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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?

#61

Post by extr »

tippytippytango wrote: post #55
extr wrote: post #44

Earlier quoted context omitted.

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.

Yes of course, but what I'm saying is that's not actually an argument for any particular base salary amount.

Think of it this way. We assume higher quality founders would be attracted by higher base salaries. Higher quality founders have a higher probability of successful exits. What is the optimal founder salary level to incentivize talent and maximize the total value of exits by startups? We can put some bounds on it. It's not $0, because then only already-wealthy people create companies. It's not $10m/yr, because that's not affordable by investors.

Is there any particular reason it should be ~$200K/yr instead of ~$400K/yr, or even higher? It's well known that older more experienced founders have a higher probability of success. Should we be recruiting 50 yo founders with decades of experience by guaranteeing $500K base? This is OP's point.

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

#62

Post by extr »

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'…

What exactly is the argument here? That we can't pay founders too much, or else grifters/lazy people would take over to line their pockets with VC dollars? That's basically a non-sequitur.

The issue at hand is that there is probably some correlation between a founder's opportunity cost and probability of success. Smart, driven people could be doing a lot of things with their time. Working for years on end for $200k/year for a small probability of a large exit is not practical for a lot of them. Working for $400K might be. OP's point is that as an investor, you might be better off having fewer, higher quality founders and paying them the higher opportunity costs. Would you rather fund 10 teams of monkeys or one team of ex-executives with proven experience building/scaling/etc?

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

#64

Post by drivingmenuts »

Basically, they're doing what they do because they can. Both sides want the maximum moo for the minimum of milk and investors have the upper hand because they have the money. While many people have smart ideas, it's challenging to get those ideas to succeed without tons of money.

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

#66

Post by salomonk_mur »

alephnerd wrote: post #58
freefaler wrote: post #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 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,…

If you are the Ontario Provisional Pension, you expect to make roughly the same in every category you invest in, since every higher return option comes with higher risk.

It's the cornerstone of investing. You diversify to hedge risk, not to increase total yield.

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

#68

Post by banish-m4 »

Founders who are too comfortable (past exits or high TC) tend not to be hungry hustlers willing to strive to get over the finish line (mandatory sports metaphor). The people who are hungrier tend to be: recent immigrants (sorry Americans), people who are broke, people who exited another career like military esp. spec ops, sports, or racing.

Founders should help themselves by reducing their personal expenses to as close to zero as possible.

There's metric shittons of cash but there aren't a lot of investible teams onto something awesome with excellent timing. VCs and angels aren't just going to write larger convertible notes because you personally want more money. You must demonstrate business value that can be accelerated with varying amounts of cash and deliver when you get it, without giving away too much equity.

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

#69

Post by leetcrew »

alephnerd wrote: post #52
leetcrew wrote: post #48

Earlier quoted context omitted.

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…

right, I didn't really mean to debate what companies are inside/outside the Big N club (or whatever you want to call them). I agree with your overall point that Big N salaries are not representative of what a typical tech worker can expect to make.

the part I don't get is why you chose to emphasize that google base+bonus is about the same as those other companies. I don't know the google particulars, but I'd guess stock makes up almost half the target comp of someone at that level. that's a big difference even if the stock stays totally flat.

I'm not familiar with the google particulars, but I don't find stock comp to be much different than a quarterly bonus. there are some good and bad years, but the way refreshers and promos are handled cause actual comp to converge to 10-20% above target in the long run, even if the stock grows spectacularly during your tenure.

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