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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?

#41

Post by tptacek »

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…

I mean, I am one of those, and I agree I am paid fairly, and significantly less than I would likely be at a FAANG.

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

#42

Post by alephnerd »

toddmorey wrote: post #31
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.

I'd agree if they phrased the question as "What is a reasonable salary I should pay myself to build my company" it would be fine.

By phrasing it as "Pay a FAANG TC (most of which is public stock anyhow) or it's not worth it" is clearly hubris, because it implies that FAANG is somehow superior to other employers (they ain't) and it assumes that founders are somehow superior to mid or senior level leadership at large public companies (they ain't - they're the same people a majority of the time).

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

Yep! This! VC is just a way to raise private capital. If you can successfully build on the bootstrap model go for it.

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

#44

Post by extr »

tippytippytango wrote: post #27

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 for whom $200K is a non-starter but $400k is "tell me more".

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

#45

Post by xyst »

I wish founders would think about building their company sustainably rather than relying on cheap cash from VCs and giving away all of your equity.

It's a shame we are in the "get rich quick" era. Private Equity, Vulture Capitalists, "Angel Investing" are all the same types of people. Reckless gamblers that don't give 2 shits about you, your company, or employees.

Your company is just another hedge against their other bets.

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

#47

Post by muzani »

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 experienced people and MAANG only has the highest end game pay.

Which also reflects why many startup founders are young. If you're very experienced, then you're probably best off joining MAANG. Even then, it's likely that MAANG doesn't even pay the best rates anymore; some of these top paid people likely have tenure as well. There's a flood of applicants, so why should they pay top tier?

If you're really young, you'd be better off joining or starting a mid stage startup, rather than climb up the career ladder of MAANG.

Or the strategy is often to get a job at MAANG as a resume item, so you could raise money from investors later or jump into a top tier company like Roblox.

[0] https://www.levels.fyi/leaderboard/Software-Engineer/All-Lev... (Software)

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

#48

Post by leetcrew »

alephnerd wrote: post #32
nemothekid wrote: post #28

Earlier quoted context omitted.

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.

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.

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

#49

Post by alephnerd »

blueyes wrote: post #30

You don't understand. A lot of the time, founder CEOs decide their own salary, as well as that of their employees. Why would a founding CEO want to shorten their runway by paying MAANG salaries to themselves an others? It decreases their likelihood of success by shortening runway and burn. As soon as the funding that VCs give founders is wired to the bank, the founders are playing a zero-sum game with every dollar. T…

Not too hungry though.

For the love of god just pay yourself a decent living wage. We don't need founders who spend half their time in a food line or burns out due to personal cashflow issues.

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

#50

Post by solaarphunk »

There is an equilibrium function that is basically unyielding.

On one side, target IRR and thus valuations are fixed for the investor by their LPs

On the other side, runway and thus survival rate are fixed by local market prices for founders who are risk tolerant and maximize for the same IRR as the investor.

The only solution is to physically move to a place that isn’t as stupidly priced as the Bay Area.

I think there is a reckoning coming, where investors will realize that backing startups in locations where costs continuously increase will become a suckers game. Survival rate naturally will go down due to shortened runway, while fundraising milestones will stay fixed - decreasing the expected IRR of the asset class.

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