2 ms·

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 br

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.
- greghinch 13y ago
  > People shouldn't have to work below market rate (or for free, as they often do) to implement their own ideas. I think this is the crux of what you are struggling with. A VC investing in your business is not hiring you as an employee. If you have an idea you want to implement as a business, that's on you. The VC is offering money in return for equity in hopes of generating capital for the fund's investors. The person managing that investment for the fund is paid a salary based on their ability to do that. Conversely, you as a founder of a business are compensated based on your own success. Taking investment is not an indicator of success. Investment money is to grow the business faster than it could on its own. Revenue, and more importantly profit, are where you see your own success. The large exit for many funded startups is also more commonly heard about success indiactor, because solid monthly margins aren't a) usually reported for private companies and b) don't make very interesting news, where as a big sale usually is/does. Starting and owning a business is an entirely different world from being an employee, and never should you apply the principles of one to the other.
  - michaelochurch 13y ago
    VC-istan is no longer real entrepreneurship. VC's have set themselves up as between-companies executives who get to dip their fingers in tens of pies. If you don't accept their term sheets, they can't fire you per se, so they'll just fund your competitors and put you out of business.
    - greghinch 13y ago
      This has not been my experience in recently helping build a startup and seeking VC money (that they are overly exploitive), but perhaps we had more realistic expectations going in. Anecdotal surveying amongst prior founders that came in as mentors during our recent accelerator stay suggested that at a typical $20-50mil exit (an average "successful" tech company sale), "unproven" founders should each expect to have 3-5% in equity remaining. That's after 1-2 seed rounds, and at least A and B rounds. Terms significantly improve for "proven" founders.

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.

greghinch 13y ago
> People shouldn't have to work below market rate (or for free, as they often do) to implement their own ideas. I think this is the crux of what you are struggling with. A VC investing in your business is not hiring you as an employee. If you have an idea you want to implement as a business, that's on you. The VC is offering money in return for equity in hopes of generating capital for the fund's investors. The person managing that investment for the fund is paid a salary based on their ability to do that. Conversely, you as a founder of a business are compensated based on your own success. Taking investment is not an indicator of success. Investment money is to grow the business faster than it could on its own. Revenue, and more importantly profit, are where you see your own success. The large exit for many funded startups is also more commonly heard about success indiactor, because solid monthly margins aren't a) usually reported for private companies and b) don't make very interesting news, where as a big sale usually is/does. Starting and owning a business is an entirely different world from being an employee, and never should you apply the principles of one to the other.
- michaelochurch 13y ago
  VC-istan is no longer real entrepreneurship. VC's have set themselves up as between-companies executives who get to dip their fingers in tens of pies. If you don't accept their term sheets, they can't fire you per se, so they'll just fund your competitors and put you out of business.
  - greghinch 13y ago
    This has not been my experience in recently helping build a startup and seeking VC money (that they are overly exploitive), but perhaps we had more realistic expectations going in. Anecdotal surveying amongst prior founders that came in as mentors during our recent accelerator stay suggested that at a typical $20-50mil exit (an average "successful" tech company sale), "unproven" founders should each expect to have 3-5% in equity remaining. That's after 1-2 seed rounds, and at least A and B rounds. Terms significantly improve for "proven" founders.