would have conservatively walked away with a $500k sum had the Founders’ plans worked. That would have bought me a fine house in the nicest part of town with cash to spare.
Having done two more, the best outcome I’ve seen is a 50k post tax payoff for 5 years of shitty startup conditions. Great, I got a down payment on a house now worth 800k.
So that reason the best play, if you’re not a founder doings cash out early, is to just play it safe in a big job and dock money away in equities and real estate.
Base salaries aren't terrible at startups, it's the RSUs and ESPP they can't match. I can deal with a terrible IT department preventing progress for double the money, it's fine.
I really cannot, so - good for you! It takes all kinds.
There is nothing I could do for pleasure, even with double my salary, which would compensate for the misery I would feel working a job I hated. But that's who I am, and we're not all the same!
It's not a terrible job that I hate, it's just sometimes you want to do something and you can't without a weird lobbying process.
2010s startups were a lottery ticket with bad aggregate odds but real upside. If you wanted to make a risky bet, or if you believed you were better at picking winners than the rest of the market, there were some real opportunities to be had. If the new trend is a cabal of investors and executives hollowing out all the upside, in the rare event of a success, that's stark.
More? Not really. But before Zuckerberg and the DOJ blew up the illegal wage fixing the big valley companies engaged in the gap was smaller.
Maybe way back in the .com days but its a terrible decision financially now.
I am of the firm belief the solopreneurship is the future, especially with the power of AI. I don't believe corporations of any type, from startup to tech giant have the interests of anyone but the majority shareholders in mind. Employees, customers, partners, all get the shaft. When money is involved, startups aren't product companies, they're financial instruments.
> Seems like the best shot is to strive toward becoming financially independent, and then just go for the startup route and follow your passion.
This is what I’m trying to do now. Having worked in startups and big tech; I think the best thing one can do is to attempt to forge their own path. For independence, financial gain and sanity
It's generally not a good sign to me that this is the case. But I think you're right. Something needs to change to make startups feel more viable again.
> Compared to just going to any of the big companies
You're assuming someone joins a startup when they could join a big company. It's an exceptional occurrence.
Outside US hardly, unless being one of the founders, because stuff like being given shares is not common.
You will get a regular salary, with occasional performance bonus, just like any regular company, with all the action a startup requires.
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That stinks. I'm sorry. The founders could have taken part of the proceeds to at least adjust your upside with a transaction bonus. It's pretty easy to do.
A lot of bias against startups in the comments. These are missing (1) how terrible the working conditions in bigco have become in the meantime (2) truly good startups (they exist) that pay solid base salaries
The odds are clear as day. ~90% of startups fail, and the truly good ones are very rare. Do small pockets of good exist? Yes, absolutely. But most of the startup ecosystem is convincing employees to grind for peanuts until founders and investors (whether that's accelerators or institutional) hit liquidity (if ever). Of course, if you find the unicorn (good comp, target work life balance, meaningful work [to you]), hold on tight and don't mess it up.
https://www.marketsentiment.co/p/the-yc-report
https://news.ycombinator.com/item?id=42828198
Depends on a big co. You can skip all the drama try harding and work in a boring place too.
At least you get paid in bigco and you don't have to worry about your equity being snatched from under you.
Most early employee equity has the worst liquidation preference. It's almost always toilet paper.
Always, always think about the downside scenarios if you enter an agreement. If you don't you will end up regretting it for sure.
AI companies paying $100M+ for a single hire is like Tesla buying oil fields.
What I find amusing is that YC’s Garry Tan is going around explaining to Prem how he actually got a good deal and that the Windsurf founders were very generous to their early employees. Meanwhile from his perspective he joins a company with friends he’s known for years, takes on basically the same risk that the founders did, probably gets some fraction of the equity they did for that work (10%? Less?) and then when payoff time comes he gets cheated out of that too.
If I was a venture capitalist dependent on 20-somethings believing in the dream I sold them maybe I wouldn’t write snarky replies on them on Twitter when this happens and actually look into fixing things for early employees (like, maybe, giving them similar terms that the founders get), but that’s just me I guess.
He has just as much financial interest in the dream being false as he does in people believing it, which your recommendation seems to overlook.
Holy shit. We need need better early phase governance tools than handshakes and winks. The SAFE was written to streamline things so that everyone can get to work right now with a reasonable basis of trust. How can we have that basis of trust among founders and early hires when stuff like this happens?
If no founders can be trusted, sweat equity partnerships will become rare. If the only people who can build companies are VC funded founders who hire employees who treat the whole thing like a game, there will not be a good crop of companies to come out of that environment.
Founding is freaking hard. It needs to be reliably and fairly rewarded. Otherwise the people trying to bootstrap and make things happen have nowhere to go if the idea they are completely convinced MUST be built is also a hard hard sell to VC hive minds... because it's too oddly shaped (innovative).
We all have an interest to put the instruments and paperwork into place to make stories like this NOT happen so that sweat equity startups founded on personal convictions and strong cooperative incentive alignment will happen.
https://positron.solutions/careers
You got zucked.
Can someone help me understand why he would have to take this deal and not just say “no thanks”?
The thing they don’t tell you about joining startups is: the integrity of the founders matters more than anything else.
If you’re not a good judge of people you should work somewhere that pays cash
this is something that my feeble European brain will never understand: why people in American start-up keeps getting scammed with pseudo "private" equities, stock options, that are not on a market, and therefore cannot be priced? equities surrounded by very obscure (or no) legislation, that if you get fired or decided to leave you cannot keep. it just make no sense but americans loves them.
If you've convinced yourself that layoffs are a normal (and accepted) part of a career you'll have no issues believing in this crock either.
European salaries are laughably low even compared to low ball offers from US startups.
Essentially options for good (but not great) sr engineers are
1. Get 120k salary in Europe (on higher end)
2. 500k at FAANG in US (salary + RSU)
3. ~200k at startup in US + lottery tickets
Both option 2 and 3 strictly beat option 1 (especially after taxes) so European should get off the high horse and recognize reality that they are poor and exploited by companies and government.
were*
why would anyone work in startups as early devs anymore. Tell me what is the upside? There seems to be only downsides. Startup Fails , you loose - Gets acquired - you loose What is the motivation to perform .
If you want to write new code and have a lot of influence over the overall implementation instead of fixing bugs on a years old steaming pile of tech debt.
Not all places with large existing codebases are that bad, but if you are experienced, it can be very personally satisfying doing something well before it has degraded over time.
I have worked in quite a few. One is a household name down here in Australia. I was the first engineer with the two founders. I worked 2 years 24/7 for half the salary I got when I left. I'll never get my money back but that's ok as I loved the time there.
Working on decently cool things with relatively limited bureaucracy.
You can do that at established companies. If the cool thing comes to an end you'll often have a boring job you can keep or stay at while you find something else.
Because you like the work you are doing and the projects you are working on?
Presumably you have a lot more control and freedom to do things how you want than at a large company with a lot of red tape etc.
That's the main reason I would do it.
So "heads I win, tails you lose!"
faang has sucked the oxygen in the air. For experienced engineers, the one upside to startups is if you are a founder and you are creating a change you want to see in the world. But this delusion is shattered as time goes by and you realize that you are only a cog in a smaller wheel, whereas, in bigtech you are a cog in a bigger one.
On average, startups tend to have a better culture due to the incentives at play compared to big-tech. And that attracts engineers regardless of the comp.
> There seems to be only downsides. Startup Fails , you loose - Gets acquired - you loose What is the motivation to perform
You get to make a nice payout for a VC. And isn't that all of our life goals?
He should come to the UE to work on … oh wait!
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Why do people care so much about what some random guy did in a company acquisition?
A lot of this industry is focused on early stage startups as a path to financial success. The rules and laws around this don’t tend to protect even early employees much at all. People depend on social norms for what to expect. Shifts in the norms are of interest.
Everyone thinks they are the next random person who wins the startup lottery. Dreams of 50 million dollar paydays are brought crashing down when they realise they will be lucky to get 50,000.
Because it sets the expectations and everyone here is (pretending) to play the same game as that random guy. Okay, not everyone, but it's YC forum.