Yeah. I've not had an exit that high, but I've had an exit where my 25% initially was whittled down to 10k, and frankly I was surprised I got anything at all - in the end I was diluted to hell and back, but none of the later rounds had any liquidation preference that got triggered. It's easy to see a large exit number and assume it means it's a success, but in the case in question the (significantly more modest than $559M but still significant-sounding) exit was even below the total amount raised, and I'd written it off as a failure and left when we needed to staff down and I didn't feel I was needed any more about 5 years before the company was finally sold.

It sucks to see "your" (at this point it did not at any point feel like it was "mine") company selling for huge amounts and get nothing or near nothing, but it's worth people understanding that a large-sounding exit does not automatically mean it represents a success.

E.g. in this case the last round in 2015 apparently valued them at over a billion. Going from a $1bn valuation to a $465m exit is not great...

It's easy for people to think these terms were onerous, but if they could get $275m (the size of the last round) at those terms they likely could've still have found significant investment at less onerous terms if they wanted less risk. They chose to take those investments.

Taking VC cash is very often a game of deciding whether you want to gamble it all on faster growth or take less risk for less cash, but with the additional caveat that the investors you take on often will cheer for the "gamble it all" option as they have many parallel bets while you as the founder has one.

I've taken VC money several times and been part of early stage VC funded startups several times (including a VC), and I wouldn't rule out doing so again at some point, but it's important to go in understanding that the VC's incentives and yours are different, but if they are too different, then taking VC money might not be right for you, and that's fine.

Stories like this often have a lot of missing details that would provide more context and explain why things played out the way it did. I have no doubt the founders knew the risks they were taking and signed up for it. However, the big question is whether the employees knew the risk they had been signed up for. The lack of transparency for employees is where the big problem lies. If you are a non-exec level employee at a startup where most of your compensation is in private securities, you should apply a significant discount to your valuation to account for this opacity.

That's true, and good advice. I tell people straight up when I interview at startups that I value their shares near zero until/unless they can prove to me they're not. If they can't, that's fine, and I'll apply a significant discount no matter what, but my base salary need to be accordingly.

For starters, in any early stage startup I'd discount by 90%+ just because it's a startup, entirely irrespective of whether I like the idea, and what investors think.

> you should apply a significant discount to your valuation to account for this opacity.

It wouldn't suprise me if the estimated value of those is negative. I.e. your wage will be lower due to "wage dumping" by gamblers. I did not find amy stats on the median or average payout.

> Taking VC cash is very often a game of deciding whether you want to gamble it all on faster growth or take less risk for less cash, but with the additional caveat that the investors you take on often will cheer for the "gamble it all" option as they have many parallel bets while you as the founder has one.

This shall be printed in block letters in a red frame ahead of most Paul Graham essays about milk, honey and richies in startup land.

He and VCs push theirs agenda because he has hundreds of bets, while founder has one.

They play different game and are quite quiet about it.

Sure, it ought to be clearer, but apart from maybe the first time, I still would have taken VC cash because it allowed us to do things we otherwise wouldn't have been able to try, and it was a fun ride. Even without any large exits, if you negotiate then you can still come out very well.

But, yes, people ought to go into it understanding which game they're playing, and understanding that your odds are different. Not least because it might make a difference in how you judge advice from your investors.

(There's also only one decision I regret us making due to investors being too willing to take risks; in retrospect I was firmly proven right but whether the board vote going the other way would have made a financial difference in the long run I can't say)

Honestly $400M in funding with only a preference of $559M seems pretty reasonable as far as the VC world goes. That's a 39% return, which yeah is a lot, but we're also talking about half a billion dollars and when your entire business model is built on looking for 10X or 100X returns, a .39X guarantee isn't out of this world crazy. Especially when the actual exit was about half that return.

The last round was also 3 years prior, so the amortised yearly return was definitely not something their investors had any reason to cheer about. From their point of view this was a failed opportunity.

People forget that VC funds also aren't great business for the partners without carry (you get a management fee that keeps the light on, but you make your profit largely from a proportion of returns of the fund above some threshold; on top of that, in many funds you're required to lock up a significant chunk of your own cash as well, so poor returns both means you earn less and means your own investments return less), and a return like that likely would have had a seriously negative impact on their carry.

The employees were sold a lie that their stock options were worth taking a lower salary. Every single developer effectively invested something resembling 10-30k and was totally wiped out, and if they worked there 3 years that's probably a quarter of their life savings. But the investor only demands a meager $200 million return on their $400 million investment before they recognize the workers' investments.

Were they? Do you have inside info? I have done many startups, and in none apart from one did I accept a lower salary whether as regular staff or as a founder [EDIT: to be clear: after a funding round, as a full time employee; as a founder/co-founder I've of course done work for free on the side, but with according amount of stock]. In the one where I did, I forced in a clause in the investment agreement guaranteeing us a raise after the next round.

I know it can happen, and maybe it happened here. If so that's shitty, and people will have learnt a hard-earned lesson they shouldn't have to have had.

[Also in case anyone do face this argument: as a general rule don't unless you feel like a founder and your share holding gives you good reason to; e.g. even in one of the startups I got 7.5% of on joining I was paid above my previous salary - the one case mentioned above where I was "underpaid" for 6 months, I had 25% of the shares when the company was founded]

> But the investor only demands a meager $200 million return on their $400 million investment before they recognize the workers' investments.

"The investor" here are mostly VC funds that almost certainly lost money on the return they did get, as they in turn take investments on terms that leave them with a minority of the profit after clearing certain hurdles. Given the duration from the last round and the amount of the exit, it's highly unlikely that exit cleared the hurdle, and so this likely at best did nothing towards the VC fund managers profitability either. At best it will have offset even worse investments a little bit.

The investors putting money into those VC funds again, got some returns, but lower than they would have if they hadn't taken the risk in the first place and just put the money in an index fund. If you're going to account for lower salary as a loss, then the limited partners and the general partners in the VC fund also suffered a loss by not getting the return they would have if they didn't invest in this company.

That is the risk you take when you choose to make an investment - be it in cash, or labour. Don't take those risks if you're not prepared for them.

I'm all for lots more workers rights than most people on this site would have the stomach for. But this was not a successful company. This exit was a failure. There's no realistic scenario where staff would get much - if any - return from an exit on terms as bad as this one.

Isn't that the broadly accepted value proposition for working at a startup?

You accept greater job insecurity than more established companies, and lower salary than more established companies, but in return you get the opportunity to receive a larger slice of the proceeds from a "good" exit. It's like buying a lottery ticket. You don't sign on with Meta expecting a great exit, but you gamble that you might see a great exit when you sign on with Series-B-R-Us.

I'm not saying I agree with the gp here that the workers were wronged, but the widespread assumption is that startups pay less than more established companies.

And I agree completely that the gamble did not pay off for anybody here. The investors lost money, the workers lost money, the founders lost money. And that's the risk you take on when you make that kind of investment.

I've definitely declined further interviews with companies with something to the effect of "I don't have the stomach to be in an early stage startup right now".

> Isn't that the broadly accepted value proposition for working at a startup?

It's a common negotiating tactic. As I said, I've only once (in 30 years) accepted less, and then I owned 25% of the company prior to the investment. Sometimes they do mean it, but far less often than people think.

> You accept greater job insecurity than more established companies

This is true, and a reason to not accept a lower salary because you are more in need of an ability to maintain or expand your cushion.

> and lower salary than more established companies,

There are certainly companies that want you to think this is just the way it is. And it depends on what you compare against. You won't get FAANG salaries at a startup, but most people don't work at FAANG's.

Some startups will not hire at non-FAANG market rates either. If you have the skills to be attractive to them, however, odds are you don't have to settle, and that includes choosing other startups. Unless you're convinced this specific startup is the next Google, odds are it's a bad bet to concentrate your risk by accepting a trade like that.

Most of the time you'd be better off getting a market-rate salary and investing the money in a way that spreads your risk.

> but in return you get the opportunity to receive a larger slice of the proceeds from a "good" exit. It's like buying a lottery ticket.

The problem is that it is exactly like buying a lottery ticket: The odds are extremely heavily against you and most such jobs do not provide enough shares to be worth it when you factor in likely dilution and things like liquidation preferences and the very, very high odds that the company will fold before any exit event.

If the company is pre-seed and you're offered 5-10%+ and a guaranteed (in writing!) salary increase after the A round maybe. If you're coming in as employee 10+ after A and you're being offered sub .1%, sure you could win the lottery, but you could also find another startup and get the lottery ticket and* the salary, and put the extra salary in an index fund and be far more likely to get a high return.

I'm not saying there aren't ever deals that are worth it, but put another way: If you accept a lower salary for shares, you're investing in the company. Have you done the calculations of risk-adjusted potential returns and done the due diligence you would if you were to put money on the table? If not, why not? It's the same thing.

Unless you're really sold on that startup in particular to the point where if you weren't hired you'd like to participate in their investment round with your own cash, it's likely not just a bad deal, but you're concentrating your risk.

> I'm not saying I agree with the gp here that the workers were wronged, but the widespread assumption is that startups pay less than more established companies.

Most tech workers also don't negotiate their salaries. I've hired dozens over several decades, and I've had less than I can count on one hand actually try to negotiate, and in each case, we went back with a higher offer. Conversely, I've never accepted a first offer. I've sometimes walked because we were too far apart, but I've never had a prospective employer decline to up their initial offer.

I've been offered substantially higher pay than the CEO by startups who did want to pay below-market but were more concerned about getting the right person.

My experience is that if you can get offers, you can get offers from startups at market rate, and it's down to whether or not you consider that investment worthwhile if it had been separated from the employment. If you struggle, and a startup offering below market is the only option, sure, don't be too proud, I wouldn't be either if times were tough.

Uh, I'm working for a startup because it pays more then more established companies and provides better benefits.

I'm not sure why I would work for less unless I was founder, or it was a charity or other public good.

This is definitely uncommon. Startup cash compensation for engineers in SV is about 1/2 of a large tech company's.

Base or TC?

Depends on how you value your lottery tickets. The value I assign to them is 0 until proven otherwise.

In my experience, startup employers will never volunteer information like whether there are liquidation preferences.

It's largely irrelevant. In the face of lack of confirmation, you discount the value of any shares or options accordingly. The first thing I make clear when negotiating is that unless they can prove otherwise, my assumption is that the value of the shares they offer is near zero. If they want me to consider them worth anything when assessing the value of the total comp, it's on them to demonstrate that they are. Otherwise I will expect a salary that reflects a value of the shares near zero.

The employees chose to take that risk, knowing that options might not materialise. It's not guaranteed, and isn't advertised as such. If it is advertised as such, that's not the VC. That's the hiring manager.

Let this be a lesson to employees that they shouldn't value their stock based on VC valuations. Those VCs pay a premium to get those terms.

They believed a lie. If they accept getting paid in stock, they're tying their futures to the companies. Which means risk. It could make them very rich or waste years of their lives to say nothing of the opportunity cost. People who don't want that risk should opt to get paid in liquid cash instead.

Yeah basically the investors let them larp as businessmen and they churned the investment capital and produced a bunch of hot air and imposed opportunity cost on the investors.

The bottom line is these guys were not profitable.

But the investors got very lucky to not see -100% return.

Could you explain to me the point of it, though?

What's the point of accepting 400M to build a business if you essentially don't own any of that business (because of the 559M buyout ceiling).

Were they gambling on a buyout more than 559? I don't understand why someone building a business would accept these terms.

It's quite possible that the founders cashed equity out of the funding round, and that could possibly be why it was such a large round. During the FinTech/Web3 boom back around 2019-2020, a ton of founders did this and it caused huge misalignments between them and their employees. Their thinking could be, "who cares if you didn't make anything from the acquisition when you've already taken $40MM off the table?"