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Pitfalls of Equity for Employees In Startups

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Re: Pitfalls of Equity for Employees In Startups

#21

Post by imagnitude »

michaelochurch wrote: post #14
imagnitude wrote: post #10

Earlier quoted context omitted.

I know you're just trolling, but I'll comment anyway, because it's important to set the record straight. The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. Before getting funding, most bootstrap for years, neglecting family, friends, vacation, working 14 hour days, all for a business idea they believe…

The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. "The vast majority of founders" never take VC and aren't even working in a space that VCs will fund. I'm not talking about lifestyle businesses, which actually involve a lot of risk and sweat, I agree with you. When your startup falls, there's not some…

My comment is specifically about founders of VC funded startups. It might be different outside Silicon Valley. But in my experience in SV, I know the founders of about 20 venture funded startups socially. One of them is what you would call a "rich kid". The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay themselves subsistence wages, just enough to eat so that they can pay market rate six figure salaries to the engineers on their team.

This might be unique to the West Coast. But around here, social/country club connections mean nothing for raising money. Anyone can get a meeting with a top tier VC pretty easily, even if you are a complete nobody. Having a well connected family might help with other things, but it has absolutely zero effect on fundraising.

Re: Pitfalls of Equity for Employees In Startups

#22

Post by tptacek »

michaelochurch wrote: post #20
tptacek wrote: post #13

Earlier quoted context omitted.

This EIR thing† is one of the weirder beliefs he has about the startup market. I know hundreds of people involved with startups and many tens of founders, and I have never even heard of someone in my social network getting an EIR position. The reality of EIR positions seems to be that they're places that VC firms park executives that they're almost willing to fund "on spec". That is: people who have already made them…

That is: people who have already made them a shitload of money. Also: people they owe favors, kids of Senators whose votes they need to sway, and people they did embarrassing stuff with in MBA school who are now getting the EIR job as a form of hush fee. The whole world runs on extortion, influence peddling, and favor trading. That's thousands of years old and hasn't changed much. But technology was supposed to be di…

You write comments like this and I worry about your mental health.

Not because I think EIR positions are fairly allocated among deserving people, but because you've clearly fixated on something as petty and irrelevant as EIR positions at venture capital firms.

What in the world could possibly matter less to young entrepreneurs than EIR positions?

And yet here you are with stories about EIRs used to hush up things that happened at business school or bribing Senators. You've taken the time to actually tell yourself stories about them. About EIRs. The most boring feature of a VC firm. The guy they bring into the room to screen you when you're not compelling enough to get a meeting with an associate.

If I'd been offered an EIR position at a VC firm, I'd worry about what I'd done wrong, shortly after checking my hairline and hair color to make sure I hadn't suddenly gone grey and bald.

Re: Pitfalls of Equity for Employees In Startups

#23

Post by beat »

michaelochurch wrote: post #8
beat wrote: post #7

Earlier quoted context omitted.

What about those of us who aren't "trust fund kids"?

VC-funded founders? Not rich? I have no problem with you four.

I'm not VC-funded, either (hopefully I can avoid that entirely, but at the moment I've barely started working on angel funding).

I was born into a poor family, with no connections to speak of. I simply did not know anyone who was wealthy or successful when I was a kid. I've made a comfortable middle-class life for myself through lots of hard work. Starting a software company is something I'm doing because I see a valuable problem to solve, and something I believe I can do because I'm smart and determined - not because I was born into privilege.

Re: Pitfalls of Equity for Employees In Startups

#24

Post by michaelochurch »

fearless wrote: post #17
michaelochurch wrote: post #8

Earlier quoted context omitted.

VC-funded founders? Not rich? I have no problem with you four.

You're making a very bold claim that being born into wealth and connections is a prerequisite for VC funding. Do you have any hard evidence to back this up? Please don't take this the wrong way: Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. If every founder, investor, executive you have met has seemed malic…

Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole.

You know nothing about about me, what I have seen, or where I have been. It's true that I've picked some terrible startups, but hundreds of people have had similar experiences to corroborate. If I were the only one who held these opinions or had that category of experience, I'd think differently about the whole thing.

I'm pretty good at picking out genuine problems (i.e. the persistent low status, mistreatment, and mediocre compensation of software engineers in this industry) from noise (transient bad luck that happens to all of us).

If every founder, investor, executive you have met has seemed malicious or incompetent, please consider this: the only common denominator is you.

That is far from what I said. Not even close. Not every one is bad. However, I do think that the social class distance between VCs and petitioners is vast and is already at, if not beyond, the point of being the most important factor in the interaction.

This game has already been worked out, and we should leave it to the people who won it and go build something new. They don't have much without us, so what are we waiting for?

Re: Pitfalls of Equity for Employees In Startups

#25

Post by danielweber »

jt2190 wrote: post #18
michaelochurch wrote: post #6

Earlier quoted context omitted.

I don't agree that founders deserve as much as Spolsky thinks. 3-5 times more than early employees, sure; 20 times more, no. Most often, "took more risk" means "comes from a rich background and had a softer landing". The VC-funded startup CEOs (and hedge fund CEOs; that was even bigger than VC startups in NYC for a while) I know didn't take any real risk, because they're all trust-fund kids and, half the time, their…

> I don't agree that founders deserve as much as > Spolsky thinks... I've always read Spolsky's advice like this: "If you literally can't build the business without the other person, make them an equal partner." I agree that founders should think long and hard about this, because there are very few scenarios that require a fifty-fifty partner, and many that require high-skilled, but not unique, people.

Back in 1996 it was recognized as one of the classic start-up mistakes. It's so old I could only find a PDF:

http://www.yesatyale.org/files/lecture_06.pdf

I think vesting might avoid the problem, but I tend to think one person is probably more invested in the start-up and should take charge. I've seen too many times where "everyone is responsible" leads to "no one is responsible."

Re: Pitfalls of Equity for Employees In Startups

#26

Post by tptacek »

michaelochurch wrote: post #24
fearless wrote: post #17

Earlier quoted context omitted.

You're making a very bold claim that being born into wealth and connections is a prerequisite for VC funding. Do you have any hard evidence to back this up? Please don't take this the wrong way: Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. If every founder, investor, executive you have met has seemed malic…

Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. You know nothing about about me, what I have seen, or where I have been. It's true that I've picked some terrible startups, but hundreds of people have had similar experiences to corroborate. If I were the only one who held these opinions or had that category of…

I think you're making this up, and that the supposed "social class distance" between founders and VCs isn't a significant factor at all.

Also, not sure you're allowed to be indignant about what commenters claim to know about you after saying something like Most often, "took more risk" means "comes from a rich background and had a softer landing".

Re: Pitfalls of Equity for Employees In Startups

#27

Post by michaelochurch »

imagnitude wrote: post #21
michaelochurch wrote: post #14

Earlier quoted context omitted.

The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. "The vast majority of founders" never take VC and aren't even working in a space that VCs will fund. I'm not talking about lifestyle businesses, which actually involve a lot of risk and sweat, I agree with you. When your startup falls, there's not some…

My comment is specifically about founders of VC funded startups. It might be different outside Silicon Valley. But in my experience in SV, I know the founders of about 20 venture funded startups socially. One of them is what you would call a "rich kid". The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay thems…

The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay themselves subsistence wages, just enough to eat so that they can pay market rate six figure salaries to the engineers on their team.

I actually agree with you that, if they're truly suffering financial hardship (but I'm never impressed by a rich guy taking a $1 salary) they deserve a lot more than the engineers taking full salary.

What about those horrible executive implants installed by investors, though? They also get an order of magnitude more equity and full salary, and that's wrong.

Re: Pitfalls of Equity for Employees In Startups

#28

Post by tptacek »

michaelochurch wrote: post #27
imagnitude wrote: post #21

Earlier quoted context omitted.

My comment is specifically about founders of VC funded startups. It might be different outside Silicon Valley. But in my experience in SV, I know the founders of about 20 venture funded startups socially. One of them is what you would call a "rich kid". The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay thems…

The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay themselves subsistence wages, just enough to eat so that they can pay market rate six figure salaries to the engineers on their team. I actually agree with you that, if they're truly suffering financial hardship (but I'm never impressed by a rich guy taking a…

You don't actually agree with that. You said, just downthread, that only 4 such founders actually existed.

As for horrible executive implants --- I've been the "victim" of those, scare quotes included because my victimhood was partially my own damn fault. VC firms don't "implant" executives as a way of soaking their own funds back from companies they've invested in; they do it because (a) they think those executives are going to help and (b) they are dumb. If you accept those people, or if you acknowledge the roles they're supposed to fill should exist but can't recruit your own credible candidate, you're dumb too.

Being in a sticky situation in a board meeting where you acknowledge that you need someone to lead marketing but can't yourself find a viable candidate is, yes indeed, a good reason not to seek venture capital. The VC model requires you to strap yourself to an unguided missile that everyone hopes is aimed somewhere lucrative but is just as likely going to carom off a series of brick walls. Things move fast, because that's the model.

What, exactly, does that have to do with the fairness of equity grants to executives?

Re: Pitfalls of Equity for Employees In Startups

#29

Post by michaelochurch »

tptacek wrote: post #22
michaelochurch wrote: post #20

Earlier quoted context omitted.

That is: people who have already made them a shitload of money. Also: people they owe favors, kids of Senators whose votes they need to sway, and people they did embarrassing stuff with in MBA school who are now getting the EIR job as a form of hush fee. The whole world runs on extortion, influence peddling, and favor trading. That's thousands of years old and hasn't changed much. But technology was supposed to be di…

You write comments like this and I worry about your mental health. Not because I think EIR positions are fairly allocated among deserving people, but because you've clearly fixated on something as petty and irrelevant as EIR positions at venture capital firms. What in the world could possibly matter less to young entrepreneurs than EIR positions? And yet here you are with stories about EIRs used to hush up things tha…

About EIRs. The most boring feature of a VC firm. [...] If I'd been offered an EIR position at a VC firm, I'd worry about what I'd done wrong

See, you're doing the right thing here. You're ridiculing the welfare-for-rich-people system out there, just as I am. That's a first step. First, you use ridicule and attack prestige; after prestige falls (and mild embarrassment does that job) you hammer away at legitimacy underneath. Then, the corrupt edifice falls away and you can build something new.

High real estate prices and low occupational autonomy are the surest sign of congestion. It means the wrong people are winning and it's up to the rising generation to fix the world.

Re: Pitfalls of Equity for Employees In Startups

#30

Post by tptacek »

michaelochurch wrote: post #29
tptacek wrote: post #22

Earlier quoted context omitted.

You write comments like this and I worry about your mental health. Not because I think EIR positions are fairly allocated among deserving people, but because you've clearly fixated on something as petty and irrelevant as EIR positions at venture capital firms. What in the world could possibly matter less to young entrepreneurs than EIR positions? And yet here you are with stories about EIRs used to hush up things tha…

About EIRs. The most boring feature of a VC firm. [...] If I'd been offered an EIR position at a VC firm, I'd worry about what I'd done wrong See, you're doing the right thing here. You're ridiculing the welfare-for-rich-people system out there, just as I am. That's a first step. First, you use ridicule and attack prestige; after prestige falls (and mild embarrassment does that job) you hammer away at legitimacy unde…

Michael, the other thing I do right is not bothering to tell myself stories about the injustices of EIR positions. I'm not simply "mocking" them. I'm right about how irrelevant they are, too. Not in some grand-scheme-of-things way, but in their irrelevance to getting companies funded in 2013.
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