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I don't agree that founders deserve as much as Spolsky thinks. 3-5 times more than early employees, sure; 20 times more, no. Most often, "took more risk" means

I don't agree that founders deserve as much as Spolsky thinks. 3-5 times more than early employees, sure; 20 times more, no. Most often, "took more risk" means "comes from a rich background and had a softer landing". The VC-funded startup CEOs (and hedge fund CEOs; that was even bigger than VC startups in NYC for a while) I know didn't take any real risk, because they're all trust-fund kids and, half the time, their families pulled connections to expedite pre-packaged outcomes. Sure, more risk should mean more reward, but not the order of magnitude Spolsky suggests, especially given that most of this "risk" people claim to have taken is fabricated; they're really rent-seeking off the connections that made their forays not risky. Making the system fair (and I recognize that this is impossible) would require taking into account the socioeconomic status of the players. I'm not actually suggesting it should be done that way, because it would be a total clusterfuck and no startup would ever be founded for all the nasty arguments that would ensue, but it would at least be closer to fairness.

beat 13y ago
What about those of us who aren't "trust fund kids"?
- michaelochurch 13y ago
  VC-funded founders? Not rich? I have no problem with you four.
  - tptacek 13y ago
    This new trope of yours is extremely irritating. I come from a solidly middle class background. My parents didn't even pay for college --- I didn't go. Two of my siblings are in the arts, and one is a lawyer at a domestic violence clinic. I'm on startup #5 (year 8), with no VC funding at all. 2 of the previous startups I was at (one of which I cofounded) were VC funded. Not only am I not a trust-fund type, but nobody I ever worked with was. The founders of startup #2 for me just sold their third company. Both were middle-class Canadians with no "connections", just a solid professional track record. My 2 cofounders at startup #3 were well-off; both were working professionals, like me. Startup #4 was a spinoff of the University of Michigan started by a professor and his postdoc. At each of the 5 startups I've worked for, I worked with 2-3 founder/cofounders. That's ~12 (I just counted them out) people I've worked with that had founding roles at startups; none of them recurring from previous companies. Not a single one of them fits this inane description you keep using. Am I just extremely lucky, or are you a little bit full of it?
    - bokonist 13y ago
      "Am I just extremely lucky, or are you a little bit full of it?" My own observations corroborate your data. I've personally known about a dozen founders who have built a seven or more figure net worth from startups. About ~6 were upper middle class. That is they had parents wealthy enough to pay for a "good" school. But the parents did not have enough money to fund their kids startup or pull on VC connections. Around ~3 people came from well off parents, who might have had enough money for a small trust fund (I do not know whether they actually had a trust fund). One had parents with VC connections. Overall, the career arcs of the well-to-do founders were indistinguishable from the upper middle class kids. The founders from upper class backgrounds were just as smart and hard working as any other founders. The other three founders in my personal dataset were immigrants with very little family support and had to hustle their whole way up. In my observations, getting VC funding requires at least one of five paths: a) building a product via bootstrapping and/or seed money, and then either getting significant traction or have a prototype of genuinely novel tech. b) developing a proven track record as an employee at a company. Maybe you joined a startup early that became big. Maybe you joined a big company and worked your way up to VP of Sales. c) Having some specialized and valuable knowledge. Maybe you consulted for a particular industry, and thus have inside knowledge about a valuable product that industry could use. Maybe you a professor that just developed some new technology that can be commercialized. d) going to business school, getting a job as VC associate, and then launching a company with some funding from that firm. e) having started and exited a previous company Getting VC funding requires connections. But building these connections is a trivial problem compared to the problem of establishing a track record via either bootstrapping or working your way up at a company. If you cannot establish those connections, you probably do not have the hustle it takes to found a company. If you have VC connections, but no product with traction nor track record of success, then you are not getting funding. The world michaelochurch describes, "the VC-funded startup CEOs ... I know didn't take any real risk, because they're all trust-fund kids " is a very different world than the one I have experienced.
  - fearless 13y ago
    You're making a very bold claim that being born into wealth and connections is a prerequisite for VC funding. Do you have any hard evidence to back this up? Please don't take this the wrong way: Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. If every founder, investor, executive you have met has seemed malicious or incompetent, please consider this: the only common denominator is you.
    - michaelochurch 13y ago
      Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. You know nothing about about me, what I have seen, or where I have been. It's true that I've picked some terrible startups, but hundreds of people have had similar experiences to corroborate. If I were the only one who held these opinions or had that category of experience, I'd think differently about the whole thing. I'm pretty good at picking out genuine problems (i.e. the persistent low status, mistreatment, and mediocre compensation of software engineers in this industry) from noise (transient bad luck that happens to all of us). If every founder, investor, executive you have met has seemed malicious or incompetent, please consider this: the only common denominator is you. That is far from what I said. Not even close. Not every one is bad. However, I do think that the social class distance between VCs and petitioners is vast and is already at, if not beyond, the point of being the most important factor in the interaction. This game has already been worked out, and we should leave it to the people who won it and go build something new. They don't have much without us, so what are we waiting for?
      - tptacek 13y ago
        I think you're making this up, and that the supposed "social class distance" between founders and VCs isn't a significant factor at all. Also, not sure you're allowed to be indignant about what commenters claim to know about you after saying something like Most often, "took more risk" means "comes from a rich background and had a softer landing".
  - beat 13y ago
    I'm not VC-funded, either (hopefully I can avoid that entirely, but at the moment I've barely started working on angel funding). I was born into a poor family, with no connections to speak of. I simply did not know anyone who was wealthy or successful when I was a kid. I've made a comfortable middle-class life for myself through lots of hard work. Starting a software company is something I'm doing because I see a valuable problem to solve, and something I believe I can do because I'm smart and determined - not because I was born into privilege.
imagnitude 13y ago
I know you're just trolling, but I'll comment anyway, because it's important to set the record straight. The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. Before getting funding, most bootstrap for years, neglecting family, friends, vacation, working 14 hour days, all for a business idea they believe in. The equity a founder gets is small compensation for giving up years of his life. Even after raising money, a founder will continue to live on subsistence wages, giving up the opportunity cost of a cushy 6 figure job. In pretty much every venture backed startup, the founders are some of the lowest paid employees at the company. Most of the funded startup founders I know make less than $50K, which is a big improvement from the minimum wage salary they paid themselves in the first two years of the startup. When your startup falls, there's not some kind of cushy EIR gig waiting for you at the friendly VC. Unless you're a tech celebrity, you're lucky to get an entry level PM job at a Google or Facebook. Source: Dozens of founders I know who raised money and failed. Your portrayal of all founders and investors as some kind of scheming robber barons is insulting and incredibly demeaning to every single entrepreneur on this forum. Guess what: founders are regular programmers, just like you. And they deserve every last bit of equity they get.
- tptacek 13y ago
  This EIR thing† is one of the weirder beliefs he has about the startup market. I know hundreds of people involved with startups and many tens of founders, and I have never even heard of someone in my social network getting an EIR position. The reality of EIR positions seems to be that they're places that VC firms park executives that they're almost willing to fund "on spec". That is: people who have already made them a shitload of money. I cannot find a way to give a shit about some VC firm paying a 50 year old former CEO to wait around for the next social cat picture startup to helm. † He didn't say it here, but use the search box below to look for the phase "EIR sinecure"
  - michaelochurch 13y ago
    That is: people who have already made them a shitload of money. Also: people they owe favors, kids of Senators whose votes they need to sway, and people they did embarrassing stuff with in MBA school who are now getting the EIR job as a form of hush fee. The whole world runs on extortion, influence peddling, and favor trading. That's thousands of years old and hasn't changed much. But technology was supposed to be different and maybe, at some point a long-ass time ago, it was.
deleted 13y ago
[deleted]
pdog 13y ago
The absolute value of the startup when the founders and investors get involved (literally, founding the startup and investing in it) is often 1-2 orders of magnitude less than the value of the startup when the first employee is hired. So an employee may get 1/100th the equity of a founder, but still get more on an absolute basis.
jt2190 13y ago
> I don't agree that founders deserve as much as > Spolsky thinks... I've always read Spolsky's advice like this: "If you literally can't build the business without the other person, make them an equal partner." I agree that founders should think long and hard about this, because there are very few scenarios that require a fifty-fifty partner, and many that require high-skilled, but not unique, people.
- danielweber 13y ago
  Back in 1996 it was recognized as one of the classic start-up mistakes. It's so old I could only find a PDF: http://www.yesatyale.org/files/lecture_06.pdf http://www.yesatyale.org/files/lecture_06.pdf I think vesting might avoid the problem, but I tend to think one person is probably more invested in the start-up and should take charge. I've seen too many times where "everyone is responsible" leads to "no one is responsible."
  - tptacek 13y ago
    You need to designate someone as the tie-breaking authority for disputes, but it doesn't follow from that that you need to give that person more compensation. Two things that would keep me from joining any founding team at this point in my career: * Not having everyone on a 4-year vesting schedule, founders included * Not giving equal shares to the partners I'm with Spolsky: if you think it doesn't make sense to give a "founder" the same share as yourself, that person isn't really a founder.
gfodor 13y ago
Even rich kids have to deal with opportunity cost. (Besides, claiming VC funded founders are all rich kids requires evidence, and you haven't provided any.) Besides, why do you get to say what a founder "deserves" of their own company? If I bake a cake, and agree to give people small slices of it in exchange for things, you still think I don't deserve the rest of it even though I made it myself?
- pcwalton 13y ago
  I don't agree with michaelochurch here at all, but I don't think I agree with your cake analogy either: early employees of startups often work very hard. Of course founders do an exceptional amount of work and take an exceptional amount of risk, and, having not been in the founder position, I won't take the position that they don't deserve the equity they receive, but they aren't baking the whole cake.
  - gfodor 13y ago
    The cake isn't assets or liabilities, products or customers, it is the equity of the company, and equity is created when the founders decide to incorporate the business and it belongs to them. As such it's theirs to do with as they please, from the time it is worth nothing to the time when everyone wants some of it, if they are so lucky. It's kind of lame to say what they do with it is or isn't "fair" since the exchange of equity for something else is always done between two agreeing parties. It's extremely over-simplifying things to look at a liquidity event and then at the equity division to say if it was "fair" based upon who contributed what to the company. The equity and its distribution happens on a separate plane from the actual operating activities of the company itself, and the individual efforts or contributions of employees. There is no particular reason to believe that someone who provided huge amounts of value to a company "deserves" equity based upon this fact alone, though often founders will give up their equity to these people in exchange for their good work. Any equity in the hands of a non-founder can be traced back to the founders giving up the equity they had up to another party in a mutual agreement, so it's quite bizarre to try to apply some external notion of fairness since nobody is forced to take such an offer.

beat 13y ago

What about those of us who aren't "trust fund kids"?

michaelochurch 13y ago
VC-funded founders? Not rich? I have no problem with you four.
- tptacek 13y ago
  This new trope of yours is extremely irritating. I come from a solidly middle class background. My parents didn't even pay for college --- I didn't go. Two of my siblings are in the arts, and one is a lawyer at a domestic violence clinic. I'm on startup #5 (year 8), with no VC funding at all. 2 of the previous startups I was at (one of which I cofounded) were VC funded. Not only am I not a trust-fund type, but nobody I ever worked with was. The founders of startup #2 for me just sold their third company. Both were middle-class Canadians with no "connections", just a solid professional track record. My 2 cofounders at startup #3 were well-off; both were working professionals, like me. Startup #4 was a spinoff of the University of Michigan started by a professor and his postdoc. At each of the 5 startups I've worked for, I worked with 2-3 founder/cofounders. That's ~12 (I just counted them out) people I've worked with that had founding roles at startups; none of them recurring from previous companies. Not a single one of them fits this inane description you keep using. Am I just extremely lucky, or are you a little bit full of it?
  - bokonist 13y ago
    "Am I just extremely lucky, or are you a little bit full of it?" My own observations corroborate your data. I've personally known about a dozen founders who have built a seven or more figure net worth from startups. About ~6 were upper middle class. That is they had parents wealthy enough to pay for a "good" school. But the parents did not have enough money to fund their kids startup or pull on VC connections. Around ~3 people came from well off parents, who might have had enough money for a small trust fund (I do not know whether they actually had a trust fund). One had parents with VC connections. Overall, the career arcs of the well-to-do founders were indistinguishable from the upper middle class kids. The founders from upper class backgrounds were just as smart and hard working as any other founders. The other three founders in my personal dataset were immigrants with very little family support and had to hustle their whole way up. In my observations, getting VC funding requires at least one of five paths: a) building a product via bootstrapping and/or seed money, and then either getting significant traction or have a prototype of genuinely novel tech. b) developing a proven track record as an employee at a company. Maybe you joined a startup early that became big. Maybe you joined a big company and worked your way up to VP of Sales. c) Having some specialized and valuable knowledge. Maybe you consulted for a particular industry, and thus have inside knowledge about a valuable product that industry could use. Maybe you a professor that just developed some new technology that can be commercialized. d) going to business school, getting a job as VC associate, and then launching a company with some funding from that firm. e) having started and exited a previous company Getting VC funding requires connections. But building these connections is a trivial problem compared to the problem of establishing a track record via either bootstrapping or working your way up at a company. If you cannot establish those connections, you probably do not have the hustle it takes to found a company. If you have VC connections, but no product with traction nor track record of success, then you are not getting funding. The world michaelochurch describes, "the VC-funded startup CEOs ... I know didn't take any real risk, because they're all trust-fund kids " is a very different world than the one I have experienced.
- fearless 13y ago
  You're making a very bold claim that being born into wealth and connections is a prerequisite for VC funding. Do you have any hard evidence to back this up? Please don't take this the wrong way: Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. If every founder, investor, executive you have met has seemed malicious or incompetent, please consider this: the only common denominator is you.
  - michaelochurch 13y ago
    Your comments seem to reflect your own track record of professional failure rather than some legitimate trends or observations about the industry as a whole. You know nothing about about me, what I have seen, or where I have been. It's true that I've picked some terrible startups, but hundreds of people have had similar experiences to corroborate. If I were the only one who held these opinions or had that category of experience, I'd think differently about the whole thing. I'm pretty good at picking out genuine problems (i.e. the persistent low status, mistreatment, and mediocre compensation of software engineers in this industry) from noise (transient bad luck that happens to all of us). If every founder, investor, executive you have met has seemed malicious or incompetent, please consider this: the only common denominator is you. That is far from what I said. Not even close. Not every one is bad. However, I do think that the social class distance between VCs and petitioners is vast and is already at, if not beyond, the point of being the most important factor in the interaction. This game has already been worked out, and we should leave it to the people who won it and go build something new. They don't have much without us, so what are we waiting for?
    - tptacek 13y ago
      I think you're making this up, and that the supposed "social class distance" between founders and VCs isn't a significant factor at all. Also, not sure you're allowed to be indignant about what commenters claim to know about you after saying something like Most often, "took more risk" means "comes from a rich background and had a softer landing".
- beat 13y ago
  I'm not VC-funded, either (hopefully I can avoid that entirely, but at the moment I've barely started working on angel funding). I was born into a poor family, with no connections to speak of. I simply did not know anyone who was wealthy or successful when I was a kid. I've made a comfortable middle-class life for myself through lots of hard work. Starting a software company is something I'm doing because I see a valuable problem to solve, and something I believe I can do because I'm smart and determined - not because I was born into privilege.

imagnitude 13y ago

I know you're just trolling, but I'll comment anyway, because it's important to set the record straight. The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. Before getting funding, most bootstrap for years, neglecting family, friends, vacation, working 14 hour days, all for a business idea they believe in. The equity a founder gets is small compensation for giving up years of his life. Even after raising money, a founder will continue to live on subsistence wages, giving up the opportunity cost of a cushy 6 figure job. In pretty much every venture backed startup, the founders are some of the lowest paid employees at the company. Most of the funded startup founders I know make less than $50K, which is a big improvement from the minimum wage salary they paid themselves in the first two years of the startup. When your startup falls, there's not some kind of cushy EIR gig waiting for you at the friendly VC. Unless you're a tech celebrity, you're lucky to get an entry level PM job at a Google or Facebook. Source: Dozens of founders I know who raised money and failed. Your portrayal of all founders and investors as some kind of scheming robber barons is insulting and incredibly demeaning to every single entrepreneur on this forum. Guess what: founders are regular programmers, just like you. And they deserve every last bit of equity they get.

tptacek 13y ago
This EIR thing† is one of the weirder beliefs he has about the startup market. I know hundreds of people involved with startups and many tens of founders, and I have never even heard of someone in my social network getting an EIR position. The reality of EIR positions seems to be that they're places that VC firms park executives that they're almost willing to fund "on spec". That is: people who have already made them a shitload of money. I cannot find a way to give a shit about some VC firm paying a 50 year old former CEO to wait around for the next social cat picture startup to helm. † He didn't say it here, but use the search box below to look for the phase "EIR sinecure"
- michaelochurch 13y ago
  That is: people who have already made them a shitload of money. Also: people they owe favors, kids of Senators whose votes they need to sway, and people they did embarrassing stuff with in MBA school who are now getting the EIR job as a form of hush fee. The whole world runs on extortion, influence peddling, and favor trading. That's thousands of years old and hasn't changed much. But technology was supposed to be different and maybe, at some point a long-ass time ago, it was.

deleted 13y ago

[deleted]

pdog 13y ago

The absolute value of the startup when the founders and investors get involved (literally, founding the startup and investing in it) is often 1-2 orders of magnitude less than the value of the startup when the first employee is hired. So an employee may get 1/100th the equity of a founder, but still get more on an absolute basis.

jt2190 13y ago

> I don't agree that founders deserve as much as > Spolsky thinks... I've always read Spolsky's advice like this: "If you literally can't build the business without the other person, make them an equal partner." I agree that founders should think long and hard about this, because there are very few scenarios that require a fifty-fifty partner, and many that require high-skilled, but not unique, people.

danielweber 13y ago
Back in 1996 it was recognized as one of the classic start-up mistakes. It's so old I could only find a PDF: http://www.yesatyale.org/files/lecture_06.pdf http://www.yesatyale.org/files/lecture_06.pdf I think vesting might avoid the problem, but I tend to think one person is probably more invested in the start-up and should take charge. I've seen too many times where "everyone is responsible" leads to "no one is responsible."
- tptacek 13y ago
  You need to designate someone as the tie-breaking authority for disputes, but it doesn't follow from that that you need to give that person more compensation. Two things that would keep me from joining any founding team at this point in my career: * Not having everyone on a 4-year vesting schedule, founders included * Not giving equal shares to the partners I'm with Spolsky: if you think it doesn't make sense to give a "founder" the same share as yourself, that person isn't really a founder.

gfodor 13y ago

Even rich kids have to deal with opportunity cost. (Besides, claiming VC funded founders are all rich kids requires evidence, and you haven't provided any.) Besides, why do you get to say what a founder "deserves" of their own company? If I bake a cake, and agree to give people small slices of it in exchange for things, you still think I don't deserve the rest of it even though I made it myself?

pcwalton 13y ago
I don't agree with michaelochurch here at all, but I don't think I agree with your cake analogy either: early employees of startups often work very hard. Of course founders do an exceptional amount of work and take an exceptional amount of risk, and, having not been in the founder position, I won't take the position that they don't deserve the equity they receive, but they aren't baking the whole cake.
- gfodor 13y ago
  The cake isn't assets or liabilities, products or customers, it is the equity of the company, and equity is created when the founders decide to incorporate the business and it belongs to them. As such it's theirs to do with as they please, from the time it is worth nothing to the time when everyone wants some of it, if they are so lucky. It's kind of lame to say what they do with it is or isn't "fair" since the exchange of equity for something else is always done between two agreeing parties. It's extremely over-simplifying things to look at a liquidity event and then at the equity division to say if it was "fair" based upon who contributed what to the company. The equity and its distribution happens on a separate plane from the actual operating activities of the company itself, and the individual efforts or contributions of employees. There is no particular reason to believe that someone who provided huge amounts of value to a company "deserves" equity based upon this fact alone, though often founders will give up their equity to these people in exchange for their good work. Any equity in the hands of a non-founder can be traced back to the founders giving up the equity they had up to another party in a mutual agreement, so it's quite bizarre to try to apply some external notion of fairness since nobody is forced to take such an offer.