Comment by manigandham
6 years ago
"deserve" doesn't really mean anything. As for why founders get the most equity, it comes down to the most risk. They have the most to lose and are usually are paid last compared to employees who get cash and benefits. It's easy to claim the profits and yet ignore all the risks and losses incurred by founders.
I've yet to see someone who thinks otherwise actually go out and start a company. Perhaps it's because the calculus changes when it's your business and livelihood on the line.
“Deserve“ absolutely means exactly what it means.
I’m talking about the equity distribution sub-10 here. What sub-10 employees are getting any more benefits than their founder(s)? Maybe marginally more cash but it’s all still below market so it doesn’t really matter. But most founders I’ve encountered are actually paying themselves more than their early employees because they have to in order to maintain their lifestyle in big city. But they also have remarkably disproportional slices of equity.
If a founder is investing large sums of their own cash it’s because they have that luxury. And I don’t think that’s actually very common. More often a founder drops some sweat and cash to incorporate and then maybe isn’t getting paid much while they pitch for seed capital but they’re doing so because they can’t afford to take no salary for very long. Even if you occasionally do see founders who’ve “killed” themselves for their cause, most of the founders I’ve encountered actually come out of cushy jobs where they essentially moonlit as a founder until they met someone willing to blow a few MM their way. In my opinion this type of story does not justify such disproportional equity distribution.
At this point I honestly think telling founders that they take on so much risk and should retain such a large portion of their company because they did all the hard work is a somewhat subversive tactic used by investors who want to retain control over their investments. It’s a lot easier to reason with a single founder than 5 large equity holders.
I think founders deserve a lot. I don’t think the typical founder deserves 10 times the equity of sub-10 employees. I think you’d see more people willing to join early stage companies if the attitude around equity shifted.
It doesn't mean anything because its a completely subjective moral judgement. There's no global arbiter of what people deserve.
And again, if you think founders should take less equity then you're free to start your own venture and show everyone how well it works. I've yet to see single example of this though. If it's so easy to start a company without risk and get rich then what's stopping anyone else?
Do you realize VC companies are less than 1% of all the small businesses out there? Most entrepreneurs are not well-connected wunderkind raising millions, they're just normal people busting their ass and risking everything they have to start and grow a business. Reality is much harsher than some wishful thinking.
I don’t understand the “if it’s so easy then go do it” argument. Personally I’m interested in founding something at some point in my life. And I’d much rather do it with a group of people who I’ve shared more equity with. But that’s not the point at all.
In this thread we’re talking about what stops people from leaving their cushy jobs at big corp to join a small gig where apparently the talent is sorely needed. My response to that is, “if it’s so needed then speak with equity and more favorable comp strategies that are more likely to pry those smart people out of FAANG’s grip”. If the world needs a few principle engineers for some incredible new idea then surely the world can find the capital to fund the equivalent of a few 500k salaries for a few years—whether it’s with more cash or more generous equity or both.
It’s a two way street. Every time I hear someone lament about the dying startup scene my response is generally that humans are acting rationally and the industry has realized that the ~0.2-1% equity offered for positions 4-10 at a small gig is not really worth the sacrifice required unless some other stars align (mega exciting domain, super unique opportunity, write off as professional development).
So either the startup industry is dying and all the good talent is locked up in FAANG. Or maybe startups don’t need principle engineers and 0.1% talent in the first place. It’s probably some of both.
And I’m certainly not sitting in a pile of my own self entitlement at FAANG thinking, “if you want me pay me more because I’m hax0r”. I’ve made my own sacrifices to be a part of growing a small company. We’re in a specialized domain where finding the right talent is especially difficult. I’m unable to fault anyone for rationally biasing towards more comp and stability and less stress. So when the topic comes up I like to remind people that the status quo equity/comp strategies that you see at most places are a little dated and despite it being (as it seems) somewhat presumptuous of me, suggest that founders might be biased towards overvaluing their own contribution to the cause. If the cap tables were a little looser I think you’d see the scene perk up again...
1 reply →
> And again, if you think founders should take less equity then you're free to start your own venture and show everyone how well it works. I've yet to see single example of this though.
This topic was covered in Episode 3 of Gimlet Media's "Startup" podcast[1]. He ended up do a 50/50 equity split. They seem to have done well for themselves[2].
[1]https://gimletmedia.com/shows/startup/8who49/gimlet-3-how-to...
[2]https://en.wikipedia.org/wiki/Gimlet_Media
(And why this reply is not properly indented is beyond me.)
2 replies →