Taking Money off the Table

Recently I had a long call with an old friend who was facing an age-old
predicament that I’ve been seeing more and more these days:

• Lucked out, worked hard, employer is crushing it, and now she’s sitting on a
  large amount of paper money gains at her startup
• Company does a
  tender offer, either
  buying their stock back or allowing a third party to come in and buy shares
• Employees might be allowed to sell, say, 10% (or whatever) of their equity
• So here’s the question: do you sell, or do you roll the dice and risk it
  longer?

I took a tender offer on my early GitHub shares, and it comes up a lot in
emails and conversations with others I run across in the startup world. It’s a
decision can be annoyingly agonizing. And there’s a lot of conflicting advice
out there, each with different motivations behind it. I’ve added to that, too,
with lots of advice over the years of “look at all the alternatives in front of
you and make an even-headed decision”.

Anyway, fuck it, here’s the bottom line: take that money, queen.

Gambling with your life

I’ve found it helpful to look at your life as a gamble: a set of probabilities
that add up to whether or not you should make a decision a certain way. Assuming
you’re in this situation, you might be looking at a windfall of, say, half a
million to tens of millions of dollars. That’s wildly lucky, and can be
life-changing money.

Two massive motivators in this decision:

• It’s way easier to make more money when you already have money.
• Successful startups are an insane mix of timing and luck — no matter what
  people who sell online courses will tell you — and if you’re at a point where
  your imaginary gains are truly life-altering… you’ve already won. Now: try not
  to lose.

I’m here to tell you: don’t fuck it up. It’s easy to assume two things, because
we’re Startup People who are Bold and certainly will Change The World (by
increasing query performance by 6%):

• we assume that this will be just the first of many correct startup decisions
  we will make and every four years we’ll be faced with this decision
• that the startup we’re at will only go up and to the right because that’s all
  it’s ever done and surely it won’t face hard times both internally or
  externally

Successful startups sometimes fuck up. I interviewed at Zenefits about a month
before the first bad press came at them- back then it was one of the
fastest-growing companies of all time. One of the execs interviewed me and
guaranteed I’d become stupid rich if I joined. It was obvious to them they were
all going to be gazillionaires in no time at all. I came away with dozens of
utterly insane stories I continue to tell over drinks, and frankly was horrified
at how much of a clusterfuck everything internally was. But you talk to them and
they were all convinced they could do no wrong. (Except for head of
infrastructure- he was the most interesting person I interviewed with and we had
a fantastic discussion about how fucked up the infrastructure was. Figures that
the earliest to know something are the ones who see it break the most.)

All of this to say: it’s easy to become delusional while at a startup — in fact,
you could argue that the best startups have that cult-like delusion built into
their DNA. But things can change. Or the external structures can change. I don’t
have to tell you that tech is in a bubble right now; everyone knows it, everyone
knows it’s going to pop, but no one knows when or the extent of it. There have
been hundreds or thousands of startups over the decades, staffed with the best
and brightest, with revenue, with customers… and they’ve still bitten the
bullet. That’s the game. So don’t look a gift horse in the mouth; take the
horse’s wallet instead. (Sometimes my metaphors don’t always land.)

It’s a forcing function

You reading all this and thinking it doesn’t apply to you? That your startup is
c r u s h i n g it and that by
selling, you’re leaving so much money on the table? Good. One of the reasons I
wrote this in this way is to act like a forcing function: get you to be
horrified at the thought and make you critically analyze if holding on to your
stock makes sense or not. It’s like the advice of flipping a coin to make a
decision, and as the coin is in the air you’ll learn which decision it is that
you’re hoping it will land on.

I will say this, though: I did take a tender offer after I left GitHub, it was a
wildly stressful decision, but I have zero regrets today. I took something like
10% off the table, which had a positive impact on my abysmal emotional health at
the time, and had GitHub ultimately eaten it, I would have had at least
something left to show for all the work I had put into the company.

Amusingly enough, this post itself stemmed from conversations with
Billy Gallagher, the founder of
Prospect, one of my angel investments. They do
scenarios and projections of early equity stakes, and I basically told him that
I’m too horrified of doing the retroactive math behind taking the tender and
dealing with all the stock fuckups GitHub subjected us to. It’s probably a large
number. But I don’t think about it at all today. Would have been helpful at the
time, sure, but the stress is a product of the time, and likely not one that
will stick with you forever… if that helps you make these decisions.

I also found it helpful to realize something logistical, too: the money you take
today is, you know, still money. You can invest it, diversify it, grow it. The
exponential growth of startup equity makes the more linear — but still
compounding — growth of “normal” investing feel like you’re just losing out, but
you’re still compounding that cash. It doesn’t just disappear.

You can afford to not be perfect

So yeah- all of this is good to think about. Run the numbers. Model different
scenarios. Get a real understanding of the trade-offs here.

Sometimes it’s helpful to “get permission” from someone — anyone — though. Like,
that it’s acceptable to make this tradeoff. When GitHub got acquired, one of the
best pieces of advice I got was: you can afford to not be perfect. There’s
this weird pressure out there that every single financial decision needs to be
optimized for every little bit of performance… but sometimes you can miss the
forest for the trees with that. You can also drive yourself mad, and forget why
you’re doing all this in the first place.

I’d also be remiss to not mention that this isn’t entirely a “rich person
problem”. I’ve known many paper millionaires who were functionally broke: they
had school debt, or were putting their partner through school, or had kids with
costly needs, or they were responsible for multiple families or generations who
were relying upon them. Liquidity in startups is increasingly harder to come by
these days. Life is constantly about planning for the future, whenever that
thing might come. Sometimes it’s helpful to think about today, too.