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Let’s talk about founder compensation

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Re: Let’s talk about founder compensation

#21

Post by majormajor »

rgbrgb wrote: post #14
jjtheblunt wrote: post #8

Earlier quoted context omitted.

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…

So it's a contract but "with code"/"with crypto"?

I don't understand why you'd prefer to work in a structure governed by contract-written-as-code compared to contract-written-as-anything-else. Seems like you could put any arbitrary set of rules in a regular contract too.

Re: Let’s talk about founder compensation

#22

Post by ryanSrich »

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…

This is less about founders not tying their startup to their identity, and more about the exponential growth of VCs and the power they wield over non-leveraged founders.

Take a first time founder for example.

You’ve been working on an idea for a while. You’re just now getting traction. You likely don’t make much, if anything at all. Either because you are pre revenue, or you’re putting everything back into the company.

Now, a VC comes by and says I’ll take 20% of your company in exchange for $2 million.

Another VC comes by and says I’ll take 20% for $2.5m.

And so on.

The founder now has a hard decision. Do you take the money, grow the company A LOT faster and be able to pay yourself a salary? Or, do you continue to grind away, hoping the business grows organically, which could take 10-20 years? Do you even have enough savings to wait that long? Are you killing the business by not taking the money?

Okay, so let’s say you take the money. If you’re a repeat founder you know what to do. Don’t do a priced round, or if you do, don’t create a board. If you do create a board ensure founders still have majority. Essentially put everything in place so you don’t get fucked. So the option for you to be replaced by a hired gun doesn’t even exist. This sounds reasonable right?

Well most first time founders don’t even know you have to do these things. Or even if they do know they still might have zero leverage and take the money anyway, knowing they’ve relinquished some control. Knowing they will likely be replaced in 3-5 years.

This is how VC works now. The leverage has shifted completely.

Re: Let’s talk about founder compensation

#23

Post by rhizome »

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 feeling I get is that founders aren't looking to the long-term anymore, either because they aren't confident of their ability to make it on their own or they're only working toward an acquisition. I assume the latter is the dominant mentality in undergrad/MBA/GSB subcultures. Cowardice vs. greed, I suppose.

Re: Let’s talk about founder compensation

#24

Post by ryanSrich »

lumost wrote: post #5

Meh this matters if the founder has little equity, but not too much if they already own half the company. If a founder has been diluted down then they will have every reason to move on.

It’s extremely unlikely founders own the majority of the company post Series B. In fact, it’s closer to 10% by the time a company exits. So I would say the article applies in most cases.

Re: Let’s talk about founder compensation

#25

Post by ryanSrich »

umutisik wrote: post #7

I’m sure any replacement CEO would love a pay structure where the guaranteed comp is 25% but the bonus matches founder gains.

Founders don’t realize any gains unless they have an exit or sell secondaries. The likelihood of either is pretty low.

Re: Let’s talk about founder compensation

#26

Post by k__ »

majormajor wrote: post #21
rgbrgb wrote: post #14

Earlier quoted context omitted.

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…

So it's a contract but "with code"/"with crypto"? I don't understand why you'd prefer to work in a structure governed by contract-written-as-code compared to contract-written-as-anything-else. Seems like you could put any arbitrary set of rules in a regular contract too.

I think, the fact that those contracts are enforced by themselves is the USP here.

It removes overhead that made a huge amount of rules prohibitly expensive and slow in the past.

Re: Let’s talk about founder compensation

#27

Post by LurkerAtTheGate »

majormajor wrote: post #17
usui wrote: post #4

Earlier quoted context omitted.

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 recruit…

Many companies don't just undervalue their current staff, they underestimate the market value and demand for that staff. My wife was in this situation, pushed for market analysis of her staff (mostly PMs) to take to management in an argument to give out raises. That analysis was some employees were underpaid by almost half the market rate. Management disagreed with the analysis. Within 2 years, the entire department was depopulated, having taken alternate job offers for considerably more money. The CFO couldn't grasp that people wouldn't just stay out of loyalty at 60% of what they could make elsewhere.

Re: Let’s talk about founder compensation

#28

Post by rhizome »

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…

>For the most part, your salary is affected by supply and demand.

We've had a bullseye object lesson in the US over the past year and a half where company owners are complaining endlessly about being on the low side of the supply curve, trying to force the supply to act against their own interests via government action. Suffice it to say, I don't agree that supply and demand is the primary driver in salary budgeting, it's power.

Re: Let’s talk about founder compensation

#29

Post by GDC7 »

ryanSrich wrote: post #22
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…

This is less about founders not tying their startup to their identity, and more about the exponential growth of VCs and the power they wield over non-leveraged founders. Take a first time founder for example. You’ve been working on an idea for a while. You’re just now getting traction. You likely don’t make much, if anything at all. Either because you are pre revenue, or you’re putting everything back into the compan…

> This is how VC works now. The leverage has shifted completely.

I don't think this is entirely true, as always it varies by VC. Each person is different.

Also VCs as a category know that they cannot bully founders and overplay their hand too much because if founders perceive that they are about to be diluted into irrelevancy or replaced they still have these little weapons called constructive dividend and constructive salary that they can "pay" themselves in so many various forms that VCs will be left wondering what the hell happened.

Re: Let’s talk about founder compensation

#30

Post by bluishgreen »

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…

"For the last few months, I've been cautiously testing a radical-sounding hypothesis on smart people: entrepreneurs are the new labor. Or to put it in a more useful way, the balance of power between investors and entrepreneurs that marks the early, frontier days of a major technology wave (Moore's Law and the Internet in this case) has fallen apart. Investors have won, and their dealings with the entrepreneur class now look far more like the dealings between management and labor (with overtones of parent/child and teacher/student). Those who are attracted to true entrepreneurship are figuring out new ways to work around the traditional investor class. The investor class in turn is struggling to deal with the unpleasant consequences of an outright victory." (2012)

https://www.forbes.com/sites/venkateshrao/2012/09/03/entrepr...

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