7Figures2Commas

> Most companies allow only 90 days for employees to purchase stock after they leave the company.

This is somewhat disingenuous because it neglects to mention that the 90 day exercise window is typically the result of a company offering employees incentive stock options (ISOs). A 90 day exercise window is required by the rules associated with ISOs. Startups can't change the law.

When a company allows exercise after 90 days, the options become non-qualified stock options (NQSOs), and those are subject to different tax treatment.

In reality, the favorable tax treatment of ISOs often doesn't benefit startup employees, so there's an argument to be made that startups should just offer NQSOs anyway, but that's neither here nor there.

The big lie is that extending the exercise window has a high probability of being meaningful. Yes, it's true that companies are taking longer to deliver liquidity, but a lot of companies simply aren't going to deliver liquidity, ever. For those that do, in today's market, where valuations skyrocket early and late-stage investors trade valuation for significant downside protections, many employees will find that their equity isn't as valuable as they expected.

If a startup really wanted to stand out and reward employees differently, it would look at alternative approaches, such as bonuses and profit sharing plans, including profit sharing plans that contribute to a 401k. I think a lot of people who are not new to the game would be attracted by alternative structures and incidentally, these would probably do a lot more for retention.

> Next time, consider having a buy-sell agreement, vesting, options rather than shares, etc. irrespective of which side of the transaction you are on.

Huh? Based on the situation described by the OP, it sounds like he or she owns shares outright, possibly free of any major restrictions. This is the very best scenario a (former) employee will ever be in because the company has far less leverage.

Buy-sell agreements, vesting and options almost always work against the interests of employees and former employees.

Suggestion: find a business valuation professional, ideally one with demonstrable experience valuing businesses in your market, and ask the founder to agree to reimburse you for the cost of a valuation.

The cost of the valuation might exceed the amount the founder has offered you, but if he is sufficiently motivated to acquire your shares and believes he is not significantly underestimating his company's value, he should be comfortable agreeing to such an arrangement.

If he does not agree, it doesn't mean that your shares are worth significantly more than offered, but unless you need a couple grand, it's hard to see why you'd be motivated to sell.

> Zhang trades on his own account...

> "The goal is to have the hedge fund with the highest return in the world, with capital of around 100 billion yuan," he said.

I hope this is a translation issue, because otherwise it would seem that the subject doesn't even know the difference between a prop trader and hedge fund.

In other news, Bubba's Seafood Restaurant in Kalamazoo today announced that it will be complying with all food safety regulations, including the Kalamazoo County Sanitary Code.

Bubba Smith, proprietor, explained his company's innovative decision to follow the law. "If you ordered a shrimp cocktail at Bubba's for your parent or grandparent, these are precious people. You'd want to know that the food was being prepared properly and that the kitchen staff wasn't exposing your family to trace amounts of fecal matter because they didn't wash their hands properly."

Smith says he was also inspired by startups in the San Francisco Bay Area, which have been trailblazers in abiding by long-standing state, local and federal laws that have traditionally been ignored by less innovative companies. "These startups really show that it pays to do the right thing right from the beginning and not just to do it because of the threat of fines and lawsuits."

> To perform due diligence in New York, you need: audited financial statements, a certificate of good standing, bank account details, background checks, credit checks, and criminal records from each and every single executive. Essentially, getting a license in New York means a two-year financial colonoscopy in the 10th circle of hell.

I'm not a fan of overzealous regulation, and there is plenty of regulation in financial services that is ridiculously overzealous, but it would be interesting if the author provided specific proposals.

I mean, is he really complaining that folks running a company handling customer money need to have background checks?

> What’s worse is that the actions being penalized are rarely flagrant in nature — we’re not talking money laundering for cartels here but administrative oversights. For example, the failure to file an SAR, failure to train, or failure to implement policy.

Does the author believe a customer is going to be relieved that his or her money has been put at risk (or lost) only because of "administrative oversights"?

Again, there's a lot of overzealous regulation in financial services, but there are also a lot of people trying to "innovate" in the market who clearly don't fully recognize the responsibilities they have to their customers.

There's a saying in private equity: you can't eat IRR.

Venture capital funds aren't the worst products in financial services, but if they're as wonderful as you seem to be suggesting, why is it that there are lots of firms that haven't received a carry check in years and most VCs don't invest any money of real note in their own funds[1]? Is it possible you're overestimating?

[1] https://hbr.org/2014/08/venture-capitalists-get-paid-well-to...

You seem to be missing the point: venture capitalists raise money to generate fees. How you classify what they do with the money left over after fees isn't all that important because the primary business is fee generation.

> BTW Aswath Damodaran once made a very astute point regarding VCs: they're traders, not investors, looking to enter low and exit high. Period.

Notwithstanding the fact that investors look to buy low and sell high too, the point here is incorrect.

Venture capitalists, like many in financial services, are not really traders or investors. Sure, they might trade and/or invest, but their primary function is to raise capital that they can siphon fees from.

A 2% annual fee on committed capital on a $500 million fund that has an expected life of at least 10 years will produce $100 million or more in fees for a venture capital firm over its lifetime. Add a new, larger fund every few years (assuming you don't blow an earlier fund up) and you can see that the 20% carry, while potentially very significant, is really just icing on the cake.

Anybody who really wants to succeed as a venture capitalist should understand this. Incidentally, when you recognize that the limited partner side of the equation is more important than the startup side of the equation, it's not surprising that venture capital has a herd mentality and there are few true cowboys making bold bets. There is little to no incentive to stray too far from the pack.

To be fair to Standard Treasury, the pitch ("we're building a new kind of bank") is an unusual one for traditional technology investors, so product validation, traction, etc. are probably going to be less important to the investors who are interested in evaluating this further.

But even so, the detail is quite lacking and there's not a lot that instills confidence that this company has what it takes break into a highly-regulated market dominated by institutions with billions of dollars in capital and more and better technology resources than the founders would like to believe. Building a viable new bank is not a $10 million proposition, so as an investor my first question would be: how much are you going to need to raise in the next several years for this to even have a shot?

I've seen far worse, but if anything, this demonstrates just how far the Series A has fallen in today's market. A couple of examples:

"Series A Financials" (slide 14) shows a lot of money going out, but doesn't detail how the founders think about money coming in.

"Risk & Mitigations" (slide 16) is really lacking for a $10 million Series A raise, particularly one that involves setting up a new bank. "It takes longer to ship our software"/"speed up engineering hiring" is particularly amusing if you've been in software development for any length of time. "If we can't find the right people"/"work with headhunters and use contractors, as needed" will be equally amusing to anyone who has had to hire in today's market.

It's also quite ironic given all of the insults lobbed at banks and their "bad technology" in Standard Treasury's pitch deck.

Do you honestly think the demand for "software engineers" with little to no practical experience and modest training at $90,000 to $115,000/year, seen almost exclusively in a few overheated markets, will be sustained?

Companies like Google and Facebook, large, profitable enterprises that can cherry-pick the best college graduates from the best schools and invest in long-term development, are one thing. But unprofitable, angel and venture-backed startups that are pressured to grow (and that includes headcount) are another thing.

A lot of the salary froth at the entry-level end of the market is being driven by the latter, not the former. This has nothing to do with the long-term demand for skilled, experienced software engineers.

> I've been hiring in SF and found some boot camp grads, usually stronger but still far from mid-career, with expectations around 90-115k. Most of these folks got hired (some of them to us/away from us with offers all in that range).

When the current cycle ends, the funding dries up and companies start running out of money, more folks will recognize this as the insanity it is.

> On the conservative side, they expect a 9x increase in value in 4 years. On the upside, it's 41x.

It's one thing for a company to sell you on its current metrics and trends that it believes will propel future growth. It's another for a company to try to sell you on projections that have its value increasing by a specific amount within a specific amount of time.

In my opinion, the latter is unethical and should raise red flags.

The death of cash would ruin Magic City.

> ...but Jessica's point is about some traits that many successful founders shared among themselves.

My point is that these traits are shared among tons of founders who didn't succeed. So they clearly don't make founders succeed, making "What Makes Founders Succeed" a poor title for Jessica's post.

There are countless founders who have failed who:

1. Were determined.

2. Demonstrated perseverance.

3. Suffered rejection.

4. Are adaptable.

5. Weren't motivated entirely by money.

The primary reason a founder succeeds is that he or she works on the right thing at the right time and does it in the right way. That's vague and practically unactionable, so it's not going to become a popular view, but the reality is there's no set of character traits that guarantee success, and there's no blueprint for building a successful company. If there was, 90% of the founders in Silicon Valley would be fabulously wealthy, and half the people who attend Startup School would have a unicorn within two years.

You can have incredible character traits, but if you're working on the wrong thing, or going about building the right thing at the wrong time in the wrong ways, it doesn't matter how smart, hard-working, adaptable, etc. you are.

The power law distributions at even the best venture capital funds demonstrate just how difficult it is to identify founders who are going to succeed, even when trying to do so is your full-time job.

I don't know who your sources are, but you can talk to an attorney about this. A company does not have to permit employees the early exercise of options that have not yet vested.

Founders and key early hires, who may be receiving restricted stock (not options), are in a different camp because they're receiving stock, not options.

Virtually nobody talks about the AMT credit when discussing ISOs and the AMT trap. Everybody assumes that AMT is this horrible beast, and while it's never a good thing, folks would do very well to have an experienced professional look at their unique situation and perform the calculations because it's often not nearly as bad as suggested.

You should understand that every situation is different. Are you talking about NSOs, or ISOs? Have you factored in the minimum tax credit?

Very few articles on ISOs and AMT highlight the minimum tax credit that is applied when the amount paid under AMT exceeds what would otherwise have been paid.

Just to clarify on this subject: the 83(b) election applies to stock options where early exercise is involved. Not all companies permit early exercise.

> This is why companies with skyrocketing valuations are particularly dangerous for employees. Shelling out tens or hundreds of thousands of dollars is hard enough for most. You can imagine needing to pay millions of dollars to acquire your options when you don’t have it.

Huh? The exercise price for options is established when employees are granted stock options, which almost always occurs at the beginning of employment. Employees can calculate the total cost of exercise based on the information contained in the Notice of Stock Option Grant. You can and should ask for this information before you join a company.

If you are granted 100,000 options with an exercise price of $0.20, you know that the total cost of exercise (assuming full vesting) will be $20,000. The company's valuation could increase fifty-fold and it wouldn't affect the cost of exercise.

Companies with skyrocketing valuations can be precarious for employees who join late, but here too employees can calculate everything up front and they should take into concern liquidity risk when evaluating what their options are really worth.

You refer to "franchise fees" on your Indiegogo page. Are you operating under the assumption that you are legally a franchise?

If so, have you filed franchise disclosure documents as required by law in the United States?

In the United States, franchising is regulated by the FTC and state agencies. Wheelys makes multiple references to "franchise fees" on its Indiegogo page but I did a search in California, which requires registration, and could not find any franchise disclosure document associated with this company.

You have listed numerous reasons why AirBnB doesn't have a potentially superior product.

AirBnB has limited control over the guest experience. For instance, delivering instant booking would be difficult, and it can't guarantee consistently fast WiFi. It could conceivably incentivize hosts to offer certain amenities, but not all hosts will offer them, they won't be implemented the same way and in many cases this could negatively impact price. Where a host doesn't live up to AirBnB's standards, AirBnB would often have a limited ability to rectify the situation promptly.

Cobbling together features like gym access through partnerships is not very appealing. Depending on the location of an AirBnB rental, it could in many cases be incredibly inconvenient to have to travel to a gym, and folks used to staying at higher-end hotels are not going to be thrilled with access to 24 Hour Fitness. Gyms like Equinox have no incentive to partner with AirBnB so that somebody renting a room for a few nights can use a facility that members pay a premium to keep somewhat sheltered from the riff raff.

> But to play devil's advocate: is there a percentage of business travelers that would prefer an AirBnB experience over the lure of elite status and hotel points?

Looking at the photos of the "business-ready homes" on https://www.airbnb.com/business/signup, I can assure you that there is nothing that would make me prefer the "AirBnB experience" over, say, a stay at the Mandarin Oriental or St. Regis. Hotels generally might get a bad wrap, but the quality of the accommodations and conveniences offered at the higher end of the market are very hard to compete with, elite status and hotel points not even taken into consideration.

> It's not super-cheap either, but there is plenty of Valley housing <$3k.

You're right. You can find studio and one bedroom apartments sub-$3K in places like Redwood City. The problem for starving founders is that landlords aren't going to lease to you when you can't show a sufficient, reliable income source (read: a real job) and sufficient credit score/history.

The notion that bubbles are not all equally bad, and that bubbles fueled primarily by debt tend to be the worst, seems reasonable on the surface, but it's not always so easy to separate bubbles into two camps: those fueled by exuberance and those fueled by debt.

Margin debt, for instance, has increased significantly in China[1] and in the US, stock buybacks financed by debt offerings have been a prominent feature of the current bull market[2].

Central banks have taken so much unprecedented action since 2008 that it requires a lot of faith to rely on analyses of past bubbles to predict what will happen when the current ones burst.

[1] http://www.bloomberg.com/news/articles/2015-04-13/china-walk...

[2] http://fortune.com/2015/02/11/stock-buyback-binge/

Runway, runway, runway. The intricate details of equity, for rank-and-file employees, are usually red herrings.

It does you no good to make $xxx,000/year and have y options if the company is at risk of not being able to make payroll in six months.