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> Can this guy get us to full salary on an idea alone I'd like to pick this point out, I think it's worth discussing. No one should get to "full salary" on an

> Can this guy get us to full salary on an idea alone I'd like to pick this point out, I think it's worth discussing. No one should get to "full salary" on an idea. Investment money (which presumably is all you'll get on an idea) is to build the business, not pay you a cushy salary, if you're a founder with significant equity. You get a nice salary from the business when it can be taken out of profit. Until then, you should be on "minimum to not be preoccupied with personal finances". That last point is why I would be cautious going into business with someone who has significant personal outstanding debt.

michaelochurch 13y ago
No one should get to "full salary" on an idea. Investment money (which presumably is all you'll get on an idea) is to build the business, not pay you a cushy salary, if you're a founder with significant equity. Full salary == market compensation, not "cushy salary". Considering that you're working 5x as hard as a typical checked-out corporate worker, you're actually taking an 80% haircut already. I don't think a mid-career software engineer should take $750,000 per year out of his startup, because even though their work is arguably worth that-- of course, this is an expected value calculus because the realized value is zero or $10+ millions-- VCs wouldn't be able to make any money if founders demanded that. I do think that it's not unreasonable for a decent idea to merit full salary. Again, "full salary" to me means a market salary, not "cushy"; it's not the half-million or more that a decent software engineer is arguably worth. It's the $100-150k that he'd be able to get on the market right now. The difference would be that the entrepreneur is working 5-10x harder than anyone in a corporate job and only getting 1x what corporate denizens get. That's a hell of an improvement over 0x or 0.5x. If you can't already tell, I fucking hate the VCs who earn $500,000+ per year and take absolutely no professional risk but get sanctimonious about "skin in the game" when a software engineer (intending to work 60-80+ hours per week) asks for the 125-150k he'd command on the market. That boils my fucking blood.
- greghinch 13y ago
  It has nothing to do with the amount of work you do, or your value as an employee in the market. If you're one of the founders, it's your business to make or break. Particularly early in the game, you're going to need to maximize your runway. So if you take typical first seed round, and then pay yourself $150k of that because "that's market rate", you're significantly impairing your business' potential for success. You should be able to go at least a year on your first seed funding, which for argument's sake let's peg at the $100k you get from YC. Presuming you have 2-3 founders, and a number of expenses, you can see that your own take is minimal. It's conceivable that in the first few years even, some employees may have higher salaries than the founders. But the founders should have enough equity that the payoff at the end is worth it. If you're not going to operate that way, don't try and run your business as a startup that takes funding. You'll be doing everyone involved a disservice, including yourself.
  - michaelochurch 13y ago
    Ok, you clearly just don't get it. People shouldn't have to work below market rate (or for free, as they often do) to implement their own ideas. Because they actually care about their work, they'll be 5-20x more productive, and that's what the value of the equity (shared between them and investors) comes from. I argue that they should be paid at market rate for more typical work. Why should they have to pay me to work for me when they're already signing up to work 5-20x harder than typical corporate employees? Yet sanctimonious VCs still talk as if they're performing a charity rather than investing. It should be a symbiotic relationship (a transfer of control over capital from those who have it to those who know what best to do with it) rather than this "I've got the money, so lick my balls" arrangement that currently exists. My argument is that valuations should be higher in order to include a fair salary for the founders. In fact, given the monstrous amount of bullshit involved in raising money, I'd argue that an even higher salary is in order. By the way, the reason VC is losing money is not that they valuate companies too high or that founders take too much out in salary. It's that they have a herd mentality and they suck at picking companies. Have you seen some of the assholes they fund? I could do a better job than 99% of those gatekeepers, and I don't even have an MBA. I'm just a far better judge of talent than they are. (I'm not a great judge of character, which is why I've worked for some horrible companies; I'd need to hire a partner for that. Judging talent and character are opposite skill sets. But I'm one of the best judges of talent out there, and almost certainly in the top 100-- at judging talent, not in having it-- in the world today.) VCs are trying to put founders into a race to the bottom, not only on valuation/salary but more dangerously on terms (e.g. liquidation preferences) and autonomy; those are far more severe because they create an adverse selection where the best people avoid you outright. I'd do it very differently. I'd give very generous terms-- I would actually make it a fireable offense for any associate even to suggest participating preferred or multiple liquidation preferences-- but make a lot more money than any of them by not falling into the traps (mostly, social obligations to fund undeserving morons to return favors) that cause other VCs to fund idiots.

michaelochurch 13y ago

No one should get to "full salary" on an idea. Investment money (which presumably is all you'll get on an idea) is to build the business, not pay you a cushy salary, if you're a founder with significant equity. Full salary == market compensation, not "cushy salary". Considering that you're working 5x as hard as a typical checked-out corporate worker, you're actually taking an 80% haircut already. I don't think a mid-career software engineer should take $750,000 per year out of his startup, because even though their work is arguably worth that-- of course, this is an expected value calculus because the realized value is zero or $10+ millions-- VCs wouldn't be able to make any money if founders demanded that. I do think that it's not unreasonable for a decent idea to merit full salary. Again, "full salary" to me means a market salary, not "cushy"; it's not the half-million or more that a decent software engineer is arguably worth. It's the $100-150k that he'd be able to get on the market right now. The difference would be that the entrepreneur is working 5-10x harder than anyone in a corporate job and only getting 1x what corporate denizens get. That's a hell of an improvement over 0x or 0.5x. If you can't already tell, I fucking hate the VCs who earn $500,000+ per year and take absolutely no professional risk but get sanctimonious about "skin in the game" when a software engineer (intending to work 60-80+ hours per week) asks for the 125-150k he'd command on the market. That boils my fucking blood.

greghinch 13y ago
It has nothing to do with the amount of work you do, or your value as an employee in the market. If you're one of the founders, it's your business to make or break. Particularly early in the game, you're going to need to maximize your runway. So if you take typical first seed round, and then pay yourself $150k of that because "that's market rate", you're significantly impairing your business' potential for success. You should be able to go at least a year on your first seed funding, which for argument's sake let's peg at the $100k you get from YC. Presuming you have 2-3 founders, and a number of expenses, you can see that your own take is minimal. It's conceivable that in the first few years even, some employees may have higher salaries than the founders. But the founders should have enough equity that the payoff at the end is worth it. If you're not going to operate that way, don't try and run your business as a startup that takes funding. You'll be doing everyone involved a disservice, including yourself.
- michaelochurch 13y ago
  Ok, you clearly just don't get it. People shouldn't have to work below market rate (or for free, as they often do) to implement their own ideas. Because they actually care about their work, they'll be 5-20x more productive, and that's what the value of the equity (shared between them and investors) comes from. I argue that they should be paid at market rate for more typical work. Why should they have to pay me to work for me when they're already signing up to work 5-20x harder than typical corporate employees? Yet sanctimonious VCs still talk as if they're performing a charity rather than investing. It should be a symbiotic relationship (a transfer of control over capital from those who have it to those who know what best to do with it) rather than this "I've got the money, so lick my balls" arrangement that currently exists. My argument is that valuations should be higher in order to include a fair salary for the founders. In fact, given the monstrous amount of bullshit involved in raising money, I'd argue that an even higher salary is in order. By the way, the reason VC is losing money is not that they valuate companies too high or that founders take too much out in salary. It's that they have a herd mentality and they suck at picking companies. Have you seen some of the assholes they fund? I could do a better job than 99% of those gatekeepers, and I don't even have an MBA. I'm just a far better judge of talent than they are. (I'm not a great judge of character, which is why I've worked for some horrible companies; I'd need to hire a partner for that. Judging talent and character are opposite skill sets. But I'm one of the best judges of talent out there, and almost certainly in the top 100-- at judging talent, not in having it-- in the world today.) VCs are trying to put founders into a race to the bottom, not only on valuation/salary but more dangerously on terms (e.g. liquidation preferences) and autonomy; those are far more severe because they create an adverse selection where the best people avoid you outright. I'd do it very differently. I'd give very generous terms-- I would actually make it a fireable offense for any associate even to suggest participating preferred or multiple liquidation preferences-- but make a lot more money than any of them by not falling into the traps (mostly, social obligations to fund undeserving morons to return favors) that cause other VCs to fund idiots.