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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?

#51

Earlier quoted context omitted.

Yeah, I have heard that it's a but of a negative signal if founders are paying themselves "nothing." Is this true?

If you made a couple million already it's fine, but then again, why are you coming to me for a Seed round unless you just want to set a price point? (ik a couple startups that did this) If you don't have the track record or wealth to justify that then yea it is a massive red signal. Imo, a CEO/CTO in the Bay Area should pay themselves market rate for their equivalent PM/Staff Eng position. Some will take a very low s…

TBH, as a founder with 15+ years experience and a family, I think you're on track. I'm starting a new thing right now with some built-up runway before I go raise a round. But in my position, I also know that I can go find an FTE or contracting position within 1 week if I needed funds to pay the bills.

The level of confidence you gain after years of doing this lets you take the risk without worrying about the money. I've never let my family be in a position to be at risk, why would that change now?

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

#52

Earlier quoted context omitted.

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.

that seems about right, but I don't understand your point. it doesn't really "cost" a publicly traded company less to pay employees in stock vs cash. instead of paying $x + y shares, they could just sell their own shares periodically and pay all cash. they might lower TCs a little to offset the risk of additional dollar-denominated expenses in down years, but they would still be paying way above market.

FAANGs are outlier stocks, hence why the acronym was made. Plus it's an ancient acronym that ignores plenty of well paying employers in the area (Crowdstrike, Zscaler, PANW, Broadcom, etc).

And FAANGs did well depending on when you joined. In most cases in the past several years it's kind of did the same as peers depending on how long your stint was.

There are a lot of publicly listed employers in the Bay Area who's stock is doing very well, but limiting prestige to FAANG is career limiting and clearly stems from hubris.

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

#53

Earlier quoted context omitted.

If you made a couple million already it's fine, but then again, why are you coming to me for a Seed round unless you just want to set a price point? (ik a couple startups that did this) If you don't have the track record or wealth to justify that then yea it is a massive red signal. Imo, a CEO/CTO in the Bay Area should pay themselves market rate for their equivalent PM/Staff Eng position. Some will take a very low s…

TBH, as a founder with 15+ years experience and a family, I think you're on track. I'm starting a new thing right now with some built-up runway before I go raise a round. But in my position, I also know that I can go find an FTE or contracting position within 1 week if I needed funds to pay the bills. The level of confidence you gain after years of doing this lets you take the risk without worrying about the money. I…

Exactly! Starting a company requires a lot of maturity, a tangible vision, and a bit of wild streak, and you build a healthy mix of all 3 after working in a domain for a decent amount of time. The most successful founders I've seen are those who tended to start their companies in their mid-30s after a decent mix of Engineering, Sales, and PM experience from the IC to leadership level, but after their kids (if they chose to have them) are already in grade school.

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

#54
post #44

It’s a test to see if the founder values their equity more or less than the salary gap. If not even the founder values equity more than the gap, then they should close down and go get jobs.

This sounds good but the math makes no sense. The salary gap we're talking about here is minuscule compared to non-trivial amounts of equity in a successful company. $400K vs $200K per year for 5 years is $1M total. If the company is successful at VC scale, $1M will be dwarfed by the value of the equity. And how much better of a founder can you buy for $400k vs $200k? I can think of a ton of people in the Bay Area fo…

You aren't paying yourself for 5 years out of your first raise if you succeed.

But if your first raise is 2M and you want to hire a few people with it and make it last a year, an extra 200k might be a big dent in your runway. Or get your investor to give you 10% more.

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

#55
post #44

It’s a test to see if the founder values their equity more or less than the salary gap. If not even the founder values equity more than the gap, then they should close down and go get jobs.

This sounds good but the math makes no sense. The salary gap we're talking about here is minuscule compared to non-trivial amounts of equity in a successful company. $400K vs $200K per year for 5 years is $1M total. If the company is successful at VC scale, $1M will be dwarfed by the value of the equity. And how much better of a founder can you buy for $400k vs $200k? I can think of a ton of people in the Bay Area fo…

Yes, the founder should be valuing their equity far more than the salary gap. If they don’t, then something is gravely wrong with the business as they are essentially valuing it near zero.

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

#56

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'…

Exactly. Also why startups within an organization fail at a higher rate, because there still treat it as a 9-5 job with no hunger or fear of failure.

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

#57
As a 2-times founder, one VC funded and one bootstrapped I think there is a fundamental difference of the world view of a founder and a cash-optimizing employee you're missing.

Startups are just businesses. Business owners value money, but they also value independence and freedom to do what they want to do. The "don't tell me what to do" gene is highly correlated with them. The only resource you can't buy is your time and investing it into your ideas brings a lot of meaning into the daily slog. Also if you have your own company, you decide the rules and people you surround yourself with. If you spend 1/3 of your life working, this is a non-trivial contributor of your quality of life.

This is the first reason. Founders really hate working for other people.

Regarding salaries, the more cash you burn, the less time you have to understand the market and create the product. Salaries are expenses and you need to be very stingy until you get to profitability.

This is the second reason.

And something I've seen in the "startup" crowd. From the VC marketing bullhshit they assume that the "only" way to create a company is "to create the next billion dollar company". It's the game of the VC's, grow and sell. Yes, 3% of Facebook can be worth more than 40% of 5 Million ARR company, but if you multiply it by the chance of creating the next Facebook you'll see that it's riskier and you loose too much control and the first reason you're doing your own thing.

In summary, if you're thinking about short term salaries it's best not to try to do a startup, better find a good paying job and invest in an index fund. This will be safer and on average yield better.

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

#58

As a 2-times founder, one VC funded and one bootstrapped I think there is a fundamental difference of the world view of a founder and a cash-optimizing employee you're missing. Startups are just businesses. Business owners value money, but they also value independence and freedom to do what they want to do. The "don't tell me what to do" gene is highly correlated with them. The only resource you can't buy is your tim…

> From the VC marketing bullhshit they assume that the "only" way to create a company is "to create the next billion dollar company"

We don't (or at least we shouldn't).

The issue is as a VC you have LPs who are very demanding about returns. VC represents a minority of their total capital outlay, but they put money in VC in order to get outsized returns.

If I'm the Ontario Provincial Pension and I gave a VC US$200M, I expect to make way more money from the VC fund than I would have investing in the stock market, or bonds, or gold, or to a PE/IB/Hedge Fund.

VC is just another financial instrument that is a part of diversified portfolios.

If I had to use stereotypes, if PEs are alcoholic coke heads, VCs are kombucha swilling stoners and trippers.

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

#59
post #47

It's an outdated perspective. MAANG doesn't appear to pay the most anymore [0]. Across levels, only Netflix scores top 50. Of the top 10, 4 are VC backed startups, 3 are mature/listed (including Netflix), and 3 are finance. Of the top 20, 10 are startups, 5 are listed, 5 are finance. It seems that startups are your best bet for good money overall. If you rank it by seniority, startups tend to pay much higher for less…

Unrelated but I didn't realize how much Coupang pays, but then again it makes sense given how successful they are in APJ.

Maybe I should brush up my Systems knowledge and Korean...

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

#60

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.…

In theory, you could pay yourself 2x for 6 months, then 0x for 6 months if the startup lacks money but seems worth persisting at. I think it's not especially rare for founders to work for temporarily zero pay early on. Seems like the main difference between that and "1x for 12 months" is providing an incentive to yourself for the last 6 months, and signaling that to others.
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