3 ms·

3 Things Investors Won't Pay the Founder For

7 points by transburgh 20y ago

sabat 20y ago
I have no doubt that what Wil's saying here is true. But it's a shame if it is. Investors would do well to 1) pay the founders good salaries so they aren't building up debt while they work, and 2) help the founders out by paying at least part of the debt they'd built up. The way things are, a lot of people will not want to take VC -- or any investment. I don't expect to get rich while actually working on my idea(s). But unless an investor helped me out by giving me less distraction (read: financial stress), I just can't see the point in taking his money unless it was out of absolute desperation. I think a lot of entrepreneurs would agree: investors are only hurting themselves -- there will simply be fewer things to invest in because hackers will find a way to self-fund into profitability. And you can believe that they'll pay themselves first.
menloparkbum 20y ago
totally wrong on all three counts. I've seen ideas funded with just a half-baked demo. Any VC funded stratup with 1M+ in funding, the CEO is making 100K+, and in my current situation, the founder had his back debt paid up.
- sabat 20y ago
  I appreciate that info, because (if you can't tell from my other comment) I would have no freaking clue whether Wil is correct or not. Maybe Wil just means this as a warning, as in "don't count on anything." But I admit: his ideas were a little hard to believe.
  - menloparkbum 20y ago
    I shouldn't have commented. The post in question is so vague it is meaningless. "Investors" could mean anyone. Angel funding, pre-angel funding, series-A VC money, Paul Graham, your rich uncle, Sequoia capital, etc. I'm speaking from a silicon valley perspective. Those companies listed on TechCrunch with a 7-8 million dollar series A round - everyone there is making six figures. Companies getting a $20K check from Y-combinator... those founders are not.
  - sbraford 20y ago
    Yes, "investors" here is a bit broad. Reading posts like this make it seem really pointless to spend too much time seeking investment. Just go out and build a solid business. Either: A) It will work. You will have profits and/or investors will be beating down your door. B) It won't - you've run out of money and no one wants to invest in you. Just give up! Luckily there are angels and groups like YC who don't take the "don't fund founder salaries" approach. For a small web 2.0 startup -- server costs are around $100-500 a month for even a modestly successful app. What else are investors funding, if not founder salaries??
    - wschroter 20y ago
      I didn't say investors wouldn't fund your salary. I said they won't fund a $200k salary. I said $50k is more like it. I hear guys ALL the time talking about how they want to find investors so they can keep their massive paychecks while letting someone else foot the bill to test their idea. It's just unrealistic.
      - sabat 20y ago
        $200k/yr may seem massive, but here in the bay area, it's not. $150k is about the base if you don't want to live at the very edge (so far out that it's a 1.5 hour commute to get to San Mateo, SF, San Jose, etc.). I live in a 1800 sq ft townhouse on the peninsula worth $900,000, I'm on one income, and my head is just above water -- I can save money every paycheck, but not as much as you think. I make just shy of $200k. I know you realize that the bay area is expensive -- I'm just not sure you realize how expensive it is. That fact doesn't change what investors do -- maybe they don't want to invest in salaries. But forcing entrepreneurs into huge debt doesn't sound like a smart investment plan. No one's looking for a mansion; I just don't want to live in the ghetto because I had an idea.
        wschroter 20y ago
        Sabat - I'm actually looking for a place myself in the bay area, so I do know how expensive it is. If you can convince an investor to pay you $200k to vet your idea, all the power to you my friend. But I have to advise you that it's not something that an investor will typically do.
wschroter 20y ago
haha - mpb - spoken like a true valley insider. 550,000 businesses are started every month in the U.S. alone. How many are VC-funded? I'm glad you've seen startups get funded with a half-baked demo and get $100k salaries from well-funded VC's. As it happens, the rest of the world doesn't work like that.
- mxh 20y ago
  Wait .... 550K businesses a month = 6.6M businesses a year. There are 300M _people_ in the US (including children, and others not immediately suited for the entreprenurial life). If each business was started by only one person, that would mean that about 1 out of every 45 people started a business in any given year. That seems high. May I ask the provenance of the 550K/mo number?
  - transburgh 20y ago
    "Over the period from 1996 to 2004, an average of 0.36 percent of the adult population created a new business each month, representing approximately 550,000 new businesses per month." from a Kauffman report http://www.kauffman.org/pdf/kauffman_entrep_index_0905.pdf http://www.kauffman.org/pdf/kauffman_entrep_index_0905.pdf
    - mxh 20y ago
      Interesting .... thanks for the link. Though, in the context of that report, a 'new business' need consume only 15 or more hours per week to 'count'. Such low-intensity enterprises aren't really what the YC (or VC) crowd is interested in (whatever their other virtues), so I think there's a bit of an apples-and-oranges problem with the 550K/mo number, even assuming there are no deeper statistical problems with the report.
bootload 20y ago
'... The startup community is highly disconnected. ... Startups, investors, job seekers and service providers all need one another to survive and grow yet at the same time they are hindered by their own lack of connectivity ...' "3 Things Investors Won't Pay the Founder For" and there's one thing the startup should be wary of - the middle man. It's in Wils companies interest, to debunk any unnecessary costs for investors. It's simply a negotiation tactic to increase profit. Wil is not a fool and wants to makes sales on his terms or terms favourable to the highest paying customer. It also highlights how making the business (Wils business) attractive to investors by realising startups, developers as a whole have less experience (and power) negotiating with potential investors. You have to realise and act upon this weakness to improve your position.
- wschroter 20y ago
  Just so we're on point here, I'm sure there are some instances where a founder was well paid or debt was paid. It's just a really bad idea to go into an investment thinking that's a typical situation. I've yet to meet an investor that thinks either of those situations are preferable. Also, what happens in the Valley works well in the Valley but rarely translates to the rest of the world (for better and worse!)

7 points by transburgh 20y ago

sabat 20y ago

I have no doubt that what Wil's saying here is true. But it's a shame if it is. Investors would do well to 1) pay the founders good salaries so they aren't building up debt while they work, and 2) help the founders out by paying at least part of the debt they'd built up. The way things are, a lot of people will not want to take VC -- or any investment. I don't expect to get rich while actually working on my idea(s). But unless an investor helped me out by giving me less distraction (read: financial stress), I just can't see the point in taking his money unless it was out of absolute desperation. I think a lot of entrepreneurs would agree: investors are only hurting themselves -- there will simply be fewer things to invest in because hackers will find a way to self-fund into profitability. And you can believe that they'll pay themselves first.

menloparkbum 20y ago

totally wrong on all three counts. I've seen ideas funded with just a half-baked demo. Any VC funded stratup with 1M+ in funding, the CEO is making 100K+, and in my current situation, the founder had his back debt paid up.

sabat 20y ago
I appreciate that info, because (if you can't tell from my other comment) I would have no freaking clue whether Wil is correct or not. Maybe Wil just means this as a warning, as in "don't count on anything." But I admit: his ideas were a little hard to believe.
- menloparkbum 20y ago
  I shouldn't have commented. The post in question is so vague it is meaningless. "Investors" could mean anyone. Angel funding, pre-angel funding, series-A VC money, Paul Graham, your rich uncle, Sequoia capital, etc. I'm speaking from a silicon valley perspective. Those companies listed on TechCrunch with a 7-8 million dollar series A round - everyone there is making six figures. Companies getting a $20K check from Y-combinator... those founders are not.
- sbraford 20y ago
  Yes, "investors" here is a bit broad. Reading posts like this make it seem really pointless to spend too much time seeking investment. Just go out and build a solid business. Either: A) It will work. You will have profits and/or investors will be beating down your door. B) It won't - you've run out of money and no one wants to invest in you. Just give up! Luckily there are angels and groups like YC who don't take the "don't fund founder salaries" approach. For a small web 2.0 startup -- server costs are around $100-500 a month for even a modestly successful app. What else are investors funding, if not founder salaries??
  - wschroter 20y ago
    I didn't say investors wouldn't fund your salary. I said they won't fund a $200k salary. I said $50k is more like it. I hear guys ALL the time talking about how they want to find investors so they can keep their massive paychecks while letting someone else foot the bill to test their idea. It's just unrealistic.
    - sabat 20y ago
      $200k/yr may seem massive, but here in the bay area, it's not. $150k is about the base if you don't want to live at the very edge (so far out that it's a 1.5 hour commute to get to San Mateo, SF, San Jose, etc.). I live in a 1800 sq ft townhouse on the peninsula worth $900,000, I'm on one income, and my head is just above water -- I can save money every paycheck, but not as much as you think. I make just shy of $200k. I know you realize that the bay area is expensive -- I'm just not sure you realize how expensive it is. That fact doesn't change what investors do -- maybe they don't want to invest in salaries. But forcing entrepreneurs into huge debt doesn't sound like a smart investment plan. No one's looking for a mansion; I just don't want to live in the ghetto because I had an idea.
      - wschroter 20y ago
        Sabat - I'm actually looking for a place myself in the bay area, so I do know how expensive it is. If you can convince an investor to pay you $200k to vet your idea, all the power to you my friend. But I have to advise you that it's not something that an investor will typically do.

wschroter 20y ago

haha - mpb - spoken like a true valley insider. 550,000 businesses are started every month in the U.S. alone. How many are VC-funded? I'm glad you've seen startups get funded with a half-baked demo and get $100k salaries from well-funded VC's. As it happens, the rest of the world doesn't work like that.

mxh 20y ago
Wait .... 550K businesses a month = 6.6M businesses a year. There are 300M _people_ in the US (including children, and others not immediately suited for the entreprenurial life). If each business was started by only one person, that would mean that about 1 out of every 45 people started a business in any given year. That seems high. May I ask the provenance of the 550K/mo number?
- transburgh 20y ago
  "Over the period from 1996 to 2004, an average of 0.36 percent of the adult population created a new business each month, representing approximately 550,000 new businesses per month." from a Kauffman report http://www.kauffman.org/pdf/kauffman_entrep_index_0905.pdf http://www.kauffman.org/pdf/kauffman_entrep_index_0905.pdf
  - mxh 20y ago
    Interesting .... thanks for the link. Though, in the context of that report, a 'new business' need consume only 15 or more hours per week to 'count'. Such low-intensity enterprises aren't really what the YC (or VC) crowd is interested in (whatever their other virtues), so I think there's a bit of an apples-and-oranges problem with the 550K/mo number, even assuming there are no deeper statistical problems with the report.

bootload 20y ago

'... The startup community is highly disconnected. ... Startups, investors, job seekers and service providers all need one another to survive and grow yet at the same time they are hindered by their own lack of connectivity ...' "3 Things Investors Won't Pay the Founder For" and there's one thing the startup should be wary of - the middle man. It's in Wils companies interest, to debunk any unnecessary costs for investors. It's simply a negotiation tactic to increase profit. Wil is not a fool and wants to makes sales on his terms or terms favourable to the highest paying customer. It also highlights how making the business (Wils business) attractive to investors by realising startups, developers as a whole have less experience (and power) negotiating with potential investors. You have to realise and act upon this weakness to improve your position.

wschroter 20y ago
Just so we're on point here, I'm sure there are some instances where a founder was well paid or debt was paid. It's just a really bad idea to go into an investment thinking that's a typical situation. I've yet to meet an investor that thinks either of those situations are preferable. Also, what happens in the Valley works well in the Valley but rarely translates to the rest of the world (for better and worse!)