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Let’s talk about founder compensation

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Re: Let’s talk about founder compensation

#11

Post by tshaddox »

usui wrote: post #4
supernova87a wrote: post #3

Funny when someone comes to the shocking realization of what's happening to the workers under them, only when it happens to themselves. "People are getting paid less than they're worth unless they renegotiate or leave! We must do something about this!"

I hear this kind of complaint so many times especially from individual contributers but honestly can you realistically imagine a world in which this wasn't the dominant form of compensation adaptation model? For the most part, your salary is affected by supply and demand. As soon as you leave your job, the demand to fill your position goes up. If you don't leave, the demand stays the same. The demand to keep your pos…

Aren’t you missing the fact that the demand can change while you’re still at your job because of the fact that you can leave at any time? I see no good reason why people need to switch jobs to get significant pay increases, other than apparently there is psychological or bureaucratic “stickiness” of compensation.

Re: Let’s talk about founder compensation

#14

Post by rgbrgb »

jjtheblunt wrote: post #8
k__ wrote: post #2

I really hope DAOs will improve on that situation.

What is a DAO ?

Decentralized autonomous organization. It’s a collaboration mechanism for forming an organization wherein you can define the compensation and governance structure as open source code. Moloch DAO is one of the better known and simple to understand instances of a DAO, though it’s scope is limited to managing membership and voting on projects to fund [0].

[0]: https://github.com/MolochVentures/moloch/blob/minimal-revenu...

Re: Let’s talk about founder compensation

#15

Post by nostrademons »

There's a weird set of assumptions in this piece that make me a bit nervous about the state of the startup ecosystem.

When I was first getting into startups (late dot-com boom to about 2009), the assumption was that your startup was your identity, and an expression of your power to change the world. You owned it, or a big chunk of it, and you got rich by growing the size of the company (and hence your share value). This is the Warren Buffett, Jeff Bezos, Steve Jobs, Page & Brin, and Zuckerburg model. Control and ownership stake are the forms of "compensation" that matter here - instead of you taking compensation as CEO, you paid out compensation as owner of the firm, and slowly gave away equity in exchange for deals that would make the overall firm worth more. The article alludes to this model with "your entire life and self-worth is wrapped up in the company".

But the whole premise of this article doesn't exist with that model of a founder's role. Founders don't take compensation; they own the company, and dole it out based on who increases the value of the company most. Founders put their allies on the board, they don't take orders from the board. Founders wouldn't consider an outside CEO, so that comparison would be moot.

It makes me think that the "change the world" phase of tech startup history is over, and we're now in the "fill in the gaps" phase, where a "founder" is a hired gun that slots into a VC's portfolio. Which I've suspected we were getting close to for a while now, but if true, it makes the job description of "founder" a lot less attractive. If you're going to be a hired gun, why not work for a FAANG and probably make a bunch more money?

Re: Let’s talk about founder compensation

#16

Post by k__ »

m_ke wrote: post #10
k__ wrote: post #2

I really hope DAOs will improve on that situation.

Yeah I'm usually very anti crypto anything but DAOs sound like a promising concept. Might be a great way to get rid of VCs and run international workers coops with initial funding though ICOs. A DAO based startup studio / incubator would be interesting too.

Yes.

Would probably be a nicer working environment fur uber- and onlyfans-like markets.

Re: Let’s talk about founder compensation

#17

Post by majormajor »

usui wrote: post #4
supernova87a wrote: post #3

Funny when someone comes to the shocking realization of what's happening to the workers under them, only when it happens to themselves. "People are getting paid less than they're worth unless they renegotiate or leave! We must do something about this!"

I hear this kind of complaint so many times especially from individual contributers but honestly can you realistically imagine a world in which this wasn't the dominant form of compensation adaptation model? For the most part, your salary is affected by supply and demand. As soon as you leave your job, the demand to fill your position goes up. If you don't leave, the demand stays the same. The demand to keep your pos…

> As soon as you leave your job, the demand to fill your position goes up. If you don't leave, the demand stays the same.

That sounds like poor accounting that's overly dismissive of the outside world. If it's going to cost $X to fill the position, why is the person currently in the position worth $X (ignoring for the moment that filling the position will also often actually add a bunch of one-time costs like recruiters/interview time/signing bonuses..., but potentially also be offset by unvested bonuses/stock/whatever that the departing employee is relinquishing).

If you are in charge of salaries, and you don't pay attention to the fact that you're paying $0.7X for someone that you'd have to spend $X to replace, you've put yourself in a weak position compared to the companies who are immediately willing to pay >$0.7X for that person. The demand has already gone up, you just weren't paying attention.

An employee is like a subscription, you pay on an ongoing basis. And they can quit on you any day. Paying an employee currently and in the past doesn't necessarily mean you have no demand for their services in the future - having someone in-house who'd be happy to continue working for you is basically the best-case scenario in a role that you still demand. Don't try to exploit it by hoping they don't notice they're being shortchanged...

Assuming a replacement of equal skill, the demand to keep the position filled is the same as the demand to backfill it, because either action results in the same number of people in the same role.

Re: Let’s talk about founder compensation

#18

Post by bitexploder »

nostrademons wrote: post #15

There's a weird set of assumptions in this piece that make me a bit nervous about the state of the startup ecosystem. When I was first getting into startups (late dot-com boom to about 2009), the assumption was that your startup was your identity, and an expression of your power to change the world. You owned it, or a big chunk of it, and you got rich by growing the size of the company (and hence your share value). T…

It does put you in a different club and give you a lot of credibility to successfully exit. You can replay the game on VC boards and other places and at a higher level. It is a small club and successful (e.g founders with a solid exit) just have more options. You can use a variety of skills to grow a business. You have to win the tech meritocracy in a FAANG and competition can be a lot more narrow.

Re: Let’s talk about founder compensation

#19

Post by m_ke »

nostrademons wrote: post #15

There's a weird set of assumptions in this piece that make me a bit nervous about the state of the startup ecosystem. When I was first getting into startups (late dot-com boom to about 2009), the assumption was that your startup was your identity, and an expression of your power to change the world. You owned it, or a big chunk of it, and you got rich by growing the size of the company (and hence your share value). T…

The size of VC funds exploded in the past 3-4 years thanks to SoftBank. Raising 5 mil A round used to be a big deal, these days most seed rounds are around that and it's not hard to see A rounds in the 50mil range. It's much easier to cut yourself a larger check with so much money in the bank and it attracts a different type of crowd.

https://news.crunchbase.com/news/bigger-checks-days-to-close...

Re: Let’s talk about founder compensation

#20

Post by cl42 »

nostrademons wrote: post #15

There's a weird set of assumptions in this piece that make me a bit nervous about the state of the startup ecosystem. When I was first getting into startups (late dot-com boom to about 2009), the assumption was that your startup was your identity, and an expression of your power to change the world. You owned it, or a big chunk of it, and you got rich by growing the size of the company (and hence your share value). T…

Your observation is very interesting. Mark Suster's article ("The Changing Venture Landscape"[1]) also discusses how today's startups raise significantly more early funding and how this is changing the venture landscape -- more money chasing fewer deals, raising valuations, but also non-angel investors having certain expectations of their startups.

Taken together, do these observations imply a structural change to how venture and startups work?

When I was starting my first company in 2012, your point on identity rang true -- I tied my identity to the startup and so did our early employees. Now, many of the startup CEOs (and venture studios, angel funds, incubators, etc.) seem more like money managers and financial engineers.

...and I guess this might be why compensation expectations are changing.

Thanks for sharing your thought. I've been bothered by the way startups seem to work nowadays and I haven't been able to fully articulate why. The above is helping me clarify that.

EDIT: as I try and clarify my thinking here, it sometimes feels to me like many startups today feel more akin to private equity (PE) projects. In such a scenario, you'd expect founder compensation to change (as per the original link). It'a also in line with Suster's post + observations of hedge funds and PE shops funding more startups[2].

[1] https://bothsidesofthetable.com/the-changing-venture-landsca...

[2] https://pitchbook.com/news/articles/how-hedge-funds-are-lead...

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