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Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

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Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#31

Post by toddmorey »

alephnerd wrote: post #6

What is a "competitive salary" as defined by you? Most VCs ik are fine with founders paying themselves a market rate base, but I also work with VCs in the Bay Area and Seattle scene - maybe you're from France, Germany, Canada, or some other less founder friendly VC scene? Also, as a founder your driving goal is to make a company that would succeed. It's up to you to decide your compensation package, but paying the CE…

Prior founder here: I think this is a fair question and glad it was asked for discussion. They raise a good point about the pool of potential founders being limited by the necessity of a low salary. I think it will always be part of the VC funding model, though.

However, also important to note that VC funding isn't the only way to do a startup.

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#32

Post by alephnerd »

nemothekid wrote: post #28
tptacek wrote: post #15

Earlier quoted context omitted.

Technically, after your first priced round, you'll have a board; you probably control it, but perhaps not after your second round. The board will approve a headcount plan, with implied costs. Realistically the management team (the operators, not the investors) do control most of this. The subtext of the question though isn't why operators don't increase comp; it's why investors don't kick in enough to let startups co…

I think the comparison to FAANG is unfair. Most operators, after a priced round, AFAIK, are paid fairly, sans FAANG. The idea that any startup should have similar comps to companies that have been growing 50%+ year/year for decades with money shooting out of every orifice isn't realistic. Most startups don't compete with comp packages from FAANG for the same reason that Target doesn't offer competing packages - they…

FAANG base salaries and bonuses for most roles aren't all that different from similar roles at other companies in the Bay Area - it's just the stock comp that makes the difference.

A PM II at Google Cloud is earning the same base+bonus as a PM II at Cisco Meraki or Databricks.

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#33

Post by majormajor »

majormajor wrote: post #18

To play devil's advocate - since we're talking about "pay yourself less than Google" not "pay yourself nothing" - what would happen if someone was throwing tons of money around and telling founders (and early employees, while we're at it, who also take less than Google et al) to pay themselves several more hundreds of thousands of dollars a year? They'd attract a lot of people to fund, for sure. You'd lose a bit of a…

Riffing on this too, the other bit of it - from a founder and early employee POV - is that at a startup, money is quite literally time.

Oversimplification: pay yourself 2x and have a 6mo runway, or take x and have a 12mo runway. If you aren't expecting to give up quickly, and don't want to just try to fall back into a Google job after 6 months if it is struggling to find traction, you're gonna want the longer runway.

And time turns back into future money because if you're doing a startup you're also likely considering the potential upside. Most startups don't get there, but if you just wanted to play the aggregate numbers, that would probably already stop you[0]. So you want to get more customers, you want to raise that next round, etc, and all those things are helped by runway. Most startups fail - but the ones that spend faster fail faster.

[0] why work for $GOOG for 12 months at a startup then have to look for a new job when it fails instead of just working for $GOOG at Google with job security?

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#36

Post by extr »

IMO you are entirely correct OP, and it's to everyone's detriment. A huge talent pool locked out of creating new forms of value because investors are too cheap to bump salary from what is arbitrarily considered "pretty good but fair" to "competitive with top rates". Seriously, I love some of the comments here saying $300K/yr is obscene but implying $150-200K would be fine. This difference is a rounding error in the grand scheme of the money involved.

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#37

Post by light_triad »

The main draw to starting a startup is not to get rich from the salary, but from the equity. Founders are not really equivalent to employees, they create value from nothing and revolutionise industries, if they're doing it right.

It all comes down to the classic question: do you want a high chance (a%) of getting a decent amount of money ($b) or a very small chance (c%) of getting an enormous amount of money ($d)?

The values of a, b, c and d are different depending on your background, experience, connections, hunger for risk, etc. You have to find the decision thresholds that make sense for your situation.

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#38

Post by HWR_14 »

burnte wrote: post #24

I think you may be wrong on 3, I think more founders want to stay, and investors want a fast exit for big bucks.

Point 3 is about risk not time. Most founders would rather have a 100% chance of their stock being worth 1 billion than a 1% chance of being worth 200 billion and a 99% chance of being worth zero. For VCs, the choice is opposite.

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#39

Post by dclowd9901 »

majormajor wrote: post #18

To play devil's advocate - since we're talking about "pay yourself less than Google" not "pay yourself nothing" - what would happen if someone was throwing tons of money around and telling founders (and early employees, while we're at it, who also take less than Google et al) to pay themselves several more hundreds of thousands of dollars a year? They'd attract a lot of people to fund, for sure. You'd lose a bit of a…

I’m not sure this argument tracks as well as the top one.

The pay that founders and early players get is nothing to scoff at — many folks would be quite very happy for that pay and would happily fake their way to it. What’s preventing _that_ from happening?

Re: Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

#40

Post by smfjaw »

DoreenMichele wrote: post #17

Startups are unproven ideas. MAANG companies are proven businesses. Lots of people would say "Yes! I shall pretend to work on establishing a viable business if you throw scads of money at me!" And not ever really develop a viable business. Founders get rich by having equity. Some of them get stinking rich. It's basically a form of betting that incentivizes actually succeeding at finding a viable business model. That'…

I grew up lower middle class, which gave me a good hunger to go to college, get a degree and make some money. VCs are trying to incentivise that same mindset except by making with riches equity instead of opportunity
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