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Let’s talk about founder compensation

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Re: Let’s talk about founder compensation

#61

Post by throwawaythekey »

bpodgursky wrote: post #60
ilaksh wrote: post #6

Amazing that he goes into such detail about how unequal pay should be slightly less unequal. People are always going to take advantage of other people if they can or if things are structured that way. It is traditional for VCs to take advantage of founders. It is harder for them to take advantage of people who know there is already funding and are coming in after. And VCs will go into excruciating detail rationalizin…

The value of a programmer at a startup isn't their output... it's their value relative to the second-best person the company could have hired. Sometimes the employee is a critical component, and sometimes they are a replaceable code-monkey. If you are easily replaced, code-monkeying simple code that makes $1B doesn't mean you provided $1B of value. (I say this, as a software dev at a startup).

It's easy to follow your line of reasoning to the ultimate end point that no one is really worth anything much at all. Even if it is logically sound the main outcome of thinking like that is to limit your own potential...

Note how very few of the non-labor class will refer to themselves in those terms.

Re: Let’s talk about founder compensation

#62

Post by seanhunter »

chejazi wrote: post #54

> Some founders create structured equity that only pays out after the company’s stock appreciates significantly. Other CEOs have out-of-the-money options (Elon Musk is famous for this). I looked up OTM options and it looks very similar to the first sentence. Basically, you (the founder) tie your compensation to the success of the company. You win big if the company wins big. Can anyone disambiguate the two situations…

An option gives the right but not the obligation to buy (or sell) something at a given price (the "strike") in the future. Equity in this case is that thing. The equity can be structured such that it sits behind other investors in liquidation preferences etc meaning it doesn't have economic value until the share price/valuation hits a particular hurdle (similar to the strike price on an option).

So while they are similar in terms of economic impact, the equity can have other rights attached (eg voting, ROFR for dilution etc) that a founder might want. Also crucially you already have the equity so you don't have to pay up to buy it (as you would in the case of a call option).

Finally as always there may be tax implications which make the difference meaningful. Tax arbitrage is often part of the calculus for any kind of weird compensation package.

Re: Let’s talk about founder compensation

#63

Post by danbmil99 »

From a market point of view, founder of a startup is unlikely to have lots of opportunities to be CEO at other companies. The kind of person who comes into an established company and takes the CEO spot has much more leverage because they are a generalist who could be CEO at a bunch of different companies. The founder is a specialist in their own venture, but doesn't have much market value outside of that role. And of course the founder presumably has a large chunk of stock and therefore has an order of magnitude more upside than anyone else who might run the company.

Finally, there's the fact that psychologically the founder often believes they know best, and has a higher level of expectation for the company's prospects than a cold-eyed third party who wasn't part of the founding story.

Re: Let’s talk about founder compensation

#64

Post by echelon »

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…

> 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.

As a founder, can't you just demand that you keep 51+% of voting shares? Or more, if you intend to sell at any point?

Or put poison pill clauses into the company founding docs with provisions if you're removed?

How can a VC force you out?

Re: Let’s talk about founder compensation

#65

Post by echelon »

ryanSrich wrote: post #24
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.

Why? How did Zuckerberg, Bezos, et al. keep so much?

Re: Let’s talk about founder compensation

#66

Post by omeze »

vmception wrote: post #35
m_ke wrote: post #10

Earlier quoted context omitted.

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.

How about a DAO that only transacts in DAI and has no token representation of its shares, just prorata ownership and voting weight from initial funding via that decentralized stablecoin The irony being that nobody would notice if these exist or are prevalent specifically because there is no token doing the advertising

OlympusDAO is doing something like this, but they do have a token - DAO members get paid and theres a staking process that lets them accrue more of the token. The token is backed by a treasury and is worth at least 1 DAI.

https://docs.olympusdao.finance/

Disclaimer: I own Ohm

Re: Let’s talk about founder compensation

#67

Post by danjac »

glitchc wrote: post #57
PragmaticPulp wrote: post #37

Earlier quoted context omitted.

> 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. I don’t think it’s over, but it has shifted into what was previously known as lifestyle businesses. There isn’t much room left for “change the world” startups that have broad impact unless you come prepared with a massi…

There's plenty of "change the world" opportunities left. How about a company that mines the ocean floor for minerals? What's completely full to the brim are tiny companies that are pretending to change the world but are really just thinly veiled ad-based/subscription models, which are half-hearted attempts in various sectors to replicate the success of Google and Amazon. The world still needs companies that are actua…

You're not going to mine the ocean from a garage or spare bedroom though.

Re: Let’s talk about founder compensation

#68

Post by dustymcp »

bluishgreen wrote: post #30
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 n…

i think alot of tech companies working with crypto can say this.

Re: Let’s talk about founder compensation

#70

Post by UncleMeat »

bpodgursky wrote: post #60
ilaksh wrote: post #6

Amazing that he goes into such detail about how unequal pay should be slightly less unequal. People are always going to take advantage of other people if they can or if things are structured that way. It is traditional for VCs to take advantage of founders. It is harder for them to take advantage of people who know there is already funding and are coming in after. And VCs will go into excruciating detail rationalizin…

The value of a programmer at a startup isn't their output... it's their value relative to the second-best person the company could have hired. Sometimes the employee is a critical component, and sometimes they are a replaceable code-monkey. If you are easily replaced, code-monkeying simple code that makes $1B doesn't mean you provided $1B of value. (I say this, as a software dev at a startup).

Surely this is true of everybody, including founders. Why do we assume that it is only founders that are providing some creative asset to the company?
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