[ditonal]

This is the “startup myth” that lets the scam perpetuate.

The world has changed. Google IPOed just a few years after it founded. Now Stripe, objectively one of the most successful startups ever, still hasn’t IPOed after 15 years.

Liquidity preference Dilution

Even the F in FAANG had a major movie made about early employees getting shafted by dilution!

FAANG is 5 companies founded a long time ago. Since then VCs have completely rewritten the rules of the game. But they’ll still point to extreme outliers in the old rules. The fairy tale of the Google masseuse has probably cost tens of thousands of engineers millions in compensation.

You need to get things in writing and do the math and startups make it as difficult as possible to do that and then the math never adds up. So they resort to fairy tales.

[Finbarr]

Many huge private companies, like Stripe, have found ways to provide liquidity to their employees without going public, e.g., through tender offers. Some more recent examples of companies where early employees did very well would be AirBnB, Coinbase and DoorDash.

[ditonal]

Early executives at those companies did very well. Early employees did well, but risk-adjusted , not really. I know people who were fairly early at those companies and they own nice SFH in the Bay Area but they're still working as Directors or whatever.

Consider that if you could make 400k (including liquid stock) in compensation at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company. Except unlike any other company you bet 220k on, you won't get a board seat, you won't get access to key metrics, your influence will be dominated by "real" investor's influence.

If your NW is less than 10M, which presumably it is, anyone who's heard even heard of the words "Kelly Criterion" would tell you your nuts for betting 220k a year on one startup. And yet, you get treated like "an employee" and not like "an investor" for taking that insane risk.

So YC has invested in 5000 companies, and you can name 3 that had top-notch outcomes, thats 0.06% success - and you had to work like a dog to realize it! And that money was locked up. Those same early employees could have taken that $220k/ year, put it on Bitcoin or Apple stock, and retired off that. And Bitcoin and Apple were much easier "picks" than an given startup.

The math simply does not add up and the whole system runs off mystique and naivety. And I've worked at startups that gave me a hard time about asking about outstanding shares, about asking about the cap table, about asking about liquidation preference. This is _critical_ information before you invest a significant portion of your life and net worth on a company and that they're guarded about and it should raise the ultimate alarm bells that they don't fall over themselves to explain every part of it.

There's a bunch of propaganda out there "Explaining ISOs, written by a16z" that's a smoke screen of the truth. The math does not add up.

The dream startup employee is really really good at Transformer architectures and really really bad at personal finance. Fortunately for startups, a shocking amount of these people exist. But it doesn't change that if sharp financiers looked at employee equity packages at startups objectively, every single one would agree it's a scam deal.

[Finbarr]

First of all, we're on the same page about the risk profile of working for larger companies being better for employees. But the reality is there aren't enough of those jobs for every single startup employee out there to get one. Some people also like the startup environment - move fast and break things, etc.

Your denominator (5000) is _all_ investments that YC has made. You need to look at investments of a certain vintage, e.g., 10 years or more. You also need to include all the other companies of that vintage where employees did well (way more companies in that cohort have sold or gone public). The result is 0.06% is a gross understimation of the success rate (where success is defined as successful enough for early employees to make a lot of money).

[robocat]

> if you could make 400k at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company.

Even worse, your bet is on common shares. Far better to work at FAANG and Angel invest so you get preferential shares.

The biggest scam of VC is that the dollar value of your time is hugely undervalued compared to a $ from VC that gets preferential shares.

[earnesti]

If you can get that 400k FAANG job, take it, for ducks sake. Not everyone can, and for some of them the startup deal can be quite OK.

People who can get 400k job at FAANG should be smart enough to avoid shitty startups. Looks like they aren't, based on these comments.

[wbl]

Ex ante it's hard to tell what's shitty and what isn't. Remember some VCs also got fooled by it!

[kelnos]

> Consider that if you could make 400k (including liquid stock) in compensation at FAANG

I'm very skeptical of the idea that this is common for new hires at FAANGs today. Certainly some people can command that level of comp, but I find it hard to believe the median employee can.

[heleninboodler]

The median employee also isn't the guy who's going to make a killing by being an instrumental early employee at startup. It's apples and oranges. I'd argue that the person who is versatile and productive enough to help build a startup from zero is also in the upper tier of those FAANG employees, and commanding 400k+ per year isn't out of reach.

I personally have taken both paths, and made what I considered a ridiculous amount of money at a startup (after I'd been gone for a while, having bought my stock). When I got my cash out, I didn't quit my not-technically-FAANG-but-pretty-close job and that comp continues to grow. I never expected this, but my comp has grown to the point where the cumulative amount I've made here has actually surpassed the startup money. 7 years at each place, and the steady paycheck eventually outpaced the big windfall. The difference is I can keep the steady paycheck indefinitely, so it's definitely the win if I stick it out. Of course, now I'm itching to do a startup again. :)

[JakeTheAndroid]

I don't agree it's a myth. Is it an extreme risk? Yes, of course. Do people view the risks to be way too low? Yes. But I worked at Cloudflare pre-IPO, got shares at 1.73, and at one point CF was at 200 a share. That was more or less what I was "promised" from the equity.

Stripe is one example of a successful startup not going public, but there are tons of startups that are going public. And there are many startups that wish they could go public, but they simply don't have the finances or business to do so.

I don't think VCs changed much from when Google went public until COVID. We were seeing massive overvaluations of tech companies for years. Once through 2020, VCs got scared and now the landscape is a bit different. But the AI craze has started to get VCs back out of their shells taking bets on risky projects.

So, yeah, idk what I agree with this assessment. At least it's not been my experience in tech over the last 8+ years.

[kelnos]

> I don't think VCs changed much from when Google went public until COVID.

VCs changed a ton over that time. In 2004 VCs were still smarting from the dot-com bust. And VCs were hardly spewing cash during and in the aftermath of the GFC of 2007/08. The days of easy VC money were mainly in the early-mid to late '10s.

And as you point out with your end date of COVID, VCs have now backed off again, as they did around 2000 and 2008 during those bust/bear cycles. I would credit interest rate increases with the current backoff, though, not COVID. During early COVID, funding was still fairly well available, assuming your business wasn't something that required in-person contact; even better if your business facilitated home-office work.

> At least it's not been my experience in tech over the last 8+ years.

That's only ~4 years pre-COVID; either seems like too short a horizon to make this sort of assessment. (Source: been in tech for 20-odd years.)

[whiplash451]

Can you please explain in what way VCs have completely rewritten the rules? Asking genuinely.