Am I an idiot if I take a 50%+ paycut to join a pre-series A startup? Still in the wealth-accumulation phase where compounding matters

  1. As someone who runs a startup, let me tell you it took me running one to understand how bad a deal most startup equities are, between the share class and the vesting, combined with the odds of failure, most people never really make any bank. I know people in their mid 40s who have been chasing the startup dream and never made more than $100k a year, because their equity never amounted to anything.

  2. Yes I would expect for that kind of short term cash hit that you need at least 1% equity. But if you get a good chunk of equity then at least there is some upside and you can justify it

  3. This is 100% the right answer when balancing the financial and FOMO pieces. Plus, you won’t have to have the nightmare situation of “company is kinda successful, I spent 4+ years here, and need to spend a lot on taxes to exercise my options”

  4. This! You don't need to pay for equity with years of your life. You have money and money can buy equity too.

  5. I really like the spirit of this philosophically, but in practice this likely isn’t going to play out. First off getting access to seed or series A rounds is not as easy as just asking to invest, especially if you’re only bringing a paltry sum. And second I think they’re going to be more annoyed at OP than anything since they still need to fill that role and instead of joining them now he’s giving them new problems to solve.

  6. I am also in my 20s and cofounded a startup where I took a ~70% paycut from my old corporate role making high 6 figures, and we hire many people of similar profile to you.

  7. ^ Prob best answer here IMO, being in finance it is crazy to see friends in tech get the big pop, but most have same net worth as I do, my path was just slower/steadier.

  8. This is like when a guy that worked for me told me he had been called up to try out for the Dallas Cowboys. It would be a pay cut for training camp he worried if he didn’t make the team he would miss out in the career track he had with us. I told him he was fucking fired.

  9. Except there is only 1 NFL, and only 1,695 active jobs, and the prestige of it can carry a lifetime of careers.

  10. Yes it's generally good to take (not outrageous) risks, but absolutely go in with the mindset that it probably won't work out (since by definition more risks than not will fail). I.e. know exactly what you're risking, and always have a plausible backup plan that would not ruin your life if (/when) you need to take it - don't burn any bridges with current employer and focus on absorbing marketable skills from the new position in case you're looking for a new job in 2 years. A five-year setback on a FIRE journey would be at the absolute limit I would risk, for any upside.

  11. I actually disagree. It’s safer to take the leap once you have built a point where FI is well within reach, and use the revenue as a coast fire way to get you through the finish line. Dealing with the stress of the gamble early when income still matters is tricky. Also, a little bit of life experience won’t hurt.

  12. Can you negotiate for more cash compensation though? Just because it’s a startup doesn’t mean they should pay you half of your value. Expected value of the equity can’t easily make up that huge gap (saying that as someone from startup space).

  13. I don't see why this is riskier later in life. OP won't be living paycheck to paycheck no matter what. A $160k base salary is more than enough to feed a family. Plus they would have hefty savings/investments by then. The only risk I can think of is their spouse being disappointed by their "unsuccessful" career but that's an emotional one not financial.

  14. As someone who has a lot of equity in a startup and similar age (and 2 startups), id opt in to stay at the current job. In fact, I am currently interviewing with FAANG just for the relaxed environment. Way less stress, higher expected value, less hours.

  15. Take the startup. There are a lot of ways to make money. You have lots of time to figure them out even if the startup is a dud. But relatively few ways to do something that genuinely excites you, and this becomes harder to find as you get older.

  16. This isn't the same situation as yours, but this reminded me of it. I once met a guy who really wanted to join this startup, but he decided against it because his family was risk aversive and persuaded him to not to. That company was Nvidia.

  17. I’ve learned that decisions made based on potential future value almost never pan out. You’re not in a position where “fuck it, I have nothing to lose” can be said.

  18. It sounds like you really want to do the startup but I would be extra cautious about pulling the trigger. You are still missing critical information (equity component) and it sounds like you haven’t mapped out a lot of possibilities that other users have mentioned (participating as an angel investor, contracting part time, taking a sabbatical instead of quitting). Don’t get tunnel vision. For example, you say that you’ll be set back 5 years financially if it doesn’t work out. 5 years is a long time, you could build your own company within that time.

  19. I play life by trying to minimize regrets. I quit a high paying job to take a 60% pay cut, twice actually, and have done alright for myself through a ton of luck. But even if I hadn’t gotten lucky, I was contributing to projects I believed in, I grew a lot as a person, my new jobs took me to 2 new continents and new experiences, contributing to missions I cared deeply about, and overall I’d be happy with the risks I took even if it didn’t work out financially.

  20. Assuming 4 year vesting you’re giving up at least $1M m cash comp. Assuming this new company was valued around $20M in seed round, you should get at least 5% equity to make this something you would consider. I see a couple comments suggesting 1% range but that seems way too low given the early stage. This assumes you would be a key person and not just an IC, of course.

  21. Specifically on point c, unless you're a lead or core engineer/architect, you're probably going to learn more at FANG.

  22. What we’re the experiences you gained from start up first time around that helped you accelerate the one you founded yourself?

  23. Depends on your conviction on the company/business. Going on the startup journey is a long-term play and will depend on your life interest in joining a startup. If you don't have kids/family it's a probably a good time to go all-in on a startup if that's something you'd like to do in your life.

  24. According to Forbes statistics, only 10% of the startups exit to IPO or acquisition. Only 1% of those exit BIG. I know a December 2020 IPO made so 1500 young people in their 20s millionaire in 2 years of working at a pre IPO. I also know a 12M NW Executive trying to build their own business is no longer a millionaire. Point is you take a well informed decision. I like to believe that no one knows you better than yourself.

  25. You are 26 and making 400k/yr. You already won… why put your fat fire goal at risk if you will already easily achieve it with your current job?

  26. Million dollar net worth at 26 is sexy. I say go for it since you’re clearly able to fall back on a great job if it goes bust in a couple of years.

  27. Not related but wondering about your situation- what field of work are you in? Is it Software Engineering? How are you making so much at 26 😫

  28. There’s only 1 way to do this safely: wait until they close 1-2 rounds. In other words get in 1-2 years before the IPO. Yeah you won’t make FU money but you get to compound your regular salary for a few years and you still get some decent stock.

  29. Disagree you either get in at beginning or not at all. The amount of equity is going to be so small if you come in after a few rounds.

  30. You’re excited and you believe in the founder? Do it. Just make sure to get a solid equity/ISO grant. At this stage, you should get at least 1-2% if they’ve raised less than $5M.

  31. I’d need more details about the startup to provide a better answer, but I think it’s quite likely that you’ll regret the decision to make the move to a startup. Consider the fact that 90% of all startups fail and also that working at a startup will mean long hours. I assume you are in tech and ~400k is a great salary for your age! Have you thought about what it would jump to if you got promoted at your current employer?

  32. You say it's wrong but you're not stating the goal he's going to miss if so. Are you assuming he won't fat fire in time?

  33. Missing a lot of variables of this decisions (primarily terms of the equity, and general career and salary trajectory at your current company), but I would tentatively say "no", unless you have other household sources of income.

  34. Math will never favor incalculable high risk high reward scenarios like this. Using the exact same math you did, Elon never should have started Tesla or SpaceX but obviously that worked out.

  35. The expected value of your equity needs to be worth ~$1.2M in 5 years for this to make sense (and even more, if you expect pay bumps in your current role).

  36. The default answer to "I have a job that I like that pays me $400K/yr, should I quit" is no. So why veer from the default? You have to assess the opportunity in detail.

  37. I did it. I’ll let you know how it works out in a couple of years. Right now it’s Porsches or poverty but it could go either way.

  38. what's the equity stake? are they funded yet? if its not a double digit equity stake with some really amazing founder level details then hard fucking pass. Feel free to DM me, i've done many startups and have the wins and losses to know the right questions to ask

  39. Because you are young, you can afford to take the risk if you believe in it. You may not be able to afford the 5k mortgage and all your expenses on that lower salary though so expect to dip into your savings.

  40. If you are just looking at the finances, not likely to be a wise move compared to staying where you are, or focusing on a more established public company. Very very few startups explode and go public or are acquired under favorable terms. Even then, many early employees get screwed.

  41. I went through a similar situation and I chose the startup. And to be completely honest I think I made the wrong decision. Today what I’d do is stay with 400k salary and cut down expenses as if I accepted the startup role. Save all you can for the next 5 years, I guess you could do close to 1M, and invest all that. The chance of you becoming a millionaire is so much lower on the startup, if you play you cards right it’s a certainty ok your current job. FatFIRE in 5 to 10 years, doesn’t get better than that, and free of stress, startups are a big ball of stress every single day.

  42. The Key is the equity component…taking a 50% pay cut is going to be a huge stressor in your life. Let’s start with the 5k/month mortgage…60k a year…your take home(assuming you pay 31% tax) would only be about $130k…so almost half of your take home goes to rent.

  43. What is the opportunity? Let's say you get 1% and it sells for 100mil and it took 4 years to get there. That's 1mil / 4 = 250k per year on top of your 160k is 410k. Except as you point out the 400k is also compounding meaning that 1mil in 4 years is not the same as 250k over the next 4 years.

  44. I know it’s easier said than done, also impossible to estimate the chance of success of a particular startup, but I would recommend you try estimate the chance of success, as defined by exit in 7 to 10 years, and the associated return based on your equity and the potential size of the company at exit. There are many data points from VCs. Through this exercise you can see how much risk you are taking (opportunity cost) for what kind of return. Also consider that you don’t have to wait till exit as your initial shares will likely be vested in 4 years. At that point you could possibility do something different while others continue work on creating more value for the company (and your shares). My 2 cents. (About myself: I am on my path to fatFIRE largely benefiting from early shares from startups as strategic advisors. My w2 is for expenses and reasonable savings.)

  45. I was in the same position earlier this year, but a little later in life and much less NW I took the start up and honesty one of the best choices I have made. Even if it doesn’t pan out making some amazing connections and I am moving up the ladder a lot faster than I ever would of at my old place

  46. From your post you're an accredited investor. If they're pre series A you can invest cheaper / easier than losing your salary (50% compounding each year vs 5-10 years of illiquid startup equity).

  47. My 24M friend did something really similar recently (160k is their actual salary and they left FAANG for this startup). No regrets so far but they’ve reached series A since. I’d say go for it if you can easily go back to the $400k job if the startup fails. The $5k mortgage is gonna be tight but maybe use it as a comp negotiating point?

  48. You’re posting on FatFIRE, so I assume that’s a huge goal for you. I’d say don’t do it if that sets you back as much as it could.

  49. I would say you're 26. You're early career. Assume the shares end up being worthless. Because they most likely will be. What you should look at is the value of the experience. At 26 by investing 3 years you should be able to push yourself up a few management levels. The question is do you have that path available to you now.

  50. If the failure of this startup could set you back that much, I’d tell the founders “good luck” and stay where you’re at. If it fails, and the majority of them seem to do, no one is going to pay you for the financial losses that would hit you. I want to venture it “all” on a business with my first husband that should have been less risky than what you’re proposing, but as it turned off it, it was a debacle. I have somewhat financially, but I’m at least 2 million behind where I should be. I’m old and I’m a comfortable position, but still feel the lack of a far better financial status. Best wishes on whatever you decide to do.

  51. Startups are easier to do when you're younger (like yourself). Or they're great for getting into leadership and c level positions early.

  52. Follow your gut, you’re already in a good place and it’s not like you’re going with a 50k yearly job or even worse work for free.

  53. Angel invest in the preSeed round. Ask for a board observer seat, or consult for them. Keep your job, hop onboard if things start getting spicy.

  54. People who know how to play the start up game don't give away the farm to the employees, people who don't know how to play the game rarely succeed.

  55. without too much effort, you can put together an Expected Value table/comparison that you can assign probabilities to various outcomes, based on what you think your equity stake is worth.

  56. Not enough info. What’s the equity in the startup? What’s the realistic potential upside? Exit plan?

  57. I’d say, depending on the equity on offer, to go for it… if you see there is a gap in the market for this product, and more importantly, it serves a genuine need for consumers (and can either be patented, trademarked or not easily copied) then you could end up making more money than you ever would in a salaried job. I’ve been there, do I carry on in a job I enjoy, making a decent amount of money, or join a startup? When my partners and I first discussed it we said “if the least we end up doing is paying our mortgages off” 🤷🏻‍♂️. We went for it. I worked harder than I’d ever worked during the last 10 years of and during various buyouts, earnouts etc. but because I had equity, the windfalls were astronomical compared to a salaried job.

  58. What are your motivations? If your primary goal is to minimize time to FIRE, joining an early-stage startup is unlikely to be an optimal choice. On the other hand, you allude to non-monetary reasons why you might want to do this: it would be an exciting adventure, you believe in the mission and want to contribute directly to it. If those reasons really speak to you, go for it! You have a nice start on a FIRE portfolio already, and your new salary should be enough to pay the bills even if your savings rate goes way down. What you already have should therefore keep compounding while you're at the startup. Once you decide it's time to move on from the startup you should still be able to find a higher-paying tech job if desired.

  59. If he is the smartest guy this won't be the last start up idea he has. Worst case if you have real skills (Assuming Tech) getting a role that gets you back to your 400k shouldn't be an issue.

  60. Well, I've always been motivated by work, not the money, so I've done lots of startups. Most have not been good financially but I've enjoyed the work and learned a lot from doing it. If this is a pure money play, the opportunity cost of ~240k a year for whatever equity you are getting is what you have to calculate out. It's hard to guess but odds are the company won't sell for a billion dollars (odds are in fact it doesn't ever end up being worth anything unless you have really solid reasons to expect success, and thinking your friend is smart is not enough if this is the first company he's starting) and so if in 5 years you have 1% of a company that sells for $100m, you get $1m back having given up $1.2m (those time frames and values are all total handwaves obvs)... You'd need a really big payoff for the financials to be favorable.

  61. Damn this guy really got 263 comments on his post and didn't even reply. Awesome advice from everyone here for people in similar positions.

  62. Who are there seed investors? Hard to conduct fair due diligence on a friend, but look and see whether top-tier firms/angels/etc. funded the company at seed or pre-seed. If they're close to a series A, they must have metrics or revenue that's at a certain scale. Is the industry super-niche or does there tend to be a lot of m&A in the particular industry? For example, joining a consumer social startup is wayyyyy riskier and less likelihood of an m&a or liquidation event vs. joining an enterprise saas tool that builds for some niche area.

  63. You could consider providing a little bit of seed funding if it gets off the ground.(and I agree with the others who say don’t leave your $400K day job during your accumulation phase, since Fed liquidity is about to dry up.)

  64. There are so many awful, idiotic answers here. I’m sure a good one or two exist, but I can’t wade through the cess pool.

  65. Seriously do it. DM me if you’d like. FYI I went from wall street to unicorn that went public last year to starting a company that now has 60 ppl.

  66. I've joined a few startups. Given you're going from $400K to $160K, I would only join for founder status. Depending on how far along they are, you could ask for 20-30% equity. Any dilution would be equal among the other founders.

  67. How important is that house? If you jump, I'd plan on selling that house. $5k mortgage on $160k from a pre series A is a bit too much risk for my blood.

  68. If you believe the startup is going to be more profitable than your day job go ahead. If not don’t quit your job. If you’re stuck in the middle work something out like buying equity stake with your friend. Take my advice with a pinch of salt, I’m a broke and like 6-8 years younger than you

  69. May I ask what kind of job you currently have to have a 1.3M NW and a annual salary of 400k at the age of 26? Very impressive

  70. You make 400k a year? You already won the lottery. You can save one million dollars every three years easily. Don’t throw away your winning ticket on slim chances.

  71. There’s just not enough information to even compare two choices. Collect data, evaluate & take action which ever the way best for you

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