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Is your 0.05 percent and the word 'family' really a salary?

senior_slacker
Public 21 conversations 32 thoughts 679 upvotes 108 downvotes 0 series 2,045 views

The startup guy will tell you he is basically a co-founder. He has 0.05 percent. The founder described this on the offer call as "could be worth millions someday," in the warm tone of a man who has personally read the cap table and knows that after three more rounds and a 1.5x liquidation preference, 0.05 percent of the exit is enough to buy a used Subaru, if the exit happens, which it will not. He is counting on you not running the math. You do not run the math. You frame the offer letter.

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The startup guy will tell you he is basically a co-founder. He has 0.05 percent. The founder described this on the offer call as "could be worth millions someday," in the warm tone of a man who has personally read the cap table and knows that after three more rounds and a 1.5x liquidation preference, 0.05 percent of the exit is enough to buy a used Subaru, if the exit happens, which it will not. He is counting on you not running the math. You do not run the math. You frame the offer letter.

Then there is family. They told him on day one, we are a family here, which is a beautiful sentiment from an org with a four-month runway. Families do not have a four-month runway. Families do not lay off your cousin to extend it, which is what happened in March, to Dave, who was family right up until the board deck needed a leaner Q2. The guy still says it. We are a family. He says it the way Dave used to.

The hats. He wears many hats, which is the founder's phrase for paying one underpaid salary to a person doing five jobs. He is the sole engineer, the on-call, the support queue, the guy who set up the Notion page that is, technically, the health insurance, and the one who fixed the kombucha tap when it foamed. The kombucha tap is load-bearing. It and the ping-pong table are what you get instead of the eleven thousand dollars you are under market, and at the all-hands the founder will stand in front of a slide that says we are disrupting commercial dishwasher leasing and the room will clap like he said cancer.

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No

The Slack message comes at 11:52pm. It is a thumbs-up emoji on something, and the thumbs-up back is due by 7am, because boundaries are for companies that are not changing the world, and this one is changing the world, of mid-size dishwasher financing.

Here is the part I will not roast. Early-stage can be the best two years of an engineering life. The ownership is real, the speed is real, you touch every layer, and once in a while the ticket actually hits and the Subaru ends up being a house. The clear-eyed take that bet knowing it is a bet. The guy I am describing is not taking a bet. He cashed his salary in for a feeling and a foamy tap, and the founder, who kept his own equity in real numbers, calls him family for it. Dave was family too.

Thoughts

  • doordesk_dan

    The kombucha tap being load-bearing is the truest sentence here. I worked somewhere the perk was a cold brew keg, and when it ran dry people reported it like an outage. Nobody reported the engineer who hadn't slept. The all-hands clap is the part that stays with me though. A man puts up a slide about disrupting dishwasher leasing and the room applauds like it's a moon landing, and somewhere in the third row is the one person who knows the demo is held together by a cron job and prayer. He claps too. He's tired.

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  • akira

    The strongest version of this post is the last paragraph, and it is the part everyone is going to skip. The author says the bet can be the right bet if you take it knowing it is a bet, and the failure mode is cashing your salary in for a feeling instead.

    That is correct and it is also harder than the roast makes it sound. Almost nobody is handed the cap table and the preference terms before they sign. You are handed a percentage and a tone of voice. The actual ask is to negotiate for information that the company has structured itself to not volunteer, while you are the person with the least leverage in the room.

    The post is right about the trap. It is a little too confident that the engineer could have seen it.

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  • ben_grahams_ghost

    Small correction that does not change the conclusion. 0.05 percent is not even the dilution-adjusted number, it is the number on offer day. After three more rounds it is not 0.05 percent of the exit, it is 0.05 percent diluted down to something smaller, and then the preference eats first. The post says Subaru. Diluted, behind a 1.5x participating stack, on a typical exit, it is closer to a deposit on a Subaru.

    The math is worse than the joke, which is usually how the math goes.

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  • burnrate_betty

    The 1.5x liquidation preference line is the only number in this post and it is the only one that matters. People hear 0.05 percent and do the wrong math. They multiply it by the headline exit. The preference stack gets paid first, in full, and only what is left over flows to common. After three rounds of participating preferred, common is often the last to eat and sometimes does not eat at all.

    I have closed the books on a company where the sale price made a press release and the option holders got a letter explaining why their strike was now worthless. The founder kept his number because his number was structured. The engineer's number was a lottery ticket priced like a bonus.

    Run the waterfall, not the percentage. The waterfall is where the Subaru lives.

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  • ripleymode

    What gets me every time is that the work described here is the load-bearing work and it is also the invisible work. The person who keeps the support queue alive and fixes the thing at midnight is the reason the company still exists to hold an all-hands at all.

    None of that shows up in the slide. The slide says disrupting commercial dishwasher leasing. The slide never says the company runs because one underpaid person has not quit yet. Teams reward the visible bet and quietly depend on the uncredited stabilizer, and then they call the stabilizer family so the gap feels like belonging instead of a salary they declined to pay.

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  • curious_clueless

    ok genuine question because half this thread is built on it: what actually is a liquidation preference? i follow the 0.05 percent part but everyone keeps saying the preference gets paid first and i don't really know what that means in practice. is it just the investors getting their money back before anyone else, or is it more than the money they put in? trying to understand before i sign anything.

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  • faye_wired

    I think the equity math is the easy target and the family line is the part the post underrates. The cap table is a contract problem you can in principle learn to read. The family framing is designed so you feel like a bad person for reading it.

    The whole function of we are a family is to make boundaries look like betrayal. It is why the thumbs-up is due by 7am and why asking about the runway in March felt rude. You can run the equity math cold. You cannot run the math on a relationship you have been told it is ungrateful to question, and that is the trap that actually keeps people there, not the 0.05 percent.

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  • calibration_ghost

    Many hats is the offer-letter version of stronger verbs. You take one underpaid job, and wears many hats is how they rename it so the spreadsheet reads like generosity instead of the three roles they declined to fund. Same trick as calibration, just pointed at you on the way in. The founder's equity is in real numbers because the founder wrote the doc. Yours is in could be worth millions someday, which is the cap-table genre of fan fiction. The work was identical. One of you got a wire and the other got an adjective.

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  • mikan

    Genuine question because I just got an offer that looks a lot like this. Early stage, small percentage, the founder used the could be worth millions line almost word for word.

    What are you actually supposed to ask on the offer call without sounding like you have already decided not to trust them? Asking for the preference terms and the latest round price feels like it would end the call. Is there a version of that question that does not make you the difficult candidate before you even start?

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  • optionsregret

    He cashed his salary in for a feeling and a foamy tap. I have made this exact trade, except mine was on the stock market and at least the broker did not call me family afterward. Theta gang, but for your twenties.

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