[HN Gopher] Some tech founders are getting huge pay packages
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Some tech founders are getting huge pay packages
Author : wallflower
Score : 128 points
Date : 2021-10-16 08:01 UTC (1 days ago)
(HTM) web link (www.wsj.com)
(TXT) w3m dump (www.wsj.com)
| batty_alex wrote:
| So... Tech founders are now following the Facebook model: non-
| voting shares, enriching themselves, keeping most of the power
|
| Everyone is done pretending to be the "good founder," that ship
| seems to have sailed
| [deleted]
| xwdv wrote:
| Lying about the fact that you are making a startup to become
| rich is not the definition of a "good founder".
| MomoXenosaga wrote:
| The techno priests are just as bad as the old ones.
| iamstupidsimple wrote:
| The less power controlled by the investor class, the better.
| lr4444lr wrote:
| Honestly. Some people are just impossible to please short of
| every company becoming a completely worker owned cooperative.
| wpietri wrote:
| Sounds good to me. I've seen so much dysfunction generated
| by distorting companies to please executives and investors.
| I'd love to see what different approaches produce. I'd hope
| it would be better, but at least we could get some variety
| in pathology, and society wouldn't just take this
| generation's dominant paradigm as perfect and eternal.
|
| For those interested in the topic, I recommend reading "A
| Lapsed Anarchist's Approach to Building a Great Business".
| [1] Years ago a grad student went to the University of
| Michigan to study their large collection of anarchist
| literature. As a sideline, he started the now-legendary
| Zingerman's Deli. Over the years, it spun off a large
| collection of associated businesses, each run by some of
| the workers. Lots of interesting ideas, ones backed by
| real-world success.
|
| '1] https://www.zingermans.com/Product/zingermans-guide-to-
| good-...
| JumpCrisscross wrote:
| > _I 'd love to see what different approaches produce_
|
| Worker-owned companies exist: they're called
| partnerships. Just add a line requiring all employees be
| shareholders so the partners can't hire staff. Lots of
| construction companies are organized like this. (Wholly
| employee-owned firms were more popular before WWII [1].)
| I don't see any evidence that they pursued profits less
| furiously than investor-owned competitors.
|
| ESOPs have been more successful [2]. Outside the domain
| of highly-skilled artisans, it turns out most employees--
| like most shareholders--don't want to do the work of
| being an investor. That results in the sort of clubbiness
| that will be familiar to anyone who has been involved in
| small-town politics.
|
| [1] https://heinonline.org/HOL/LandingPage?handle=hein.jo
| urnals/...
|
| [2] https://hbr.org/1987/09/how-well-is-employee-
| ownership-worki...
| JumpCrisscross wrote:
| > _less power controlled by the investor class, the better_
|
| Define "better." Because it apparently doesn't include
| reducing carbon emissions [1] or increasing returns [2]. Nor,
| for that matter, creating and supporting the forum you're on.
|
| [1] https://www.msn.com/en-US/news/topstocks/chevron-plans-
| big-l...
|
| [2] https://corpgov.law.harvard.edu/2016/12/23/a-successful-
| case...
| zd123 wrote:
| Activist investors are a small subset of all investors.
| Most investors are just out there to ride the business
| cycle to the top.
|
| Picking and choosing examples that do not generalize to
| most investors does not refute his point.
| JumpCrisscross wrote:
| > _Activist investors are a small subset of all
| investors. Most investors are just out there to ride the
| business cycle to the top._
|
| There is research on dual-class firms. "Excess insider
| control is associated with decreased overall [corporate
| social responsibility] ratings," with the "community and
| employee dimensions...display[ing] the strongest negative
| association with excess insider control" in firms not in
| "the top decile or quartile of firms with respect to
| their cash and cash equivalents, operating cash flow, and
| free cash flow" [1].
|
| Outside the limited case of technology company founders
| and family-owned firms, the evidence is strongly in favor
| of investor-controlled companies over the alternatives in
| virtually every dimension of "better."
|
| [1] https://www.sciencedirect.com/science/article/abs/pii
| /S02784...}
| [deleted]
| crmd wrote:
| Probably better for employees. Canadian Pacific was a well
| governed, profitable company when Bill Ackerman raided the
| company and laid off 4500 unionized workers to goose the
| share price. I would be furious if a sociopathic activist
| investor did this to my company.
| missedthecue wrote:
| I don't think it was "well governed". It was bloated and
| inefficient. Look at the operating ratio over time
| between CP and it's direct competitor CN - the lower the
| better.
|
| https://corpgov.law.harvard.edu/wp-
| content/uploads/2016/12/C...
|
| CP was languishing until Ackman fired their CEO in 2011
| and put Hunter Harrison at the helm.
| crmd wrote:
| CP was widely recognized as a well-governed company prior
| to the corporate raid. FTFA:
|
| >In 2009, CP was awarded the Governance Gavel Award for
| Director Disclosure by the Canadian Coalition for Good
| Governance. Then, in 2011, CP ranked 4th out of some 250
| Canadian companies in the Globe & Mail Corporate
| Governance Ranking.
| missedthecue wrote:
| I'm not sure how much weight you should give to industry
| awards.
|
| Enron was named "America's Most Innovative Company" by
| Fortune for six consecutive years, from 1996 to 2001.
|
| Enron Chief Executive Kenneth Lay received the Marco Polo
| Award in 1999, one of the highest awards given to
| entrepreneurs and innovators.
|
| Enron finance chief Andrew S. Fastow received the
| Excellence Award from CFO magazine in 1999.
| silexia wrote:
| So paying employees the minimum amount possible is
| efficient to you? Maybe it results in better short-term
| profits, but it destroys the company long-term.
| JumpCrisscross wrote:
| > _paying employees the minimum amount possible is
| efficient to you?_
|
| Did pay go down? I don't think that's accurate.
|
| Paying a bunch of _excess_ employees, yes, that 's not
| efficient. That's practically textbook inefficient.
|
| Are we really on a forum run by a VC debating capitalism?
| crmd wrote:
| There are plenty of capitalists who believe one of the
| several purposes of a company is to provide meaningful
| jobs in the communities in which they operate. When
| company owners cut the payroll to hoard profits, the
| remaining employees have to work harder for the same
| salary. It is the literal definition of the investor
| class siphoning wealth from the working class.
| wpietri wrote:
| It seems a bit rich to look at a climate crisis created by
| current capitalism's "privatize the gains, socialize the
| losses" approach, note one recent small change nominally
| driven by a small subset of investors, and then declare
| investors actually good.
|
| If you count all the times a major oil company made a
| climate-worsening choice because investors demand profits,
| and then count the choices like the one you point at, I'd
| expect it would be 99.9% the former.
|
| And I'll note that the link you give does not include
| actually "reducing carbon emissions". They're promising to
| invest more in research. How will they pay for that?
| Selling more oil. So even if they do the research and even
| if something comes of it, there's no particular reason to
| think that on net this choice will reduce total atmospheric
| carbon.
| JumpCrisscross wrote:
| > _If you count all the times a major oil company made a
| climate-worsening choice because investors demand
| profits, and then count the choices like the one you
| point at, I 'd expect it would be 99.9% the former_
|
| Sorry, do non-market economies have a better track record
| when it comes to the environment? Eastern Europe says no
| [1]. Pollution intensity metrics relative to private
| property rights say no [2].
|
| I cherry picked examples for narrative value. I didn't
| realize what I took to be an extremist claim--the less
| influence investors have _over private companies_ the
| better--had so much purchase.
|
| [1] https://documents1.worldbank.org/curated/en/807441493
| 3055888...
|
| [2] https://mpra.ub.uni-
| muenchen.de/48717/1/MPRA_paper_48717.pdf
| wpietri wrote:
| What you're doing here is creating a false dichotomy.
|
| Eastern Europe is (or at least was) worse because the
| problem -- elites extracting wealth regardless of
| consequences to others -- was worse there. But it's not
| like self-interested elites capturing both economic and
| regulatory problems isn't a problem here. Indeed, in now
| might be worse here.
|
| The two choices available aren't eco-collapse in the
| 1980s American greed-is-good capitalism style or the
| 1980s Eastern Europe totalitarian style. There are more
| things, Horatio. But if you spend all your time cherry-
| picking citations to soothe your fundamentalist
| capitalism feelings, you're not going to see them.
| marvin wrote:
| Greenhouse gas emissions and climate change has nothing to
| do with ownership structure. Employee-owned companies make
| just as selfish decisions as investor-owned companies, and
| if they didn't, they'd lose to the competition if they
| tried to do the altruistic thing.
|
| These are separate questions; the solution to greenhouse
| gas emissions is globally-enforced taxes on emissions with
| the tax used to reverse the emissions.
| [deleted]
| andy_ppp wrote:
| I mean what is a huge salary? There's so much money flowing
| around at the top of society where it's in the interest of tech
| investors to get the best founders and companies working for them
| I think investment is going to be larger which will inevitably
| trickle down to salaries. Weirdly it's actually much better to
| not take a large salary and have the lowest possible burn rate to
| reduce the need for investment diluting your steak.
| wpietri wrote:
| The theory that maximum money gets you "the best" is... under-
| evidenced. It's just as likely to get you the greediest, the
| most manipulative, or the most opportunistic.
|
| A good place to start is with Kohn's "Punished by Rewards",
| which covers a fair bit of research on how intrinsic motivation
| is undermined by extrinsic motivation. The people I know who
| are great at something do it because they truly love it.
| Whereas the most money-motivated people I meet focus a lot of
| their attention not on the actual topic, but the getting of
| money.
| andy_ppp wrote:
| I'm not convinced, essentially I'm saying businesses that
| have higher growth rates will get more investment and
| consequently pay higher salaries. For example the best
| developers already know their worth and I would suspect
| paying well to on average be correlated with better software.
| If you're paying your developers $300k+ you're likely to also
| remunerate yourself similarly well.
|
| I'd really be surprised if paying top rate for devs isn't
| associated with more successful companies but sure, some will
| waste their investment in the wrong places and some will be
| trying to artificially enrich themselves, maybe even faking
| growth numbers which I'd be surprised if it doesn't happen a
| lot.
|
| As for me if I'm doing a startup I'd prefer to be more
| mission driven and keep all of the equity for myself and the
| founding team or as much as possible.
| wpietri wrote:
| Paying top rates is associated with more successful
| companies because the more successful companies have the
| money to pay top rates.
|
| That doesn't mean they get the "best" people, though. I
| know good developers who have joined Google, ended up on
| things where they weren't learning much, and left Google
| for things that were more challenging. And I've known
| people who hopped between the various high-profile
| companies regularly to maximize salary. They were all smart
| enough, but they aren't people I'd want on my team because
| what they focused on wasn't the work or the colleagues, but
| getting the next promotion so they'd look more appealing
| next time they changed jobs.
|
| Or you could look at the people in finance. I used to write
| software for financial traders. It was lucrative but
| soulless and frequently unpleasant. Some of the people I
| was building for were awful human beings. I left, and few
| of my former colleagues stayed in the industry. So in my
| view, finance pays more because to compensate for its
| flaws.
|
| So I'd agree that on average a better software developer
| can command more pay than a worse one. But so can people
| who are more self-confident, more self-promoting, more
| exploitative, or less interested in things like net value
| to society, learning things, or working with good people.
| There are just too many factors to make sweeping
| statements, especially at the extremes.
| cjblomqvist wrote:
| But all that research is not done on founders (haven't
| checked, but I've read research on this topic before) - so
| I'd argue it's basically difficult to know.
| wpietri wrote:
| If you want to claim founders are different, you have to
| make the claim and justify it.
|
| For example, you could claim that modern startups don't
| actually require people who are the best at anything except
| greed. Look at Uber or WeWork. Neither of those companies
| has ever turned a profit and maybe never will. But both of
| their founders walked away rich, rich, rich.
| giantg2 wrote:
| Today's tech founders _who are lucky_ are getting huge pay
| packages. Plenty of small time founders out there who didn 't
| start a unicorn.
| avs733 wrote:
| Exactly...the packages that get reported on don't get reported
| on for being the average or the median. They get reported on
| for being noteworthy.
|
| The last good data I saw (which I believe was 2017?) had median
| founder ownership at large exit for VC funded startups as
| something like 11%
| q1w2 wrote:
| ... and that assumes an exit. The vast majority of startups
| simply die.
| cracker_jacks wrote:
| Any memory of where you found this data?
| avs733 wrote:
| Blossom ventures...
|
| When I pull the link it looks like they updated their data
| to now use ipo specifically. Of 127 ipo's:
|
| 15% median 20% average
|
| https://blossomstreetventures.com/2020/08/05/founder-
| ownersh...
| [deleted]
| niros_valtos wrote:
| As everyone else mentioned here, this article refers to full
| packages. With that said, there is no need to be a founder to get
| a huge chunk of $$$ - the first employees tend to do very well.
| The path to success is finding these founders and company that
| will move the needle.
| achenet wrote:
| There was actually a thread here on HN a little while ago about
| how early employees can actually end up with very little.
|
| One memorable comment was "I am that early engineer that got
| nothing" (or similar, may not be exact quote).
| arthur_sav wrote:
| Well said. Not everyone is meant to be a founder and that's ok.
| moneywoes wrote:
| Don't you have to be very early to actually make more than a
| similar faang job
| tibbetts wrote:
| Depends on the scale of the outcome and whether you are
| growing in responsibility/impact as the business grows. If
| you want to make $1+M on a $50M outcome you better be early
| and hope management doesn't raise too much money. If you want
| to make $1+M on a $5B outcome, you want to be a top 200
| employee, which is certainly easier if you are early, but is
| possible if you come later and make a big contribution.
| lngnmn2 wrote:
| Why not. My favourite example is Jane Street, of course,
| especially when they realised that the language is high-level and
| pragmatic.
|
| On the other side there is over-complicated and bullshit-infested
| IOHK projects which failed to deliver for years.
|
| Tech could matter a lot.
| nishithfolly wrote:
| Here's the link without the pay wall:
| https://www.wsj.com/articles/silicon-valley-tech-startup-fou...
| hogFeast wrote:
| The point totally missed here.
|
| The logic for share awards initially was to align the interests
| of shareholders and managers. The problem here is: you have
| founders often with supervoting shares, they usually have a huge
| role in appointing the Board, and they are basically looting
| everything that isn't nailed down from minority holders.
|
| The big change was Musk's package. When that happened, all hell
| broke loose. It is a crazy situation because he already has a
| huge share in the upside of TSLA, but now he is taxing minority
| holders too.
|
| If anything, this is going to get worse because the rise of
| passive investing has left the market with essentially no
| corporate governance escape valves (and, although it is basically
| verboten to mention this now, changes in "board hiring policies"
| are having the same effect...if you know, you know...it is not
| possible to say this explicitly on the internet).
|
| But this is nothing to do with rewarding success or aligning
| incentives. This is just majority holders who control management
| and the Board looting non-controlling shareholders. In the cases
| where this isn't true, for example AAPL, the CEO pay is just
| wildly out of proportion to the amount of value generated...it is
| just insane (you are actually seeing tech-oriented PE funds make
| money from taking public companies private because they are able
| to gain control over stock-based comp...how crazy is that).
| Making comp wholly dependent on the share price (as in the Musk
| deal) is also completely inappropriate because, as a first-year
| finance student can explain, the stock price is not composed
| solely of company-specific risk.
|
| Just generally, I don't think executives realise this is going to
| come back to bite them. I am an arch-capitalist but this isn't
| capitalism, it is feudalism. The economic system in the US is
| rigged totally. The level of inequality and unfairness that
| exists in US society has never been sustained by any society.
| Executives are creating the machine that will end them.
| skinnymuch wrote:
| The Musk package doesnt seem that bad. Did any one think the
| metrics would have actually been met so soon? The ones after
| the first one he got are even crazier.
|
| Yeah stock price as the main or sole focus for rewarding
| doesn't make a whole lot of sense.
| hogFeast wrote:
| The Musk package is financial genocide. The guy owns a ton of
| shares already, his incentives were totally aligned...think
| about this way: he owns 17% of the company already so 17% of
| the package comes from Musk himself, the rest comes from
| everyone else...that should make clear exactly what is
| occurring. The economics are totally fucked, he is getting
| paid 10% of the market cap in a year...when he isn't hitting
| targets (and the guy is borrowing money like crazy...I think
| he has borrowed something like $60bn, I don't think anyone
| has soaked a company this badly...I have certainly never seen
| anything like this in a company that wasn't fraudulent). It
| is amazing that no-one has sued the Board (but, again, the
| problem today is that these investors don't really exist
| anymore, the largest active investor in TSLA has a 1.5%
| stake).
|
| This is the kind of thing that people will write about in 20
| years and be like..."wow, that actually happened, no-one did
| anything".
| sjg007 wrote:
| Karp gets $1B, wow. He is an interesting fellow for sure.
|
| https://m.youtube.com/watch?v=phmJhHhNOUs
| Texaner wrote:
| What a headline.
| jacob_rezi wrote:
| At what point does the founder get shares of the new class?
| trjordan wrote:
| The interesting thing to me is that this indicates that investors
| largely believe founder-CEOs are the best CEOs for the company,
| long term. That's new.
|
| I suspect that part of this is due to extended timelines to go
| public. Bezos never got another grant after IPO, but he owned 41%
| of the company at IPO. Today, it's more typical for even
| successful founders to end up with 5%-15%. Taking dilution in the
| C/D/E rounds and going public at $3b is a different beast than
| going public after the B (with a huge ownership stake) and
| growing a public company from $60m to $3b. It makes sense that
| the successful CEOs who gave more away in dilution end up with
| end power to demand it back post-IPO.
| random_savv wrote:
| The article seems to speak of stock awards and not salary,
| despite what the title says.
|
| "Today's Tech Founders Don't Just Own the Company. They're Also
| Getting Huge Pay Packages." How are these stock awards different
| to owning the company?
|
| If anything, those stock awards sound less attractive as they
| should be options at a very high valuation?
|
| In effect, isn't this the same as later VCs reallocating the cap
| table in favour of the founders (and against earlier investor and
| employees)?
| aspaceman wrote:
| > How are these stock awards different to owning the company?
|
| You're already expecting way too much intelligence from a
| journalist.
| marstall wrote:
| this is the wsj? they're going to get information about
| company stock and executive compensation right.
| wsjtho55 wrote:
| That's also a huge bias
|
| They want to peddle headlines of people doing well playing
| the speculative economics game
|
| Their article is simply to make it look attractive to keep
| playing, because of course their owners control a lot of
| the speculative economy
|
| But please keep going everyone; all the tech stocks I have
| been buying since Apple at 6-10/share in the late 90s
| aren't going to prop themselves up
|
| Why work when you'll do it for me!
| refurb wrote:
| I found this confusing too.
|
| It's not pay, it's a stock grant or options grant. They are
| also selecting for amazingly successful companies AND likely
| companies that didn't have to raise a ton of money (this dilute
| founder equity).
|
| It shouldn't be surprising the founders end up with a big % of
| equity and massive payouts.
|
| If the companies had failed and the 20% equity was worth $0 and
| the founder wasn't getting paid, not sure WSJ would do an
| article called "Tech founders are left with almost nothing to
| show for years of work"
|
| This seems similar to a headline that says "Winners of lottery
| jackpot walk away with huge payouts". I mean yeah, you only
| focused on the biggest winners.
| marstall wrote:
| >Seven of the 10 most valuable compensation packages for U.S.
| public companies in 2020 were to CEOs of startups that listed
| publicly that year
|
| They're talking about companies that are, or are about to
| become, public - so a stock grant is closer to being cash.
| yarky wrote:
| > If anything, those stock awards sound less attractive as they
| should be options at a very high valuation?
|
| An option to buy something at a certain price isn't the same as
| just getting the something. As mentioned in the article, ceo
| compensation consists usually of stock + options (et al.) tied
| to performance targets.
|
| > In effect, isn't this the same as later VCs reallocating the
| cap table in favour of the founders (and against earlier
| investor and employees)?
|
| Sort of, that's the point of the article. Apparently, new
| founders take on too much early financing.
| JumpCrisscross wrote:
| > _How are these stock awards different to owning the company?_
|
| Getting (a) stock worth $800mm and (b) investing some lesser
| fraction many years ago that winds up being worth $800mm are
| very, very different different.
|
| > _those stock awards sound less attractive as they should be
| options at a very high valuation?_
|
| They are. (Well, sort of. Robinhood grants RSUs that vest
| depending on the stock price, with only 20% of the pre-IPO
| grants vesting at the current price and 0% of the post-IPO
| grants vesting until the stock price at least triples within
| the next 8 years [1].)
|
| Getting (a) $800mm in cash versus (b) an option theoretically
| worth $800mm but which must be held to expiration are very,
| very different.
|
| [1]
| https://www.sec.gov/Archives/edgar/data/0001783879/000162828...
| _page 226, Narrative Description of Executive Compensation
| Arrangements_
| throwbigdata wrote:
| "only 20%"
| chrisseaton wrote:
| > The article seems to speak of stock awards and not salary,
| despite what the title says.
|
| Doesn't the title say 'pay package'? Stock awards are part of
| your pay package. Where did you read 'salary'?
| random_savv wrote:
| The way it's phrased, it sounded like something that is the
| opposite of owning the company, which implies salary. You are
| right that it didn't specifically say salary.
| OJFord wrote:
| I would object to 'paid' sure, but to me 'package'
| immediately implies (a focus on) _not_ cash. Even for non-
| exec employees in sectors where shares would be highly
| unusual /not happen, it's used to mean the whole deal,
| benefits, pension, etc.
| mind-blight wrote:
| For later stage companies, these are likely in the form of RSUs
| over options. That makes it a lot closer to giving cash based
| incentives than stock, especially when compared to owning the
| company outright from an early stage.
|
| If a CEO owns 60% from the beginning, that's already built into
| the cap table no matter how big the company gets. If they get
| RSUs as incentives later on, the company is still footing the
| bill for giving them an $500 million in stock - an asset the
| company owned that could have otherwise been converted to cash.
|
| The article doesn't do a great job explaining why giving
| bonuses later is so much more expensive for the company and its
| shareholders
| zthrowaway wrote:
| So? Who cares. Good for them.
| motohagiography wrote:
| Am not a pro investor, and this is sounding out an idea and not
| an opinion or advice. That said:
|
| Even without just being contrarian, it's worth considering
| whether bigger founder comp should be the norm. It may even be
| economically better to provide a founder with liquidity than
| redistributing cash back to investors where, if it isn't a
| significant multiple returned, the marginal value of the cash
| is net-negative.
|
| If as a VC, a founder returns cash to you, you've disappointed
| your own investors (LPs) who were buying exposure to the
| game/market the founder was selling access to. It's like giving
| them their chips back from a roulette table and telling them
| you didn't play them. They're going to find someone who they
| can be sure will play them next time.
|
| e.g. if a GP invests 2% of a portfolio in a company for 3
| years, and the company gets wound up and returns that cash to
| the fund, what were the founder and their managers doing that
| they didn't invest the money to take risks for expected
| returns?
|
| By returning money, the founder has deprived investors of the
| magic juice that the founder brings to their market, and has
| just cost their investors time. Honest and even noble? Sure,
| but not what you paid for, because elsewhere in your portfolio,
| some coke addled sociopath who is currently a fugutive from
| Costa Rican justice is getting acquired for their PMF. It's
| largely chaotic, and so a pulled punch is value destroyed.
|
| A founder sells a ticket for a game with a chance at a 10x-30x
| return. Founders are in the lottery ticket kiosk business. When
| you buy a lottery ticket at a corner store, you don't care how
| the storekeeper or the lottery company spends it, you care that
| they are selling you a real and honest ticket to the game.
|
| Investors have cash that needs productive assets that return
| better than inflation. Founders create companies that are
| really a localized mini-market game for converting that cash
| into in productive assets that returns growth. Most of those
| companies fail, but it's like planting fruit trees that take
| several years to yield fruit and most don't make it that long.
| The seeds are only going to survive a season, and if you don't
| plant them, they're wasted.
|
| The quesiton should be, is higher founder comp necessarily
| inefficient? I'm saying it would be very hard to tell, because
| in a high risk venture portfolio with non-linear returns and
| dynamics, optimizing for frugal founder comp may be as likely
| to be destroying value in the portfolio as any other arbitrary
| constraint.
|
| If a founder sells investors control of the company, I'd
| propose the founder should take a significant cut of the
| investment as comp, because by taking board control, the
| investor is paying to limit the founders discretion - and by
| extension the founders potential performance, and therefore
| attenuating everyone's exposure to risk and upside.
|
| If you want to use your investment to attenuate the risk and
| upside of a company, then arguably, yes, the founder should
| extract a significant portion of that as comp. I'd be
| interested in the counter arguments to this.
| version_five wrote:
| This is an interesting theory - I dont have a
| counterargument, but maybe a conflicting theory of my own. A
| lot of VC money - (my theory) - is really just outsourced
| corporate R&D or "innovation" and founding a VC backed
| startup is often closer to taking a low to decently paid job
| in a big company's innovation team, where you manage a
| relatively small budget (on the scale of corporate budgets)
| to try and get traction on your new idea.
|
| As such, founder comp is really just a kind of corporate
| salary, with a big potential bonus. As a corollary, that's
| why current VC backed SV-ish startups are mostly so
| homogeneous, they're basically just outsourced innovation
| groups for companies that are out of ideas.
|
| As startups get traction, if the ceo is performing then the
| balance of power shifts, and they become more like you're
| suggesting, exposure to that person's vision and impact. But
| at the beginning, it's basically just a corporate job, and
| you'd expect it to be compensated at market rates.
|
| (This is largely based on my observation of some startups, I
| don't mean to say its universal)
| motohagiography wrote:
| While I don't disagree in substance, it's the order that
| twigged me. My impression has been that later rounds (B+)
| are all about risk attenuation like hiring steady hands to
| manage linear growth once the product is proven vs. early
| rounds (Seed to A+) are for PoC and scale, whereas I think
| of an IPO or private equity round is essentially an
| endogenous-innovation-death, and the company at that stage
| is just about optimizing existing cash flows, with any non-
| linear upside coming from reinvesting those flows to buy
| new startups.
|
| Market rates for consultants are also basically double or
| more what they are for employees, so market rate for a
| founder should be measured against the median 250k-$1m a
| company would have to budget to get someone to do the
| equivalent job of a founder/dev/product-manager from a
| consulting firm, etc. If as an investor, you have put in
| $5m to a company you want to grow with an 18-24-month
| runway to the next round, that the founder is paid 2%, and
| not 10% of that is probably not positively correlated to
| the success of the venture.
|
| Pre-revenue, I sympathize with minimum survival low founder
| salary as it's just a flyer at that point, but the moment
| there is revenue involved and now you have to grow and
| scale, founders could be taking a percentage of investment
| as the price of admission. Money managers who do almost
| nothing charge 2-3% to manage funds and rake 20-30% of any
| profit.
|
| Experimentally, I would propose that a founder with skills
| who is building a tech product should be taking 10%
| commission and management fee on any investment as direct
| comp and 20% of the return on it at the very least. Maybe
| these numbers aren't right, but comparing what a founder
| does to what a fund manager does should yield some
| principles for evaluating founder comp.
|
| If as an investor you allocated $10m to a hedge fund for 5
| years, you'd be paying 2-300k/year to the manager and lose
| at least as much to inflation if it were in cash, and then
| if the next valuation was 3-5x, you'd be returning 6-10m to
| the founder for your 20-40m net profit. Seems like a lot,
| but compared to index funds, bonds, or cash that doesn't
| have that growth profile, that's still a very good deal.
|
| Anyway, just thinking out loud about it, but incentives
| alignment is a really interesting problem.
| varelse wrote:
| The best part is if they hired the right tax accountant and
| played their cards right most of this will be tax-free income.
|
| And that's the way our bought and paid for government wants it,
| so it will stay that way. It's not about political affiliation,
| it's purely about the money that pays for the candidates running
| for office.
|
| Edit: what truly warms the Schadenfreude in my heart here is that
| this only applies to founders and investors. Rank and file
| employees are not invited to this particular party. So for the
| employees to defend this system has so many parallels everywhere
| else.
| cryptica wrote:
| What we have now is essentially feudalism except instead of
| titles (king, queen, prince, duke, earl, knight, bishop, ...)
| everyone is assigned some numbers (net worth, salary). The
| numbers of lower ranking people are decided by higher ranking
| people and can be overruled only by even higher ranking people.
| Instead of rank being determined based on proximity to the king,
| it is determined based on proximity to politicians and the money
| printers.
|
| All narratives about the self-made founder are complete BS. There
| is no meritocracy at all. That's why privilege is such a big
| topic nowadays except where the narrative is wrong is that it's
| not only about race. It's about proximity to the politicians and
| the money printers. Proximity to the centers of power is the only
| thing that counts. Successful entrepreneurs are not value
| creators, they are not contributors to society, they're just
| glorified courtesans whom, with the approval of their masters,
| are granted bigger numbers in exchange for loyalty and
| compliance. Value creation is a thing of the past. It does not
| get rewarded anymore.
|
| The entrepreneur of 50 years ago has nothing to do with the
| modern entrepreneur. They are completely different. The system we
| have today is feudalism but it markets itself as capitalism in
| order to onboard people.
|
| There is no free market. Central banks and their courtesans pump
| money into the system to decide all the prices from the top down.
| They can point the printer in any direction and that's where the
| entire global economy will go.
| 55555 wrote:
| I upvoted you for an interesting analogy which certainly does
| hold significant truth.
|
| But you're actually arguing that the percent of entrepreneurs
| who are rent-seeking has actually _increased_ over the past 50
| years? I really doubt this is true. I especially doubt it over
| the past few hundred years. At least on that scale, the world
| seems to be getting more meritocratic, not less. But heck, I
| don 't really know.
|
| You certainly have a point. It's hard to not "make millions"
| when you're best friends with a top VC, kleptocrat, or even any
| politician. Read any book about the third world, or any
| allegations in the first world, and this becomes obvious.
|
| But there does seem to be a lot of meritocracy/business
| opportunities left for the rest of us. Have you ever started a
| business?
|
| Perhaps a healthier way to look at this is that, if you really
| wanted to, you could network your way up there. Because even
| taking your worldview as truth, you certainly can.
| cryptica wrote:
| Yes I started many businesses. My personal experience matches
| my comment exactly.
|
| All the ventures where I created value didn't earn me
| anything, even though one of these ventures was very popular.
| I only started to earn passive income after I became laser-
| focused on making money and playing internal politics (I got
| involved in cryptocurrency). But even then, I could see
| people who were truly 'crony' succeed by producing even less
| value. Some people in my cryptocurrency community earn twice
| as much as I do and they produced absolutely nothing. On the
| other hand me and my team produced a lot of useful tools
| which would make waves if people knew about them but the
| project founders don't promote them. They pretend that me and
| my team don't exist. Not only did we get 0 funding from
| project founders in spite of constantly delivering quality
| products, the founders gave funding to blatant scam projects
| instead of us; almost as if to rub it in my face. The whole
| story is long and disturbing. Those people in my crypto
| community who have been following us closely are quite
| surprised about how we're being treated. Someone from
| community was so disillusioned by the situation, they donated
| $20k of crypto to me before quitting the project (yes someone
| felt so bad about my situation that they gave me $20k for
| free). At least it's all playing out in a very public way so
| I don't feel so alone. It's just very awkward.
|
| We also tried applying to various incubators and reaching out
| to investors (some outside of cryptocurrency space).
| Sometimes they seem excited about our project but they alway
| seem to back out at the last minute for seemingly no reason.
| It feels as if I'm blacklisted and the tech elite all talk
| among themselves to decide who to give funding to. Our team
| has a great track record in spite of never receiving any
| funding from any major investor so it doesn't make sense why
| investors are treating us so badly and it feels so
| coordinated. I used to get more opportunities in the past
| even though I was far less talented and than I am now and had
| very little track record. I think the problem is my online
| activism.
|
| I suspect all my online comments are liked back to my real
| identity somehow.
| ta988 wrote:
| Maybe they are scared by your track record and the fact
| that nobody funded you for it? If you ever complain once to
| founders about "others not funding us despite quality
| <product>" they may be scared away as well.
| mindvirus wrote:
| Is there good data on founder comp at different levels of
| funding? Both salary and equity across roles, and how funding
| changes that.
|
| For example - I've heard founders getting bonuses or being able
| to sell stock in later rounds to stay focused on longer terms,
| and that CEOs typically get the same salary but more equity than
| CTOs (YC is unusual in that it encourages equal splits).
| lph wrote:
| This article misses the more interesting thing, which is tech
| founders getting huge pay packages for companies that haven't yet
| delivered anything or have no realistic path to profitability.
| They call out WeWork and Theranos, but fail to see how close many
| of these others are to those. Archer? We're never going to see
| air taxis in our lifetimes. Nikola is already a collapsing scam.
| Bird? They are never going to be able to charge what it actually
| costs for a scooter rental, just like all of failed bike shares.
|
| The measure for founder success is now "able to raise an obscene
| amount of capital", and not "able to build a sustainable
| business". Investors should run screaming from SPACs, but they
| don't, because the sheer inertia of a high valuation brings in
| the next wave of dumb money, allowing the early investors to cash
| out. It's a damned Pyramid scheme. We are truly living in the
| golden age of scams.
| alisonkisk wrote:
| As _Silicon Valley_ said, the product is not the app, and not
| thr Box, it 's _the company_.
| q1w2 wrote:
| Sort of. The pay packages may be high in "value" but since they
| are all in multi-year vesting stock options, the founder still
| needs to make the company successful in order to cash any of
| that money out.
|
| It's not like they're throwing tons of cash on him/her.
| [deleted]
| valparaiso wrote:
| Article probably wrote by Ben Shapiro'S Pencil Guy relative.
| supermatt wrote:
| Couldn't view link so didn't read, but:
|
| What does this mean from a taxation perspective? Could it be that
| "todays tech founders" want to "pay their dues"?
| finite_jest wrote:
| Non-paywalled, ad-free archived version: https://archive.ph/iYCWl
| topkai22 wrote:
| Do these pay packages have to get accounted for in the standard
| filing? These pay packages seem like massive liabilities that
| need to not just be listed in the text but be accounted for in
| the numbers.
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