Ask HN: How did your startup change after an exit?
Hi HN
I'm an engineering VP in a (maybe) unicorn looking seriously at an exit and the vibe has ... already changed.
Looking at the current climate, I am probably going to be able to pay off my mortgage and send my partner to grad school, but financial independence or FYM isn't on the cards. I like it here, and am not planning to move on yet.
I've been wondering where the stories about what happens (what goes wrong/right) after an exit, like an IPO.
What should I be looking out for after the exit? Any experiences from senior engineering staff? Or even good blog posts or books?
Thanks
160 comments
[ 2.8 ms ] story [ 204 ms ] threadGenerally though, most of not all were just thankful to not have to depend on VC. Revenue wasn’t high enough to keep the company afloat, and the value in us was largely in our established brand within the market combined with a rather active user base.
Fortunately, most everyone who was in the company pre-acquisition are still around over a year and a half later.
The startup had a niche product in higher ed and had done a really good job cultivating their relationships with customers through top notch customer support and rapid iteration on the engineering side. Typical startup strategies for the most part.
Post-acquisition, the support team was essentially goaded into quitting by management, only to realize that the product was far more sophisticated to support than the other products in their portfolio, so they wound up having to rebuild the support team. This was when we realized upper management was a bunch of morons.
On the engineering side, they shifted our product development focus to making the entire app a bunch of SPAs because reasons. The core engineering leadership left, and the new hires that were brought in weren't as good. Apathy set in, the company started stiffing us out of promised bonuses, and I left.
What I imagine is true for both IPOs and acquisitions is that most publicly traded companies usually care a whole lot more about the bottom line than well-funded startups. Getting rid of the crazy retreats and in-house chef is one thing, but when companies start getting squirrely about compensation, it's a good time to think about what's next.
@after_the_exit can you give us a hint of this unicorn so we have more context?
They absorbed a few employees who are still there and are just as confused as none of the tech they spent so much money on ever got used.
Maybe it was somehow a giant tax write off, or just buying out the competition?
Broadcast.com?
Overall, I agree with the theories proposed in response to your post — either incompetence of their leadership or favor to an investor. In our case, it was a bit of both and the latter part was clear beforehand. Their crudely constructed plan was to take our industry data to improve their models, but they were not privy to any of it so effectively all they bought was a bunch of tech they couldn’t manage to integrate since all of our tech leads left in the first two months. That’s what they get for not providing an incentive to stay at all, which again hints at both incompetence and a favor.
Careful: I don't imagine this was your intent, but we need to eradicate ageism from our industry, not promulgate it, even as a throwaway comment.
Just some lovely irony this morning ;)
My point is calling something illiquid worth "nil" is often silly. Maybe don't consider it worth its face value. Certainly don't go spending money you don't have yet. But automatically writing everything down to zero is dumb.
That's... isn't that impossible by definition?
https://www.youtube.com/watch?v=6BaoxI75TRs
I couldn't watch that clip when it first came out. Too close to home.
Usually it's a process where the company tries to push what you have into an existing product. The remaining staff support that product until the switch over happens. Some are forced to stay with option vesting deals. But usually happens over two years.
The longer the vesting period, the more they have to lose with each decision. So they simply stop taking risks.
Lunchtime talk started to focus on money. Some people nursed unrealistic fantasies about an upward turn in the stock. Those of us who were more cynical sold our shares earlier and were happier in the long run. Eventually most of us moved on to other companies. The company is headed down the drain, but many of us are still friends. I bought a condo.
I would add as well that if the acquiring company does not have a solid plan for how to integrate your team/product... you're gonna have a bad time.
Worse: if you did work there. You’re already heavily invested in other aspects of your life. Do you really want to put more eggs in that basket? The answer could be yes, but be aware of the risk.
Nobody holds on to a winning lottery ticket that long. You cannot exit at the top and trying to do so will drive you crazy.
I think you and your friends were right. I had a coworker that was selling his stock as fast as he could and it finally dawned on me that he was doing the right thing. When you work at a place, you are investing your time an energy into an idea. If you hold stock in that place, you aren’t diversified.
If the stock tanks, layoffs are more likely to happen. And then you are broke and jobless. There are very few companies you can work for where your own stock is the best bet on the stock market, and second best is often pretty darn good. Gamble on a different income stream.
Also, a middle ground is possible. Sell some of the stock for safety, and take risk with the rest.
But comfortably rich? You’re more likely to get there with diversification than concentration.
Whether you want to take bigger or smaller risks is up to the person in question.
You shouldn't bet on getting lucky.
Even to keep among the 'rich' list assuming you inherited it all takes enormous talent because money inflates away.
There may be a bigger incidence of luck (I am not sure of this either btw - almost all the contacts you get as a rich person are very much the effect of you being rich) but unless you're well prepared to take full advantage of it, there will be no returns.
What I will concede though: Luck when you're poor might mean securing a week of food. Luck when you're a billionaire probably means the stock market goes on a 15 year bull run.
There is nothing luckier than being born rich. Treating it as some sort of skill to remain rich is part of the dysfunction in US society where wealth is equated with virtue & character.
If you are rich, but not smart -- it is hard to avoid temptation to invest into risky projects. It is hard to identify people who just want to drain away your money.
I did acknowledge the luck part in being rich. I do acknowledge it is far better than being poor. But if you want to remain rich and ensure your generations remain rich, that's a ton of work.
PS - seriously rich might mean different things for us though :)
Did a lot of drugs, didn't pay attention in uni, didn't work, didn't build the habits of a successful person. Still, he got one chance after another, and in his late 20s he actually did. From what he told me, realizing how insanely privileged he is was one of the major influences for him to change.
But still, a normal person would have been long out of chances at that point, and would fight serious debt and worklessness without any support.
You maybe cannot afford to be a total wanker forever as a rich person, but you certainly have a lot more leeway in your wankiness.
Meanwhile, trading stocks on margin...
I think the FAANG people I know who supposedly make 500k/yr only got to those numbers by never selling a single share and then reporting total net worth including appreciation divided by time worked. Their base salary isn't actually that crazy. People who sell all their shares for index funds didn't do as well.
It is usually the salary + stock award that will vest over 4 years. For most companies with a flat vest, the total will come to 500k/yr for certain levels.
The appreciation is all yours. Future perf bonuses which will be each 6 months or a year are on top of this. Some companies do adjust for what you're making in that year and cut down the perf bonus (In a previous company I once got a promotion without any stock because our stock had tripled in the time...) - but these companies have a serious growth outlook. Once the stock flattens, there will be a major drain and they know this.
On average over a long period, but in this case you are invested in one company over a very specific entry date and period of time, with some critical periods blocked from selling.
Facebook peeked around the end of July 2018 at 209$, if you got stocks then you might be in trouble, or already sold out after seeing 124$ during December 2018.
When it got up to around 700, he started to get frantic, figured out how to crack his own password, and sold it all.
He's from an Indian family so poor that they didn't own any books growing up, and he made in the low seven figures. But if he had known his password, he probably would have sold it early for like $10k.
Mind you, I make about 30k after tax. (Not in US)
The only people that do hold on to a winning lottery ticket that long are the people for which that $ would not significantly change their lives.
I bought AAPL at ~$20 pre iPhone, AMZN at ~$50. And sold them when I doubled or tripled my money. The only reason the choice to sell those looks stupid is hindsight. I'm still happy I sold, because I'm not independently wealthy. I used that $ for good purposes that impacted my life at the time. I cashed out for an immediate, excellent ROI instead of risking it.
Edit: If I find myself in a position at a startup where I could liquidate shares for a currently fair $ despite the strong potential for growth in value over time, I probably would, in order to de-risk the situation. I'd sell some and keep some.
However if you are already a millionaire you might as well keep holding it.
A reason why the rich can get richer, because by holding you get tax-free reinvestment of the current value. By selling you pay tax and then get to use it for something else. This plus average stock returns beating other investments or paying off the mortgage.
Exception is with crypto and 'true believers' who held and held. Maybe they'll never sell their entire stash.
[1] Sorry this was the first link that came up in Google: http://thepsychreport.com/books/how-incentives-hinder-innova...
The IPO was a lot of fun. We were still in charge of our own company culture. I wasn't privy to all the financial information, but we were told the company was skirting profitability and it would've been just a small push to get there. People worked harder afterwards to try to get to profitability. You also realize stock price has nothing to do with your day-to-day work - it's not in your control.
The acquisition was... well, a lot of us didn't stay. For one, a lot of people's RSU's had already vested. The acquisition meant a company cultural change. 1/3 of us left initially, some people were waiting for their RSU's to vest. I think in all, 2.5 years after acquisition, only 1/3 of the original staff is still there.
So depending on the exit, really understand what your yourself want out of life and career. It's ok to be selfish in this scenario, as not everything will be in your control, as others are also considering if they want to take large sums of money, even if it's not FYM. For being higher up on the corporate ladder, be honest and truthful to your reports. Don't make promises you can't keep.
I'm talking for personal experience from someone mid-career that moves around a lot in the industry.
The best buyout experiences are the slow embraces instead of a big bear hug. A slow embrace allows both sides to grow while they learn how to support each other. A big bear hug will suffocate the purchased company while all energy is spent assimilating instead of helping customers.
That competitor was bought in the last couple of years and we all thought this would be our chance to go #1 as their head office inevitably screwed it up somehow.
That hasn't happened yet. They're still #1, we're still #2, and the gap hasn't closed. The only sign of trouble might be that their product, which was already lagging, hasn't seen a major release in that entire period.
I was tasked to sell their monstrosity and it was hell. To see the faces of my clients as they looked at this 'new' platform was very demoralising for all concerned. We ended up with about 20 clients who stayed and eventually the organisation just got out of the industry segment all together, and they gave me a redundancy package.
But it sounds like sometimes the founder is fucked too.
They buy your product out from under you. They are never, ever going to be as emotionally invested in it as you were. To you it was a pet, possibly even a child. To them it’s just an asset.
How often has the product really gotten better after a purchase? Investment, sure. Bank loan, all the time. But how often to mergers result in good news for the customers? Maybe, possibly, if the products complement each other. But even Bitbucket was better off before, from a customer standpoint.
It's always about the culture. They were just corporate.
Our executive management was very savvy and negotiated that the acquiring company couldn't interfere with our operations for the first year in any way that could threaten our meeting the earn out goals.
The net effect was just weird. In many ways, nothing really changed for a year. In other ways, everything kind of ground to a halt because there was no motivation to do anything and no new management to steer.
I left at the end of the year.
In one, people go from owning options in their company which is private to owning options in another company that is also private. In the two companies where I have seen that happen things didn't change a whole lot but the "new way to do things" which is to say the way the acquiring company did things was sufficiently different than the way the acquired company did that there was churn.
In one the "exit" is really sort of an aquihire with no value transferred, rather the employees are all given some form of retention package depending on their perceived necessity to the success of merging in the acquired company. In those, people are typically both happy to still be working and conflicted because they now feel "trapped" as the only way to get value out of their previous investment of time into the startup is by working through their retention.
The rare, but happier version, is the one where stock options become "tradable" at some future date for non-zero amounts of money depending on the current stock price of either the acquiring (and already public) company, or the rarest where the company itself goes public.
A lot here varies by scale. At Sun I watched[1] a number of people become "overnight" multi-millionaires. Some people it didn't change at all, others became insufferable prima donas, and a number basically scaled back their work while they 'rested and vested.' A number of folks left to start their own companies (some as groups like Legato) now that they had enough money to self fund. Some, like John Gilmore, went off to do advocacy because of all the crazy stuff going on in the Crypto wars.
Bottom line is that if its a big uptick in wealth for a number of people they will all respond a bit differently. Life will be different.
For me, I came to recognize that there are many levels of "wealth"
Perhaps the first is when you have enough extra to insure your kids can go to the college of their choice (within reason I suppose). This can empower one to take some riskier bets and reap potentially some bigger rewards.
The next is when you have enough to send your kids to college and you can pay off your mortgage so that your "burn rate" is manageable regardless of your salary. This often empowers people to speak 'truth to power' since they don't really care if their truth makes those in power so uncomfortable they are asked to leave.
The third is when you own your living space outright, your kid's college is taken care of, and you have diversified the surplus into an investment strategy that is kicking off enough returns to cover your nominal burn rate (taxes, insurance, food, gas, car maintenance, home maintenance, etc). I used to talk about as being 'raman rich' much like a startup talks about being 'raman profitable' meaning that you don't have to work but not working means you might not get to take vacations or invest in other interesting endeavors.
So how your life changes will be based on both how you respond and how those around you respond to the way you respond :-).
In the first decade of the 2000's one of those Sun people who had turned into an insufferable prima dona came by looking for a job. They had mistaken (or over estimated) how much of their new wealth was because of what they did and how much of it was just luck. As a result they embarked on a number of risky startup ideas and I suspect never took anyone's advice on solving the hard problems. As a result, a string of failed startups and a trail of people who would listen to their pitch, nod politely and decline to participate. They ended up selling their house, moving to the midwest near their ex-wife's parents so that they could visit with their kids. Not a happy story.
[1] Not me though since I had started on the Monday after they went public.
It improved my life in the sense that I don’t feel the pressure of having to keep a job I don’t like: I can quit and not work for several months and nothing will happen. Even if I don’t actually quit, just the thought of me being able to do it gives me a lot of comfort. I suffered significantly from this in the past, where I was stuck in non-ideal work situations for financial/immigration reasons.
But it’s far from being truly liberating: I constantly think that a significant drop in the market could jeopardize my position (and I can’t move more than 30% to fixed income investments, since I am young enough that inflation is otherwise going to eat all my capital away), or a crazy medical emergency force me to go bankrupt (and I say this as I have a pretty good health insurance plan covered by my employer).
And, I think it would be nice to have more money for discretionary (e.g. more traveling) or unforeseen expenses.
Side note: You have the ratio inverted and probably should be thinking of the portfolio income as pre-tax.
Love my job. Team is great. Get on fine with the board, work pretty closely at times with almost all of them.
What I’m surprised at was/is the difficulty of choosing how to invest the lucky windfall capital (I diversified out as soon as I could, heard enough horror stories about not doing it), I think that it’s harder than if I’d been independently wealthy - far less room for error, fewer options and far less support from private bankers and the broader financial industry which helps people with an excess of capital. It’s going fairly well now after some time, but there was a lot more cognitive load than expected.
For me, I am facing a rebalancing of personal goals - they’ve come second to my work, and the health costs of that have been more clear over time.
At work this means I want to achieve more impact in less hours (why didn’t I think of that before?), delegate more effectively (see above), and do things with more strategic impact (which also happen to be more fun).
All of these things were in my power to do before. I’m not even sure it was the “ramen rich” thing that made the difference than having external validation during discussions with bankers and investors during the pre-IPO phase.
It’s also become clear how much the business values my work, as I’ve been navigating these changes (from “not much” all the way to “a lot” ha ha). With a lot of social capital it’s working out.
I guess that some colleagues were big shareholders. Some left fairly early on to fulfil dreams, some hung on until irritations built up enough to force a departure. Two years later, I miss nearly all of them a lot, they were my “seniors” and direct peers, replaced by talented but less battle-hardened individuals who - mostly - only have the successful pre-IPO phase as reference.
Newer, driven, engaged, staff do ask relevant questions about reward for their level of commitment which cannot be answered except in platitudes. There are more smart, enthusiastic 9-5 types who want to be part of a success rather than build a success. These people are my challenge - motivations and communication styles (meetings! goddamn meetings!) have to be different, and leadership tactics that worked need serious adjustments in the years to come.
Having no loans was really empowering. Even with that - it amazed me how much 'normal' living costs. We've not hit that ramen rich stage. Our kid is half way through college... and the costs are ridiculous as we will launch her with no loans as well.