We need to rethink employee compensation • Hacker News Board

Re: We need to rethink employee compensation

#201

Post by ryandrake » Wed, Jun 24, 2015, 9:21 PM UTC

MCRed wrote: post #189

ryandrake wrote: post #91

Earlier quoted context omitted.

But that's not "getting rich off of salary". That's gambling on the stock market. Sure, there are plenty of people who hit that jackpot too, but let's not lump that together with the idea that 9-5 salary is a way to get rich.

Investing in the stock market is not a game of chance. You may lack the skill or discipline to engage in that activity, and that's fine, don't do it, put your time elsewhere, such as the real estate method I described. Calling it gambling, however, is dishonest, and is popular among those who want to use that characterization to serve the purpose of denying people the opportunity to invest. For instance, despite work…

"People like me"? I think you're reading way into my comment. I don't care what you do with your money, it's yours.

Gambling is defined as "an enterprise undertaken or attempted with a risk of loss and a chance of profit or success." That's exactly what people do when they buy a stock or invest in a start-up. They just go to sites like E-trade and Schwab to do it rather than PokerStars. Unless you know of some risk-free stock where chance is not a factor (I'm all ears).

Re: We need to rethink employee compensation

#202

Post by tptacek » Wed, Jun 24, 2015, 9:23 PM UTC

MCRed wrote: post #200

bane wrote: post #191

Earlier quoted context omitted.

Yeah, I agree. For VC funded, the investors won't be getting a good return (if any) on their investment. They'll probably lose money after all the venture banking fees are out of the way. I think the question of what is a good return these days is a bit crazy. For this size company VC's should be looking at wanting a $150-300m exit on the low end. But unicorns are polluting this kind of idea. For non-VC funded (boots…

Don't be silly. Putting in 3 million and taking 15 million out in 2-3 years is not a "loss after banking fees". VCs can want $100M or $1B, but it was the VCs that chose to sell this company for $30M when it could have been $300B Here's the ground truth: VCs are idiots. Yes, that one too. They have money, though, so people pretend otherwise.

Here's the ground truth: if you build a company with someone else's money, they're going to get a huge chunk of the upside, and the original management is going to retain control only as long as they hit their numbers.

Hopefully, nobody is saying employees shouldn't be wary of VC funded companies. They definitely should.

Re: We need to rethink employee compensation

#203

Post by dman » Wed, Jun 24, 2015, 9:24 PM UTC

harryh wrote: post #177

dman wrote: post #167

Earlier quoted context omitted.

If youre great at identifying the right team, why not work as a VC rather than working as an employee :) .

Because I like making things and working with other people and don't really like meetings or traveling.

The biggest downward ticks to my personal net worth have been due to me relying on skills that I dont exercise often. Over time I have calibrated my judgement to mark the value of infrequently exercised skills to zero even though I might think I am a natural at them.

Re: We need to rethink employee compensation

#204

Post by MCRed » Wed, Jun 24, 2015, 9:25 PM UTC

tptacek wrote: post #199

MCRed wrote: post #197

Earlier quoted context omitted.

For the fee of taking half the company, in this situation the VCs: -- Cut the valuation by %90. If we had been allowed to execute the founders vision (which could have been done bootstrapped) we would have exited close to $300M. (A competitor went that route, they started after us, exited before us for > $300M -- Set us back by 6-18 months. One of the decisions forced on us by the VCs was to build on top of [another…

Usually, the problem is the opposite. A 30MM acquisition is a limping outcome for a VC. Usually, the problem is that the team wants to sell, so that equity will be worth something , and VC wants the company to shoot the moon, because a 1.5x outcome doesn't move the dials, and the model is that the 10x's pay for the 0x's. There's not a lot you can do as an employee about mismanagement that results in crappy outcomes.…

That's the theoretical view of the VCs that they propagandize and that is accepted pretty widely.

The reality is, VCs are herd animals, and when the herd is spooked they make a lot of stupid decisions.

I've seen this more than once-- a later company was forced to sell for $10M, by the VCs, during another "oh the money spigot might be turning off!"

It is not an orthogonal concern-- how was I to know the VCs were going to screw us over? The return would have been dramatically better if that hadn't happened.

So the lesson learned is-- the right company to work for is one where the founders either don't take VC money or are very distrustful of VCs and only take it on favorable terms.

Re: We need to rethink employee compensation

#205

Post by MCRed » Wed, Jun 24, 2015, 9:32 PM UTC

tptacek wrote: post #202

MCRed wrote: post #200

Earlier quoted context omitted.

Don't be silly. Putting in 3 million and taking 15 million out in 2-3 years is not a "loss after banking fees". VCs can want $100M or $1B, but it was the VCs that chose to sell this company for $30M when it could have been $300B Here's the ground truth: VCs are idiots. Yes, that one too. They have money, though, so people pretend otherwise.

Here's the ground truth: if you build a company with someone else's money, they're going to get a huge chunk of the upside, and the original management is going to retain control only as long as they hit their numbers. Hopefully, nobody is saying employees shouldn't be wary of VC funded companies. They definitely should.

No, that's not the ground truth. That's the rationalization that founders tell themselves to justify being screwed over.

If you take someone else's money, they should get ownership proportional to their investment, yes. Their impact on whether original management retains control should be proportional to their ownership.

The problem is, the crazy ideology of VC worship that has taken hold allows VCs to get disproportional control and chunk of the proceeds.

People are saying that founders shouldn't be wary of VCs. VC blogs are full of propaganda and rationalizations for giving them more control and more upside than is proportional to their investment. When the blogs make it to HN, the commentary is universally in support wit the rationalization that "they're taking risk, they need to protect it". They are taking a lot less risk than the founders who can only work for one company, nota portfolio... and the risk VCs are taking is covered by their equity. They don't need second and third helpings of control and equity to cover the risk.

I'm getting downvoted for saying VCs are idiots. (elsewhere people are getting upvoted for saying "Deniers are morons", so it's not the name calling. Its' the "if I can just get thur YC and get VC funding I'll have it made!" ideology that pervades HN.

Re: We need to rethink employee compensation

#206

Post by dj_doh » Wed, Jun 24, 2015, 9:33 PM UTC

I'm probably going to get a lot of negative comments. I've a simple theory for compensation. First, pay me salary and bonus for my work that I deserve in a given market, for a set of skills and experiences I'll be bringing in. And second, give me stocks for the risk I'm taking on a nobody inc. 9 out of 10 companies or hiring managers don't give a second thought about failed startups and its stories.

Re: We need to rethink employee compensation

#207

Post by daviross » Wed, Jun 24, 2015, 9:36 PM UTC

MCRed wrote: post #60

pbreit wrote: post #52

Earlier quoted context omitted.

Yeah, but no one ever got rich off salary.

I've made more money investing in stocks and options than I have from options. Over 20 years as an employee (so excluding time as a founder) my returns from investments is 2-3X the return from startup stock options. And that's as only a part time investor. I like sure things (like I knew in 2001 from an understanding of economics that there would be a housing bubble and that it would eventually burst. I was never abl…

In other words "It's easy to make money if you have a lot of it already"?

Useful advice for a micro-fraction of the population, but this sounds like advice on "How best to wax your yachts" compared to even the average developer.

Re: We need to rethink employee compensation

#208

Post by MCRed » Wed, Jun 24, 2015, 9:37 PM UTC

dman wrote: post #167

harryh wrote: post #120

Earlier quoted context omitted.

Startups aren't a roll of the dice where they are all the same with equal probabilities of success. Make good decisions. Join the right team.

If youre great at identifying the right team, why not work as a VC rather than working as an employee :) .

VCs are terrible at this. I can't tell you how many times in the past 20 years I've heard VCs say things like "you should move into [tangentially related area that we can't add value to that just had a big exit]"

For instance, when youtube got bought, VCs were all interested in investing in online video companies. At that point, though, Youtube had already been bought! They were like 5 years too late.

Re: We need to rethink employee compensation

#209

Post by tptacek » Wed, Jun 24, 2015, 9:37 PM UTC

MCRed wrote: post #204

tptacek wrote: post #199

Earlier quoted context omitted.

Usually, the problem is the opposite. A 30MM acquisition is a limping outcome for a VC. Usually, the problem is that the team wants to sell, so that equity will be worth something , and VC wants the company to shoot the moon, because a 1.5x outcome doesn't move the dials, and the model is that the 10x's pay for the 0x's. There's not a lot you can do as an employee about mismanagement that results in crappy outcomes.…

That's the theoretical view of the VCs that they propagandize and that is accepted pretty widely. The reality is, VCs are herd animals, and when the herd is spooked they make a lot of stupid decisions. I've seen this more than once-- a later company was forced to sell for $10M, by the VCs, during another "oh the money spigot might be turning off!" It is not an orthogonal concern-- how was I to know the VCs were going…

Once again, these aren't so much opinions as they are mathematical facts. The modal outcome for a portfolio of startup A rounds is a 0% return on investment. If fully half the companies in a portfolio exit in the money --- which seems wildly optimistic --- and their average return is 150%, the portfolio loses money.

Nobody is entitled to venture capital. Plenty of people start companies without it.

Re: We need to rethink employee compensation

#210

Post by tptacek » Wed, Jun 24, 2015, 9:39 PM UTC

MCRed wrote: post #205

tptacek wrote: post #202

Earlier quoted context omitted.

Here's the ground truth: if you build a company with someone else's money, they're going to get a huge chunk of the upside, and the original management is going to retain control only as long as they hit their numbers. Hopefully, nobody is saying employees shouldn't be wary of VC funded companies. They definitely should.

No, that's not the ground truth. That's the rationalization that founders tell themselves to justify being screwed over. If you take someone else's money, they should get ownership proportional to their investment, yes. Their impact on whether original management retains control should be proportional to their ownership. The problem is, the crazy ideology of VC worship that has taken hold allows VCs to get disproport…

I'm certainly not here saying "if I can just get thur YC and get VC funding I'll have it made!". I bootstrapped my last company and am bootstrapping this one. The mathematics of VC are a big part of why.