
No Exit - Futurebot
https://thinkpiece.club/no-exit-d6f67879a95d#.319dttykt
======
rdtsc
I like the comparison to Puritanism and delayed gratification. There is
something there.

Even long after active religious beliefs are gone, there is a long trail of
attitudes and habits which linger on. They just become part of culture.

Also those institutions or individuals (owners) who can tap into those
attitude and play them against others can reap great benefits. There are a bit
like settings and switches already there, just have to turn them on.

"Work hard and you'll be rewarded in the afterlife". In this case the
"afterlife" like the article mentions is the exit event, or what used to be
the IPO.

This belief is useful both to the owners (the ones who control the believers),
but it is also useful to the believers as well. It provides comfort and a
sense of mission. That last bit is readily discarded, but I think it is a very
important part in the equation.

People will work 80 hour weeks at below market salary if they get to fantasize
of being a multi-millionaires. Even people who think themselves beyond
irrationality and silly biases (programmers in our case) will go for it.

Maybe the ability to fantasize, is actually worth something. Perhaps imagining
oneself a little Zuckerberg or Mark Cuban, should be worth something. You are
closer to that dream by working in a startup than say working for a big corp
or sandwich shop. Is that dream worth the salary cut and uncertainty? That's
the question.

Comparing with other countries, I wonder if there are cultures where this
wouldn't work as well. And it might explain why startups just can't take off
there. Let's suppose there is capital and talent but people there might ask
"Yeah what's in it for me today?" and if the answer is "You can dream about
being wealthy in the future". They'll say "No, thank you" more readily. It
could be because of a religious background or they simply have less faith in
official institutions.

~~~
jolux
see also:
[https://en.wikipedia.org/wiki/The_Protestant_Ethic_and_the_S...](https://en.wikipedia.org/wiki/The_Protestant_Ethic_and_the_Spirit_of_Capitalism)

~~~
rdtsc
Thank you. Ordered it from Amazon.

I've heard of it before and meant to read it, so this time will actually do
it.

------
firasd
Great points. I don't know about the 90s, but in this era, you either want
founder-level equity or market salaries. There's too much uncertainty about
the outcome, too many circumstances that can affect it, and too long a time
window in which these circumstances can play out, for anything else.

Time is an important factor here, more for employees than, say, investors
because you don't have a portfolio of multiple lives. Several years of your
life count for a lot; be clear-eyed about where they're going.

~~~
Apocryphon
The question is, where do we figure out market salaries? Glassdoor is hardly
the final authority.

~~~
ktRolster
When a recruiter contacts you, be friendly, and tell them a high number for
your desired salary (I suggest starting at $200k). Soon you will get a feel
for what they are willing to go for, and sometimes they will even tell you
directly what their maximum is. FWIW Right now in Silicon Valley, $170k seems
to be the max for senior devs, and $200k is actually reachable for managing
tech leads.

~~~
Bahamut
I've seen $350k-400k for a lead frontend position around the Valley, and $250k
+ bonuses for a director of engineering position in the Valley - these are
firsthand numbers. The numbers possible are higher than you might expect, and
I am even relatively young in terms of experience (a little under 4 years).

~~~
ktRolster
If you're getting those, you're probably managing hundreds of people.

~~~
Bahamut
The frontend lead position is for a pretty small team, and the director of
engineering position is for a Series B startup.

------
tptacek
The bit about Gowalla's Facebook "acquisition" is an important point for
investors, and one I think the Crowdfunding excitement overlooks.

I've sold a couple companies and been an insider in a couple other
acquisitions, and many of the knobs that get turned during the negotiations
are about retention/compensation plans. It's hard --- like, it actually can be
a problem when trying to close the deal --- to balance employee retention and
the interests of investors. Even in the best case, every dollar you're giving
to current team members is an incentive for the management of the company to
accept a lower sales price.

In some egregious cases, one of them pretty infamous in the security world and
the reason I've promised myself I won't spend real money to execute employee
options, management and current team members got basically the normal proceeds
of an acquisition and investors got zero.

~~~
cperciva
Don't investors usually have a veto over acquisitions? I'm which case, why
would they agree to a deal which was lucrative for management but valued their
equity at zero?

~~~
beachstartup
probably because the acquisition would not happen at all without the employee
retention, and the investors had a mandate to exit for whatever reason.

or management simply hijacked the company.

~~~
jdavis703
I've been an insider in a similar deal. A lot of times it's this, or let the
company go through a messy, potentially headline grabbing, bankruptcy. A lot
of times in this situation the acquiring company is doing the deal for the
talent, and they need to be sure the talent stays around for a while,
otherwise the deal would be worthless.

------
Negitivefrags
There is another way for equity to have some value.

It's an old approach, but still works surprisingly well, and it doesn't even
require anyone to buy the company or have an IPO.

You can earn a profit and then pay that profit to the shareholders in the form
of dividends.

~~~
uiri
Dividends make sense for established, profitable businesses. They don't make
sense for startups. No one wants the startup to issue dividends.

The employees won't receive any dividends unless they have already paid to
exercise their options and are holding restricted stock.

The investors don't want to have their capital returned to them while the
company is getting off the ground. They want the profit to be reinvested in
growing the business.

The founders are already taking a salary. It is easier for them to fine tune
that than it is for them to take compensation in the form of dividends.

~~~
Negitivefrags
Okay, but at some point you need to turn from a startup into a profitable
business. This whole problem stems from the fact that these startups are
either unwilling or unable to actually become real businesses at some point.

And that should be the actual endgame that is being targeted, and that the
employees should be striving for.

People seem to have lost sight of that goal.

------
akkartik
To push back on part of the post:

 _" Many have blamed the decline of the IPO market on regulatory changes, such
as the Sarbanes-Oxley Act.. There’s another important reason fewer and fewer
startups go public these days, though: acquisition by an established company
is a far easier, and, often, more lucrative, exit strategy.. A few extreme
outlier exceptions such as Google and Facebook notwithstanding, acquisitions
have been by far the most viable exit for small tech companies since the end
of the dotcom bust."_

Acquisitions have been more viable than IPOs for _precisely_ the same period
we've had Sarbanes-Oxley. How the heck is this 'another' reason, then?

~~~
georgeecollins
Let me quibble with "_precisely_ the same period we've had Sarbanes-Oxley."

Sarbanes Oxley passed in 2002. IPOs increased from 2002- 2004. Source:
[https://www.quandl.com/data/RITTER/US_IPO_STATS-
Historical-U...](https://www.quandl.com/data/RITTER/US_IPO_STATS-Historical-
US-IPO-Statistics)

I suspect that Sarbanes-Oxley did suppress IPOs but if you can't think of some
other reasons for fewer IPOs. I will offer some:

\- Much more capital available in private markets from hedge funds, sovereign
funds, etc. Think of how much money Uber can raise today as a private company.
That didn't used to be possible.

\- Tech companies have really resisted offering dividends because they are
believed to be tax inefficient and a sign that those companies can't grow and
invest. So instead they have huge amounts of cash on their balance sheet that
they need to invest.

~~~
akkartik
Ok, it seems you know more than me about this so let me try to poke holes in
an attempt to learn further.

Was there really more capital available in private markets before 2008? I
thought that was just because of post-2008 QE. That timing doesn't seem to
work either.

Didn't Microsoft have billions in cash on its balance sheet in the 90's? I
thought tech companies always hoarded cash when they were cash cows, and that
it was at least partly a consequence of tax regulation, with cash sitting in
one jurisdiction (say Ireland in recent years) costing too much to move
around.

The fact that the delta in IPOs went up doesn't necessarily seem so
indicative. There's a holding capacity for IPOs in an economy. I think your
graph shows just how far the holding capacity dropped after SOX.

~~~
justincormack
QE really doesnt make that much difference, it only affects the bond market
directly a bit. VC is getting more money as the returns have been good
(finally, historically they werent), while say hedge funds have had bad
returns. The amount of money in private markets depends highly on risk
preferences.

~~~
mifreewil
This is not quite accurate. Sure, _directly_ it only affects the bond market.
But the bond market is not isolated from the rest of the markets. After you
push loads of money into it, it lowers the returns on relatively low-risk
bonds. We now are seeing government bonds with near-zero interest rates
(ZIRP). The low returns on bonds pushes capital that otherwise would have gone
into those bonds into risker and risker assets, a direct consequence of QE.
This has people chasing higher returns in stocks, and yes, VC as well.

------
sumanthvepa
As an employee the rational reaction to illiquid equity with uncertain value,
would be to simply discount it and demand a higher cash compensation. This is
a problem for founders and VC, but I can't see why it's a problem for
employees. If comp is bad they just walk. It's not like a good engineer can't
easily land a job.

------
ktRolster
_you’re never more attractive a target for firing than right before your one
year anniversary [Disclosure: Tumblr fired me approximately one month before
my vesting cliff.]_

Ouch.

------
M_Grey
I think the author is giving people too much credit for optimism, and too
little credit for the kind of thinking that has kept gambling such a
profitable venture...

...for casinos. I suspect anecdotally, with no hard evidence whatsoever to
back it, that the people who get into startups a lot, are the types of people
who are very aware that other people have made insane fortunes that way, and
they want _that_.

------
RamshackleJ
Reminds me of:
[https://m.signalvnoise.com/reconsider-41adf356857f#.56isp7pl...](https://m.signalvnoise.com/reconsider-41adf356857f#.56isp7plw)

------
andrewclunn
I should really stop being surprised at how much productivity and work is
funded through fake money. "This has value, trust me," would tip off anyone.
When the "trust me" is simply replaced with a large cultural delusion it works
like a charm.

------
chris_7
> “Equity is critically important because it is the thing that everybody has
> in common. Since everyone benefits from an increased share price, everyone
> tries to increase the share price.

I don't understand this. I have equity. I don't care about it, since I value
it at ~$0.

~~~
brianwawok
Did you take a pay cut to get it?

If you didn't, good job.

If you did, you valued the equity at market rate - actual pay, conscious or
not.

------
Eridrus
I have a pet compensation idea: founder shares should be soft capped at some
threshold (5m a head plus a quarter of anything above that?) with the part
above the cap redistributed to employee stock holders such that mid sized
exits (~100m), which are significantly more common are financially rewarding
for more people in the company.

I don't know if this is practical, but as an early employee at a startup it's
hard to not feel bitter about the massive disparity. Usually I try to avoid
thinking about it.

~~~
hashkb
I think the difference in risk between founders and early hires justifies an
order magnitude difference.

~~~
Eridrus
So, why does risk justify a higher reward? The usual answer is that without a
greater reward there is no reason to take a risk.

My conjecture is that reward above a certain threshold is not actually that
meaningful of an incentive _when starting a company_. I would be interested in
hearing founders' perspectives though.

~~~
dilemma
Start a company yourself and see how you find that rule.

------
Roboprog
I have limited experience with this, being in the Sacramento area, rather than
the Bay Area.

However, my experience back in the late 90s / early 2000s went reasonably
well. I was working for a newer department in a firm owned by private equity
(which had been turning modest profits in one division or other for 20 years).
We were purchased by a fortune 1000 company. As a team lead and key
contributor to some of the infrastructure around the place, I received a nice
little bundle of options, which were actually worth a little something in a
year or two. Anyway, I stuck around for a little while during the transition,
eventually got fed up with the parent company's stupidity, cashed out, and
moved on. The options pretty much paid for a 6 month sabbatical while I
retrained.

The numbers in my region sound tiny compared to SV numbers, but we bought a 3
bedroom house on an acre (in the foothills) for $140 K back in the late 90s,
so you didn't need a 200K / year salary to get by.

Since then, I have worked at places that either offered some kind of pension,
or had significant yearly bonuses. Show me da money! :-)

------
bofia
I'm an engineer at startup
[http://www.equityzen.com](http://www.equityzen.com), which is a private
secondary market that provides the alternative option of selling startup
shares before an IPO or exit, rather than waiting or letting the shares go
unexercised.

I believe that the secondary market is becoming a much more popular option to
startup employees as companies start to take notice of the current issues with
liquidity.

------
caf
_RSUs are taxed as soon as they vest. This means that employees with RSU
grants are continuously accumulating illiquid but taxable income based on the
company’s current fair market value. This can prove disastrous for employees
who have already paid taxes on RSUs whose values have declined precipitously._

I wonder if you could introduce a kind of "Franked RSU" where the company pays
the tax obligation at vesting (for certain agreed taxation jurisdictions)?

~~~
cpitman
I'm no tax expert, but couldn't these losses be offset by Tax Loss Harvesting?
It doesn't wipe them out, but does reduce the loss by approximately your top
tax bracket.

------
VexXtreme
As I'm entering the fourth decade of my life, I have actively started avoiding
any company that 1) self identifies as a startup, 2) employs less than 50
people, 3) is VC funded in any capacity. It's not because I have anything
against them in particular, it's just that my risk profile has been changing
together with my age, and I'm not really willing to put in the same crazy
hours as 5-10 years ago in return for the right to participate in a de facto
lottery.

Many experienced engineers I know feel the same.

~~~
hugs
Would you still avoid startups if the hours were not crazy and the salary was
the same (or better) as at a non-startup?

~~~
VexXtreme
Possibly, due to a lack of long term stability and job security. When every
round of financing results in a different VC installing its own people in the
company and shaking things up, I don't feel comfortable betting the life and
wellbeing of my family on the fact that some 24 year old "product manager" is
going to act rational.

In other words, they'd really need to pay me a lot more than an established
company in order to offset my risk.

------
gravypod
"These industries are a rich source of e - KYC(know your customer) data.
Airlines alone served 2.8 billion passengers in 2011. Every person who checks
into a hotel has to supply"

I don't think this needs to be said but if my airline stats selling where I go
to advertisers I'm not going to be using that airline anymore. It's bad enough
they are selling it to governments.

~~~
pflanze
I think your comment was meant to go to this thread instead:
[https://news.ycombinator.com/item?id=12524217](https://news.ycombinator.com/item?id=12524217)

------
blazespin
The thing about these is they are written by older folks who don't realize
that the risk/reward calculation changes depending on how old you are. It
makes sense to take on risk when you're young, and not when you're old. Pretty
simple..

~~~
oneloop
If anything, it's the young who don't know that. The old have been young, the
young have never been old.

