[HN Gopher] If you've raised venture capital, you have to pay yo...
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If you've raised venture capital, you have to pay yourself
Author : gmays
Score : 149 points
Date : 2023-04-10 13:34 UTC (9 hours ago)
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(TXT) w3m dump (techcrunch.com)
| outside1234 wrote:
| The only response from the founder to this shit should be "and
| you shouldn't take a carry on any invested funds until we're a
| unicorn."
| CalChris wrote:
| Hell yes. This is akin to offering an 'internship' without
| paying. Internships should be paid. They should pay Social
| Security tax as well.
|
| Not paying founders is just a tactic to burn them out and push
| them out. It doesn't have to be market rate, but it has to be
| more than half of market rate.
|
| BTW, while we're on this, if you're interviewing someone and it's
| going to last 3 hours, feed them lunch.
| simonw wrote:
| This seems smart to me:
|
| > Try this on for size: "I am raising $3 million right now, and
| once the financing closes, I will pay myself a salary of
| $130,000. Once we hit $300,000 ARR three months in a row, I will
| pay myself a $30,000 bonus and raise my salary to $150,000 per
| year. Once we hit $1 million ARR three months in a row, I will
| pay myself a $50,000 bonus and raise my salary to $250,000 per
| year."
| [deleted]
| KeplerBoy wrote:
| Only hindsight can tell.
|
| Do you delay your own financials in order to hire an additional
| guy or do you pay yourself what you're worth and ever so
| slightly increase the chance of running the company into the
| ground by doing so?
| q845712 wrote:
| it does, but one of the recurring themes on HN is that most
| employees at a startup would've done better financially by
| getting a job at a BigCo (not even necessarily a fang) so it's
| also disingeneous to claim that _they're_ working for equity:
| they could've gotten much safer equity grants by joining an
| established company instead of yours.
|
| IMO one of the challenges I've never personally seen solved
| well is how to truly share the fruits of success with all the
| people who were necessary for it to happen. In this example
| it's of course not clear how much of a team there is, but I'm
| sure any non-founder employees are also working below market
| and would love for their wages to increase as revenue grows and
| the product matures.
| 27fingies wrote:
| > IMO one of the challenges I've never personally seen solved
| well is how to truly share the fruits of success with all the
| people who were necessary for it to happen.
|
| I always thought a co-op would be an interesting model but I
| don't really know how to synthesize that with raising venture
| capital
| jll29 wrote:
| There's "VC as gambling" and "VC as a science".
|
| Most VCs are herd animals that gamble: they follow others
| and are afraid to lose out. But they never have the guts to
| bite first.
|
| Conducting VC investment as a scientific/engineering
| discipline means thinking about systematically constructing
| 10x, 100x, 1000x wealth from the capital given, in a
| systematic way, and while minimizing risk. So your thoughts
| about rewarding everyone that is included in making a
| startup a success is a very good idea.
|
| Co-cops sound leftist, but actually mean sharing risk and
| reward, so economically that makes sense. I had a related
| idea: imagine 10 entrepreneurs that trust each other, all
| involved in independent startups that do not compete with
| each other. They take a 5% stake in each other's business.
| Suddenly your assets as a founder include 10 stakes in 10
| companies, which means you have an interest in the fact
| that not just you, but also your 9 trusted friends make it,
| and you will happily make your network available to them
| accordingly. Given that 9/10 startups fail (a cruel but
| true descriptive statistic), you will not even necessarily
| lose if your own startup does not make it. If most would
| not give 5% of their own startup for another particular
| startup's 5% stake, this may also be a pretty good litmus
| test that the idea may be flawed.
|
| Pooling risk is what insurances do as their business model.
| Startup entrepreneurs have not yet embraced this idea to
| self-organize in this way.
| AQuantized wrote:
| I don't think giving away 45% of your business for a
| 'network' is going to make sense in most cases,
| especially given the networking opportunities already
| available for e.g. YC companies, and it's going to be
| hard to explain to investors.
| whiplash451 wrote:
| It's a very tempting idea, but in your model, each
| founder now has 95% vested in other companies than their
| own, meaning that they will start spending much more time
| on other businesses than their own (the brain follows the
| incentive) which means that they basically give up on
| their startup. I think this model is flawed (but again,
| very tempting).
| simonw wrote:
| The bit I quoted was about salaries for founders. If you want
| to hire employees you should be paying them much closer to
| market rate in my opinion.
| daveidol wrote:
| > If you want to hire employees you should be paying them
| much closer to market rate in my opinion.
|
| That doesn't seem to match with reality, sadly.
| yieldcrv wrote:
| Crypto startup compensation competes with FAANG because the
| additional non-cash compensation is liquid. Initial TC can be
| the same $300k - $1.2mm as FAANGs. The cash portion being
| more comparable to startups.
|
| and most importantly, its granted at a huuuuge discount to
| prices you ever see online. 90% below initial public prices.
| many employees are still not experiencing losses even with
| the steep decline in the crypto market. for tokens, a lot of
| that decline is a death spiral from employees vesting and
| selling.
| sanedigital wrote:
| Truly sharing the fruits of success means truly sharing the
| risk taken.
| JamesBarney wrote:
| I've only worked for big-co and as a founder but never as a
| startup employee, and this probably a dumb question but
| couldn't employees just not work for below market
| compensation?
| whimsicalism wrote:
| Yes, but in my experience employees systemically over-value
| startup equity.
| fnimick wrote:
| They're also encouraged to by most everyone they speak
| with.
|
| Founders, investors, pretty much everyone "successful" in
| the industry wants to promote this so that they can get
| cheap labor for their next spin at the merry-go-round.
| JamesBarney wrote:
| I think that's fair, but this seems to be changing. When
| I talked to our employees about receiving equity they
| valued it way below what prospective investors would.
| whimsicalism wrote:
| The risk-calculus is diffferent. If an employee is going
| all in on a company, they need better risk compensation
| than a diversified VC that has an EV on their
| investments.
| mlyle wrote:
| Prospective investors have preference items, rights, and
| control.
|
| This is why common is valued "way below"-- and it's
| rational for employees to view it the same way.
| Consultant32452 wrote:
| Employees want lottery tickets and employers want to sell
| lottery tickets. The people who buy lottery tickets want
| their money back once the numbers have been drawn.
| gowld wrote:
| The hard part is (a) valuing equity if EV is not clearly 0
| (b) valuing the work (a 40hr/week job is different from a
| 60 hr/week job, commute, culture compatibility, educational
| value, charitable value, etc)
| renewiltord wrote:
| Yes. The market is liquid enough for jobs that both
| employers and employees can find themselves at the place
| they want. Where you choose your position on the comp curve
| wrt equity vs cash (including liquid RSUs) is up to you.
| [deleted]
| JohnFen wrote:
| > it's also disingeneous to claim that _they're_ working for
| equity
|
| What they're really doing is gambling. The odds are that the
| equity such employees earn will never pay off, but if it does
| pay off, it can pay off huge.
|
| Personally, I gave up on working for equity a long time ago
| except in my own companies. The odds of it working out are
| just too low for my tastes.
| renewiltord wrote:
| These VCs can't be common. My friends raised and one is on a H-1B
| so they had to pay him like $200k+ to make it work, and he's got
| half the company (ex. investors) otherwise
| tristor wrote:
| I'm not sure why, but techcrunch articles never fully load for me
| on any of my systems anymore. It's not even paywalled, it's just
| broken. Even archive.is only gets 30% of the article and then it
| fails. Seems like a broken app-redirect interstitial, so probably
| a good sign to just never click links to this site again.
| KyleSanderson wrote:
| It is paywalled, and starts after a couple paragraphs.
| tristor wrote:
| Than their paywall is broken. It never pops for me and the
| article never loads fully, so worst of both worlds.
| mixmastamyk wrote:
| Same. I figured it had to do with the almost thirty
| javascript trackers that I'm not going to load.
| robterrell wrote:
| "You're not working for equity -- you are giving up equity."
| Bingo.
| treis wrote:
| That doesn't really make sense. If you're a founder you're
| working for equity. Or, to be more precise, you're working to
| make the equity you have more valuable.
|
| The waters get muddied because of how VCs operate. VCs want to
| take 50 shots, or whatever, and make their money on the 1 that
| hits. That works for them but doesn't exactly work for founders
| since founders don't get 50 bites at the apple. In that
| scenario it makes sense for founders to take some money off the
| table so that if things go bad it's not a total loss.
|
| Understandably VCs don't really want to do that. They want you
| to take their money to grow the business.
| [deleted]
| marcosdumay wrote:
| Working for equity means putting absolutely all your eggs on
| the same basket. And going the VC route means putting that
| basket in a juggling contest to see what is the last one to
| fall.
| jononomo wrote:
| I was just about to highlight this exact same line.
| mv4 wrote:
| Good advice.
|
| Also, the whole "ramen-profitable" concept needs to die.
| Artificially reducing expenses beyond reasonable fools people
| into thinking they've developed a business model that's
| sustainable.
| cj wrote:
| Also, if you run a bootstrapped company with no VC, pay yourself!
|
| The bootstrapping mentality becomes counterproductive after you
| pass a certain stage (e.g. if you can afford 20 employees and are
| bootstrapped, you can probably afford to pay yourself the median
| salary of a C-level exec). It will make your life more
| comfortable and will make acquisition offers less appealing if
| you're already drawing a good salary.
| clarkevans wrote:
| Even better, make sure the difference between your market rate
| and what you are getting paid is listed as a loan earning a
| modest interest payment.
| ghiculescu wrote:
| Yes, you should pay yourself. How much? Working out a pay
| structure is quite tricky, and reviewing it constantly so you can
| raise it gradually is a good way to lose focus.
|
| The approach in the article is one way, but I don't like the
| lumpiness of it and the big bonuses won't work if you're
| bootstrapped.
|
| A better approach is to pay yourself a fixed percentage of MRR.
| Some VCs may add salary caps but this works until you reach that
| point. I've found that 2% works well.
|
| I wrote this a while ago and a bunch of founders (particularly
| bootstrapped / tiny seed rounds) said they found it helpful in
| figuring out their pay structure:
| https://ghiculescu.substack.com/p/how-to-set-your-salary-as-...
| voz_ wrote:
| If you've raised venture capital, you have let the leeches in.
| jensneuse wrote:
| You should always pay yourself, even without VC.
| JohnFen wrote:
| True, for legal reasons. Although I have never sought or
| accepted VC investment in my ventures, I have always paid
| myself (minimum wage). I started doing this on the advice of
| both my lawyer and tax accountant -- it's easier to not only
| stay on the good side of the IRS, but to prove you're on the
| good side, if you completely disconnect the business finances
| from your personal finances. The easiest way to do that is to
| draw a salary.
| Consultant32452 wrote:
| I'm not an accountant or lawyer, but I still share the advice
| I got is to pay myself whatever salary I would need to pay
| someone if I hired them to do my job.
|
| For context, I'm a one-man shop that sometimes hires
| contractors to do pieces of work for me.
|
| This should NOT be interpreted as me giving anyone else
| advice.
| JohnFen wrote:
| If I had to pay myself the going rate for running my own
| startup, I wouldn't be able to afford doing the startup!
| throwawaywu wrote:
| Perhaps reevaluate if the startup is financially good for
| you and your family.
| JohnFen wrote:
| Oh, I do a very heavy analysis before each venture. My
| family and I have done very well with them, thank you.
| When I'm doing a startup, I'm living on savings, not a
| minimum-wage salary.
|
| My businesses can't pay me my going wage at the start
| because I try to avoid debt when starting a business to
| the greatest degree possible. There are much more crucial
| expenses that money needs to go to (such as paying
| others).
| Consultant32452 wrote:
| There's two threads being pulled here.
|
| Thread 1 is whether or not the behavior you describe is a
| crime
|
| Thread 2 is whether or not anyone will ever enforce it
| and what might the penalties be (if any)
|
| My guess is that it's technically a (minor) crime but
| will never be enforced unless you become a political
| problem or something and they just need to find any old
| crime to get you.
|
| None of the above should be considered legal or financial
| advice. It is solely my personal opinion and I am not an
| accountant or lawyer.
| JohnFen wrote:
| I am quite certain that I'm not engaging in anything that
| violates the law. I'm not even engaging in anything
| slightly dubious. There's no tax avoidance or evasion
| going on here at all (this practice in no way reduces my
| tax bill).
| aSanchezStern wrote:
| That... doesn't seem to check out. It can't be the going
| rate if it's infeasible. By definition the going rate is
| the rate that _would_ allow you to afford doing the
| startup. Maybe you 're comparing to the going rate of
| running a much better funded startup? But that's not the
| going rate for a startup of your funding size.
| JohnFen wrote:
| By "going rate", I mean what a person doing the same
| job(s) would earn at an established company in the same
| industry and location. In other words, what I would pay
| someone else if I hired them to do the job.
| Consultant32452 wrote:
| In my case it looks more like this: I won a contract to
| develop some Java code for ABC Corp. Who would I hire to
| complete this task and what would I pay them?
|
| I might hire a Junior developer to do the coding, a
| salesperson to land the gig, etc. If you're not bringing
| in enough revenue to fund those "positions" + profit then
| you are not billing enough for your work.
|
| Those people get paid and so should I for performing
| those duties.
| satvikpendem wrote:
| My accountant said that the wage must be "reasonable" for the
| work you're doing, not necessarily minimum wage, in order to
| convince the IRS, since they don't necessarily want people
| paying less through capital gains tax than income tax.
| cperciva wrote:
| Ironically, in Canada the same "must be reasonable" applies
| but for the opposite reason: The government doesn't want
| business owners "hiring" family members and overpaying
| them, since typically employees pay less tax than business
| owners.
| JohnFen wrote:
| Well, maybe my practice is pointless, but it didn't raise
| an eyebrow when I was last audited, so I think it's
| probably OK.
| [deleted]
| gpjanik wrote:
| You're meant to move as fast as possible and as long as your
| salary doesn't excessively drain the budget, it should be on the
| higher end of what is the payscale of the company. If you as the
| person with the most duties in the company can't afford a
| _comfortable_ life (and I take it for granted that pre-
| incorporation/raise that was anyway the case), you're probably
| working under your usual efficiency. If any investor says
| otherwise, just don't take that money. It makes no sense.
| jnovek wrote:
| This happened to me, exactly as the article predicts. By the time
| we started paying ourselves (I was the CTO) a reasonable salary,
| I was so burned out that I left not long after.
|
| I'm surprised that 13 years later this is still a topic. It seems
| braindead obvious. I know that I would never take money under
| those kinds of circumstances again.
| rjbwork wrote:
| Ditto. We both burned out. I got fired. CEO got pushed out not
| long after.
|
| Pay yourselves for fucks sake.
| benatkin wrote:
| Should avoid thinking in terms of yes or no.
|
| It should be the amount being considered, and the amount
| should be low.
|
| The $130k amount in the article is absurd and that's just the
| starting point.
| rjbwork wrote:
| Yeah. We started paying ourselves essentially rent+ramen,
| but you can only do that for so long while not burning out.
|
| The truly unfortunate thing is that we were really starting
| to pick up momentum, and the company now profitably employs
| a couple dozen people.
|
| I think 130k is a pretty reasonable starting salary after
| investment these days, given market conditions for
| technically competent folks.
| onion2k wrote:
| _We started paying ourselves essentially rent+ramen.._
|
| The advice I was given when I raised my first round was
| to pay myself a salary that meant I could focus on
| growing the business without worrying about personal
| financial stuff. It was spot on. All your energy should
| be going on the business.
|
| Anyone trying to minimize their spend to the point they
| can't eat properly, or paying themselves a salary high
| enough to have a serious impact on runway, would be a
| major red flag.
| zer0tonin wrote:
| 130k is chump change
| beebmam wrote:
| Yeah, good luck hiring anyone except fresh college grads
| with no experience at that compensation.
| 3np wrote:
| The context is what one could consider paying themselves
| if they assessed their potential market salary at $250k -
| not what one would pay hires.
| nawgz wrote:
| I would never work full time (and especially not double
| time like startups require for their C-suite) for $130k,
| I'd far prefer to bootstrap my own business instead if
| that's the rate
| ghiculescu wrote:
| Bootstrapping anything to (130k + all other expenses) is
| not a piece of cake. Many companies never get there even
| if they raised money.
| nawgz wrote:
| Sure, I agree. But this is equally true for VC companies.
|
| However, in a bootstrapped case, I can just work as a
| consultant if I need some extra revenue. In a VC case, I
| don't have extra hours available in my life.
|
| I'm also not rich and don't have an appetite for extreme
| wealth, I'll make a couple milly and call it a career, so
| that should color your perception of my statements
| ghiculescu wrote:
| I hope you make it work!
| drusepth wrote:
| As someone who bootstrapped 8 years ago (and has taken
| nothing but rent+ramen since then), working _only_ double
| time sounds like a dream.
|
| Side-note: $130k being competitive obviously depends on
| your area/market, but that's far above average rate for
| senior devs, let alone C-suite, in many areas of the US
| (and especially outside of the US), so I can see why it
| might be a baseline for others. Seems like you should
| adjust this number for you. :)
| DiggyJohnson wrote:
| 130k is a very reasonable compensation for early-mid
| career folks in many places. Assuming your a dev, what
| sector+region are you in?
|
| I'm always fascinated by compensation conversations on
| HN, because they seem to come from a place of... very
| high expectations. Don't know how to say that without
| sounding snarky, that's not my intent.
|
| Curious.
| nawgz wrote:
| 130k is not a good software engineering salary. Period.
|
| Region doesn't matter to me, the floor of cost of living
| never truly goes that low.
|
| Sector? I build and deploy web or mobile apps, and I do
| as many parts of that as my team doesn't.
|
| Experience is 10 years, including with Senior and
| Engineering Manager titles.
|
| Besides the fact that I can make more than $130k by
| walking in the door across the market, I also believe I
| could generate a MRR that would return after-expenses
| revenue higher than that with a new business within 1
| year. So I also don't see why I would take a moonshot on
| a poor salary, when I can aim lower, still have big
| upside, and avoid VCs stepping all over me
| reidjs wrote:
| curious, have you made over $130K a year running your own
| business? If not, how do you know you could?
| nawgz wrote:
| I once worked for a 5-man business that brought in $750k
| annually, and the two owners were smart guys but no
| better than me and certainly not as professionally
| trained.
|
| Now, mind you, I'm not saying it would only be the
| product, I would also be willing to be a consultant
| (trading the singular VC for multiple, not-quite-
| fungible-but-closer-to customers), but making only $130k
| for your soul and a lotto ticket does not sound like an
| appealing deal.
| [deleted]
| metaphor wrote:
| > _MRR that would return after-expenses revenue_
|
| Come again?
| [deleted]
| ianbutler wrote:
| Without giving exact information I make more than double
| that as a senior engineer in NJ working remotely for a
| non-faang but still big public tech co with approx 10
| years professional xp, but I have been writing code for
| much longer, just shy of 20 years. My area is data
| engineering and internal tools and devops too depending
| on the role.
| wobbly_bush wrote:
| > because they seem to come from a place of... very high
| expectations
|
| You can see housing prices for whatever areas people are
| talking about and how much the monthly mortgage comes out
| to be to get baseline on cost of living.
| geraldwhen wrote:
| I'm in the southeast and also make double that. 130k
| total comp is entry level.
|
| I know this because I hired many people last year and
| some were entry level.
| FredPret wrote:
| Why shouldn't very smart people who have also spent years
| / decades developing technical skills in an industry that
| is eating the world and is the most profitable thing
| ever... get paid less than you need to buy a house?
|
| If _they_ don't make high six /low seven figures, who
| will? Bankers? Lawyers!?
| benatkin wrote:
| > If they don't make high six/low seven figures, who
| will? Bankers? Lawyers!?
|
| Employees and contractors, and founders contingent on
| equity. Also some who don't agree that founder salaries
| funded by investment should be modest.
| jimbokun wrote:
| If you were bootstrapping, would you take out > $130k per
| year for living expenses?
|
| I believe the $130k is meant to be in addition to
| whatever equity the founder is retaining.
| nawgz wrote:
| > If you were bootstrapping, would you take out > $130k
| per year for living expenses?
|
| Why would you ask this question?
|
| > I believe the $130k is meant to be in addition to
| whatever equity the founder is retaining.
|
| Obviously. But I would control 100% of my bootstrapped
| business, and not be eligible to being outplayed by the
| VC who controls all the strings and always makes all the
| money in the end.
| helsontaveras18 wrote:
| Ask the investor to not get paid on their management fees.
| They're working for their equity too right?
|
| It's absolutely ridiculous and unprofessional.
| iamleppert wrote:
| I once worked for a startup that convinced me to both invest
| money into the company and work for free. I thought I was
| positioning "the company" for success, when I was just being
| taken advantage of.
|
| Run far, far away from any investors who are obsessed with "their
| side" of the deal so much they don't care how many lives they
| have to destroy to get what they want.
| jschveibinz wrote:
| This is a California thing. Only in California (and maybe NY) are
| founders able to raise millions of dollars at the early stage, so
| everywhere else VC's are going to expect very frugal use of cash
| or it's just not going to work.
|
| And it won't be long before millions at the early stage is a
| rarity in California, as well.
| aSanchezStern wrote:
| [flagged]
| teaearlgraycold wrote:
| Not so sure. I only see more dollar signs in the eyes of VCs as
| time goes on.
| benatkin wrote:
| Paying shouldn't only be a California thing, but the $130k
| amount, which is about 50% too high even for CA, should be
| limited to high COL areas.
| MAGZine wrote:
| live in sf on $65k? where?
| [deleted]
| benatkin wrote:
| I didn't say 100% too high. 65k + 1 * 65k
| = 130k 65k + 0.5 * 65k = 97.5k 86k + 0.5 *
| 86k = 129k
|
| That would be $7000/mo minus taxes of course. Possibly more
| than half the money would be spent on rent. But the amount
| shouldn't be completely sufficient, for the same reason
| many haven't been paying themselves at all.
| the_mar wrote:
| that's not what 50% too high means, sir.
|
| But even so, living in SF on 97K before taxes is
| questionable experience. It also seems that with 30K a
| year or 2.5K a month we are essentially nickel-and-
| diming. As a CEO you have to sometimes look presentable,
| you may need to travel, you also need to eat, exercise
| and rest. Sure you can do ramen style for couple years in
| your 20s, but how much money will you realistically save
| your startup if you pay yourself 97 vs 130k
| benatkin wrote:
| Kinda hard to find answers on Google but here's one that
| does the same thing I did:
|
| https://www.wyzant.com/resources/answers/287237/word_prob
| lem
|
| Here's another one: https://www.wired.com/2015/01/coin-
| jar-crowd-wisdom-experime...
|
| > The actual value of the coins was $379.54. The mean
| value (x) of the 602 guesses submitted was $596.12, about
| 57 percent too high. What's more, a massive (by crowd-
| wisdom standards) 40 percent of the individual guesses
| were closer to the actual value than that of the crowd.
|
| Here "57% too high" you can arrive at the original number
| by dividing by 1.57.
| outside1234 wrote:
| Anyone who is CEO class material should be making at least
| $300k in California
| ilaksh wrote:
| As someone who has just bootstrapped (or tried to) a lot of
| different ideas over the years, this sounds so ridiculous. If I
| have savings then I will use them and not give anything to
| investors. If investors want something then I should not have to
| continue being broke.
|
| My very powerful GPT-4 based startup progress is currently kind
| of one hold all day today while I wait for someone to answer me
| in Slack about his $1k contract which he completely blew up the
| scope on this weekend and I am counting on to pay rent.
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(page generated 2023-04-10 23:02 UTC)