IMHO, it's very easy not to regret, with those particular numbers.

I'd take $500K now plus possibly $45M later -- over $0 now and possibly $50M later.

I'd take that deal even if "possibly" were "guaranteed".

(Who might regret that is a founder who was otherwise already wealthy.)

When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.

[0]: https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...

The numbers are made up anyway, adjust up by a few hundred thousand and the point that securing one’s shelter is worth foregoing winning the lottery still stands.

When they finally sold about a decade later I ran the numbers and determined it would have been about $40,000 based on the actual sale price.

There's no guarantee of a $50M exit for anybody.

The other thing I've noticed is that for people on the other side of this transaction, it's not like "smaller numbers" all of a sudden become immaterial. $1M is still $1M. $5M is still $5M.

Again, I'm with you, I don't think it's regret exactly. But post hoc you might choose differently, even if it's the rationale choice at the time.

The whole concept of diminishing marginal utility is that this isn’t true. The first $5M is worth far more to a given individual than the last $5M.

I guess you'll feel pretty bad if you pay for car insurance for 40 years, and never have a crash.

If the 100% upside is guaranteed, then sure, you should hang on.

But if "anything can happen" then cashing out 10% now, and providing a "can't fail" safety net, is well worth it. The reduction of risk of "losing it all" is well worth the 10% premium. And if the (somewhat unlikely) big exit ever happens you still have 90%.

Overall agreed, but that's not even always true! If you're -- for example -- under crushing levels of debt today, you very well may want to take that $500k now, even if that $50M is 100% guaranteed in 5 or 7 or 10 years.

Or even if you aren't in debt, but would find it a huge quality of life improvement to be able to have a down payment for the house you'd really like to live in now, and not have to wait 5 or 7 or 10 years.

$500K is an immediate big quality of life boost for most people.

For example: a condo/house downpayment, which lets you move out of cruddy ramen apartment, to routinely get a good night's sleep. And/or that relieves some of the various other startup salary level money stresses on your family.

I think this can also be aligned with the goals of the startup. You don't want people so "hungry" that the stress is hurting their health and their home lives. You want them motivated by the mission, the work, the environment, and the possible big liquidity windfall in the future -- but not by desperation.

Usually if you don't have the money for a down payment, you probably don't have the cash inflow for making monthly payments either. Especially at a startup where you are not drawing much in salary.

Only a little anecdata, but the few times I've looked (affluent university town, once recommended as a place to do a tech startup)... if one could swing a downpayment on certain places, the monthly costs were lower than rent one would otherwise have to pay, on places not as nice.

Plus, setting 100K aside for medical bills and even throwing the 400K into Bitcoin is a far less risky investment than me NOT being in a FAANG and accumulating 401K money which is absolutely critical if you want to keep up with the rising cost of life through retirement. When everyone else who joined Google or Meta out of college and now has a 10 million net worth at 40, that defines the cost of living in the area, and that's the bar you have to keep up with if you want to still live here at 40, 50, 60. Chipotle will cost $50 in a few years. A 1 bedroom apartment will cost $5000 in a few years. UberEats was $15 when it started, already costs $50 for lunch in my area, and at this rate, it will be $200 in a few years. Because those people can afford it, so greedy owners and greedy landlords will up their prices, so I will have to pay not just my $5000 rent, but also the Chipotle worker's rent, and the Chipotle franchise's rent, in order for their prices to stay profitable. The cost of living in the bay has tracked the S&P500, not the CPI. YOU will be priced out if you didn't have liquidity at a younger age to throw into some investments.

I'm at a large company right now. Being compensated enough to be able to afford life in the bay area now, having enough income to afford a mold-free modern apartment in a place where I don't need to worry about getting mugged, and hedge the risks of all the crap that's going on in the world was a big part of my reason to join one. If I had enough saved to "feel safe", I would absolutely be doing a startup again.

I would very much like to know where you can find low-risk investments that are likely to net you 10x-40x returns in the span of 10 years.

(But overall I very much agree with your point that $500k now and $45M later can be a much much much better deal for someone than $0 now and $50M later. I would likely take that deal every single time.)

By doing homework and research every day and investing only in things you personally deeply understand.

But if you don't want to do that ... passively investing in QQQ would have given you a 5.4X return in the past 10 years.

If you just throw your money across some large, too-big-to-fail companies, you could have 10X'ed easily.

AAPL, NVDA, MSFT, TSLA, NFLX have all >10X in the past 10 years. GOOG, META have come close.

You could have split your money evenly across the biggest 5-10 companies in tech and 10X'ed.

And if you actively invest and do day-to-day research it's fairly easy to beat 10X in 10 years.

By the way my definition of "low risk" is calibrated to the risk of founding your own startup and making 100K/year hoping for a big payout later in the future vs. joining a big company and making 500K/year.

My "startup founder calibrated" low risk stock investment means:

- Reasonably high probability to 10X in 10 years

- Some probability of losing money, but very low probability of losing most of your money

- If you lose money, it's because of a major world situation, and holding for another 10 years will probably get you out of that

- You also have skills and are hireable so you can hold the stocks

AAPL, NVDA (even without the recent events), MSFT, TSLA, NFLX, yeah sure. But out of those, only Apple and Microsoft were reasonable companies to put that kind of money into. I think you're not realizing that you're cherry-picking.

I mean I think your point still stands with just looking at QQQ, but I'm just saying over embellishing hurts your argument, not helps.

Please tell me more about these 25-37% pa low risk 10 year investments.

Joining a startup is extremely high risk from an opportunity cost standpoint. Literally any profitable company's stock is low-risk in comparison.

But ... if you don't want to do homework, you could just buy a smattering an equal distribution of the biggest names in tech (MSFT, NVDA, AAPL, GOOG, META, TSLA, etc.) and you would have easily gotten 25-37% pa averaged over the past 10 years. It's highly unlikely all these companies suddenly fail, all together.

And if you want to protect yourself against that, write covered calls at ~15-20% per week and use the proceeds to buy protective puts on all of your stocks.

(Disclaimer: not investment advice blah blah blah)

I actually kinda think a founder that was otherwise already wealthy wouldn't mind this too much, either: say they already have $50M in the bank; the difference between $95M and $100M feels even less of a big deal than $45M and $50M. Granted, the founder with $50M already in the bank probably wouldn't bother with the $500k in the first place, though, especially if they believed in the likelihood (or guarantee, in your hypothetical) of a future larger exit.

in the scenario you outline the founder sells the remaining 90% of their position for $45MM?

I don't think many people would experience any real regret at "only" getting $45.5MM instead of $50MM, due to declining marginal utility of money

The only reason it happens is that the founder is negotiating both on behalf of the business and a bit for themselves.

1. If I buy stock, and the stock goes down, I regret buying

2. If I buy a stock, and the stock goes up, I regret not buying more

There's no winning :-/

There is a good book review about it on SSC https://www.astralcodexten.com/p/your-book-review-the-laws-o...

> Whether or not you make money, you have regrets! If you profited, you could have made more. If you lost money, you shouldn’t have made the trade at all. Like death and taxes, you can’t avoid adverse selection.

If you can't handle "regret" in these cases, then you probably shouldn't be in a position where you're deriving the vast majority of your income/weatlh from investments (which is fundamentally what a CEO does).

It's astounding how many ICs can't wrap their heads around the concept that holding onto your RSUs make absolutely no financial sense. With rare exceptions, this doesn't make sense for anyone. And yet, fear for "regret" keeps people holding.

But it's not shocking that even in tech many ICs are not good at reasoning financially. But if you want to be a co-founder, and hold a lot of your wealth in investments it's essentially that you learn to reason, plan and accept outcomes accordingly. Otherwise you're more-or-less a professional gambler.

Disclaimer: I’m an IC myself.

I worked for my 1st company for 15 years. Held to their RSUs most of the time. Then moved to another (public) company and stayed there for a year before leaving. Now in a startup with a lower salary and no immediate liquidity on my stock options.

When you work at a public company, you have multiple exposures to the company’s growth: the RSUs that have already vested, the RSUs that haven’t vested yet and through your own career growth and salary increase that goes with a successful company. If you were early enough, you also get market cred for having made the company successful. If the companies goes under (or shrinks, or lays people off), all those assets are at risk.

Usually, one has more in granted stocks than in vested stocks. If your company just went public, you might have a lote more sellable than in your pipeline, but even that is unusual. Usually, you’ll still have more in the pipeline than you’ve already vested.

If your company has been public for a while, you should get frequent refreshes, which means you still have a significant numbers of unvested shares.

Regardless, you should sell as soon as you can, because of the remaining exposure through unvested equity. Use the proceeds to place in an ETF, or in a high-yield savings account, or some more aggressive investment strategy. Or use it for the downpayment on your house, or fund your kid’s college funds, whatever floats your boat.

Anyways, keep in mind that you still have a significant exposure to the growth of the company through your unvested equities. If you’re worried about short-term cap gain, don’t be. If you sell immediately, there’s no growth between cost basis and selling price, so no cap gain. Another upside to selling is that you’re not bound by the blackout periods, so your assets are much more liquid. And remember you still have exposure

   (1) give you the amount in cash (as regular income) 
   (2) take that cash and buy that stock on your behalf
   (3) turn around and give you the stock

(that's assuming that there's an ability to liquidate the RSU on the vest date)

The only reason to wait for LTCG on RSUs is if you decided to hold it for some non-zero amount of time after vesting and then the stock price shot up. But then you're also taking on the risk that the stock price will drop again before the year has passed, and end up with less post-tax money than if you'd sold at short-term tax rates.

Sometimes you can elect to sell every released share in a quarter, or file a 10b5-1 plan with a schedule, but you have to do that during a trading window.

The issue here is that sometimes if you procrastinate about diversifying, it pays off very well. As a Google employee (who joined after IPO), it was by far my best investment and funded my retirement.

I guess that's accidental gambling. I did have other investments.

Ask a Yahoo employee how that same plan would have worked out for them.

That being said, good for you. :)

I've benefited financially from having a good sense of how well things are going and holding/selling accordingly (within the confines of the law and blackout periods, of course).

This can also cut the other direction too. I had a slightly negative sentiment about Google during my tenure there due to the organization I was in. When earnings call season rolled around it didn't matter since the ads revenue line always dominated everything else.

If you had worked at a different company with pure cash comp equivalent to your RSUs, would you have invested the same $$ in Google stock? Or would you have invested it instead in an aggressive but diversified portfolio (e.g. 100% S&P 500 or even just a bucket of blue-chip tech stocks).

I am confident that for the vast majority of tech employees they would choose the latter if they were operating in a pure cash regime.

It's easier to be comfortable investing long-term in something you know well. While there's a lot I'll never know about Google, I think I understand the company somewhat better than others. For example, I can discount a lot of news articles as being written by people who don't really understand the culture. If I hadn't worked there, I might worry more.

That's less and less true, though, as much has changed since I left. And for investment purposes, maybe that bias only seemed to be helpful, versus an outside view?

Ultimately it's an investing decision. If you believe the stock price is going up at a rate faster than the rest of the market, and are willing to accept the risk that a concentrated position like that entails, then that can make financial sense.

For people who want to hold their RSUs but still want to diversify to some extent, my usual recommendation is to pick some percent of the shares that vest every quarter to sell immediately, and hold the rest. And -- critically -- to stick with that commitment every single quarter, and not fall into the trap of thinking "oh, the stock seems to be doing so well, I'll skip the sale this quarter". (Of course, a measured re-evaluation of the plan is a reasonable and good thing to do every so often.)

> If you were an employee and had $200k total value in your options, and you could sell 10%, you're getting $20k.

It obviously depends on your financial situation, but having the option vs not will certainly matter to some employees. Not to mention that the stake could well be worth $0 in the future.

I totally understand why a typical founder doesn't want to do that. If for you as an employee it is a deal breaker, then you can complain about it, change company or whatever. It is not like the founder owes anything to the employees (unless he has promised that). Everyone in the equation are adults and have to decide themselves, if the position they are in makes sense for them with the terms they have.

From a founder's perspective sure, you can do what's best for you.

That's not what this article is about. This article is highlighting that there's a tendency in SV for founders to cash out early, and secretly. And along with that, there's a tendency to paint a narrative that the founders haven't sold a share. It's hard to see that as anything other than deceptive.

It's one thing to join a startup that you know may not succeed in the long run. It's another to join a startup that has a founder whose been secretly cashing out along the way.

Justification does seem necessary in that second scenario, at least from a morality perspective.

Personally I'm not in the SV scene but from Europe, and I don't know much cases of these early cashouts.

$5M when you already have $45M doesn't move the needle much.

if you ask you mom or dad, whichever believes in you, they have enough money to fund your dreams (if you care enough to ask) of joining or starting a startup to become an (x) CEO/salesman/builder/marketer/whatever for whatever you want to build, and that includes signing onto some startup that won't pay you a living wage until it fail-exists for $5 million and everyone goes to burning man/Berlin/ibiza on the founders dime (including rent for everyone N months).

Yes, if $500k doesn't move the needle on your life then the question is moot anyways. Most first-time founders will be closer to the poor end of the spectrum than the wealthy side.

There are people reading this for which $20k will change their life (which in my example was the 'shouldn't matter' amount instead of the $500k).

But they're a small minority. Not that many people meet your description here.

Perhaps not much, but most people -- even most startup founders -- don't come from a rich family.

Going in they have a lower salary than if they work for a more established company.

Then, either their shares end up being worthless, or at the final exit, they make less money than if they worked for a more established company the entire time. IE: Being an early employee in a startup is a lose-lose situation.

This is something founders need to understand when recruit their early employees: These are often the most critical hires for the business, and therefore it needs a high probability of upside.

IMO: A series of retention bonuses, and/or guaranteed bonuses at acquisition / funding events is a good solution. It's how I've sidestepped the equity issue when I was employed during an exit event.

Either they have the skills to be a founder themselves or to work at BigTech... or they are financially ignorant/disinterested enough to not understand how equity in corporations work? Or is the charming and misleading founder who is to blame?

My point is that considering the high avg intelligence of the typical startup employee, there must be something else going on.

Clearly, people like working at smaller companies that have potential to grow - maybe that's because there's more interesting work, less bureaucracy, smaller teams, more of a sense of a journey, etc. Easy to devalue these things, but what else explains the fact that even when there's more risk and likely poorer financial outcomes these otherwise very intelligent people still choose to work at these companies?

I work for startups because I get a ton of responsibility for things I would never get at a big company. I get a chance to learn a ton of new stuff.

Through my career, I've made all my money at the public companies, and had most of my skill growth from the startups (Netflix being the big exception, where I both made money and leveled up my skills).

The "old" calculus was that, being an early employee in a startup, you'd make less cash money than at a "big corp", but if the company "hit" you'd end up doing much better. Just look at the stories of early Microsoft employees, or the Google chef whose stock options ended up being worth tens of millions. Obviously those are outliers, but it was still common that early employees of "home run" startups would be doing great.

But the thing that really changed the calculus is that the FAANGs started paying extremely well, especially as the value of their RSUs skyrocketed. So the new problem was that even if your startup hit, you'd be doing about as well as a senior engineer who was at Google for 5 years.

I know in the past YC itself has commented about this dynamic, basically arguing that early startup employees deserve more equity.

(This is not to imply that compensation is now fair for early startup employees; it's not.)

[1]: https://danluu.com/startup-tradeoffs/

[2]: https://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-pr...

Other part, buying out any promising startups and letting them rot on the sidelines of the main business.

Yes, definitely, I think we live in a bit of a bubble here where we actively read and think about these things. I think most early employees will see a 0.5% or even 0.1% equity offer and think that's incredible. It barely even registers that the founder sitting across the interview table from them holds 40% or whatever, and that while, yes, the founder has taken on more risk than they are about to take on, they certainly have not taken on 80x the risk or are putting in 80x the work.

That's the wrong question to ask.

The right question to ask is: "How does an early stage startup attract the people it needs to be successful."

Money isn't the only metric, and there are good reasons to say "if you want top dollar, go work for a FAANG."

On the other hand, I was once approached to be employee #1 of a rather interesting startup, and the risk/reward ratio just wasn't there. The company was more likely to fail, and I was more likely to find myself unemployed after 24 months. Now that I have children and a mortgage, I can not do this.

In contrast, the company severely needed someone like me: Significant experience and knowledge; AND active interest in their product, with a mildly personal stake. Relying on someone young and cheap would be risky for them.

s/when/in the statistically and historically very unlikely case that/g

If you tell them the value of their stock is $200k, and 90% of that is imaginary, then they might start thinking about that job offer with a 500k stock grant at a listed company.

$20k would be a life changing amount of money for me right now

If we also believe that founders are important to a company's success as it grows from a small startup into something more mature, I'm pretty sure that unfortunate financial (and housing) situation would drastically reduce the chances that the company would make it to that $250M exit later.

So taking that $500k may increase the chances that the startup later gets sold for $250M, rather than, say, $50M... or just failing entirely, returning whatever small amount of money is left to investors.