IMO this leads to the following problems:
1. Most startups that COULD exist are never actually started because the founders want to be making higher salaries working at Google/Microsoft/Meta/etc.
2. The only founders that actually move forward are ones that have a significant amount of cash in the back from previous startups.
3. The founders and investors aren't properly aligned. The founders want to exit but the investors want them to go long so that they get their unicorn exit.
Now #3 is mitigated in some situations by having the founders do 'partial founder buyout' where they sell some of their equity into the next round for a few million dollars each.
But this is an admission that there's a problem.
It just seems like everyone would be better off if VCs would just get over it and put in more cash and allow their portfolio companies to pay more competitive salaries.
I know this is happening in the AI space right now with companies paying more to pick up top talent - so they don't go to work for MAANG.
This is inherently bad for startup employees and they are directly subsidizing profits for the VCs.
The VCs get to diversify but the startup employees don't.
MAANG companies are proven businesses.
Lots of people would say "Yes! I shall pretend to work on establishing a viable business if you throw scads of money at me!" And not ever really develop a viable business.
Founders get rich by having equity. Some of them get stinking rich.
It's basically a form of betting that incentivizes actually succeeding at finding a viable business model. That's the only way that makes sense. Otherwise you are paying people to pretend to work.
The "pretending to work" issue gets talked about a fair amount. People attend conferences because it feels like work. People rent offices and set up business bank accounts because it feels like work. Etc.
Real work involves solving a real problem and getting people to pay you for it.
That doesn't automatically happen because people call themselves "founders" and invent a business name etc.
The issue at hand is that there is probably some correlation between a founder's opportunity cost and probability of success. Smart, driven people could be doing a lot of things with their time. Working for years on end for $200k/year for a small probability of a large exit is not practical for a lot of them. Working for $400K might be. OP's point is that as an investor, you might be better off having fewer, higher quality founders and paying them the higher opportunity costs. Would you rather fund 10 teams of monkeys or one team of ex-executives with proven experience building/scaling/etc?
Startups are just businesses. Business owners value money, but they also value independence and freedom to do what they want to do. The "don't tell me what to do" gene is highly correlated with them. The only resource you can't buy is your time and investing it into your ideas brings a lot of meaning into the daily slog. Also if you have your own company, you decide the rules and people you surround yourself with. If you spend 1/3 of your life working, this is a non-trivial contributor of your quality of life.
This is the first reason. Founders really hate working for other people.
Regarding salaries, the more cash you burn, the less time you have to understand the market and create the product. Salaries are expenses and you need to be very stingy until you get to profitability.
This is the second reason.
And something I've seen in the "startup" crowd. From the VC marketing bullhshit they assume that the "only" way to create a company is "to create the next billion dollar company". It's the game of the VC's, grow and sell. Yes, 3% of Facebook can be worth more than 40% of 5 Million ARR company, but if you multiply it by the chance of creating the next Facebook you'll see that it's riskier and you loose too much control and the first reason you're doing your own thing.
In summary, if you're thinking about short term salaries it's best not to try to do a startup, better find a good paying job and invest in an index fund. This will be safer and on average yield better.
If you are asking this question, then bootstrapping really isn't for you.
That's OK. There are these 3 very different employment models for a reason. They appeal to different people. Neither is better than the others.
While the original question is about immediate financial reward, that's only one part of the equation. Other parts include risk, control, secureness, impact, potential etc.
Ultimately the path for you depends on your personal value to each attribute. For the best possible returns, at lowest risk, go be an employee. For most control, good potential, mid-risk, bootstrap. For high risk, massive potential (but most likely implosion) go VC. All
We don't (or at least we shouldn't).
The issue is as a VC you have LPs who are very demanding about returns. VC represents a minority of their total capital outlay, but they put money in VC in order to get outsized returns.
If I'm the Ontario Provincial Pension and I gave a VC US$200M, I expect to make way more money from the VC fund than I would have investing in the stock market, or bonds, or gold, or to a PE/IB/Hedge Fund.
VC is just another financial instrument that is a part of diversified portfolios.
If I had to use stereotypes, if PEs are alcoholic coke heads, VCs are kombucha swilling stoners and trippers.
It's the cornerstone of investing. You diversify to hedge risk, not to increase total yield.
They'd attract a lot of people to fund, for sure.
You'd lose a bit of a filter around risk tolerance to try to weed out scammers, though. There are absolutely a bunch of people who would take that money with no intent or ability to deliver a solid company in the end.
So they'd probably want to be EXTREMELY selective; moreso than Google by far since there the financial loss is smaller both absolutely ("one bad hire's salary for 6-12mo" vs "a multi-million dollar seed investment") and likely as a percentage of revenue/bank account.
I think they'd either get ripped off and disappear in a few years or just be small and stay small and not make a huge difference overall.
It doesn't seem entirely different than the attempted Softbank "de-risk startups by picking a winner early and pouring in crazy $$" approach.
Oversimplification: pay yourself 2x and have a 6mo runway, or take x and have a 12mo runway. If you aren't expecting to give up quickly, and don't want to just try to fall back into a Google job after 6 months if it is struggling to find traction, you're gonna want the longer runway.
And time turns back into future money because if you're doing a startup you're also likely considering the potential upside. Most startups don't get there, but if you just wanted to play the aggregate numbers, that would probably already stop you[0]. So you want to get more customers, you want to raise that next round, etc, and all those things are helped by runway. Most startups fail - but the ones that spend faster fail faster.
[0] why work for $GOOG for 12 months at a startup then have to look for a new job when it fails instead of just working for $GOOG at Google with job security?
The pay that founders and early players get is nothing to scoff at — many folks would be quite very happy for that pay and would happily fake their way to it. What’s preventing _that_ from happening?
I may be mistaken, but I've never heard of a VC dictating salaries.
Realistically the management team (the operators, not the investors) do control most of this.
The subtext of the question though isn't why operators don't increase comp; it's why investors don't kick in enough to let startups compete with comp packages from FAANGs.
(I think the answer is: it's because most startups fail.)
More succinctly, FAANG salaries aren't market rate salaries - they are above market. I find operators are paid in comparison to similar sized companies, especially companies that appear "mature" after their 2nd or 3rd priced round. It's the same reason the quants at Chase don't make as much as the quants at RenTech, doesn't mean the Chase quants are being paid under market.
We don't exactly (Boards are a thing) but we do give recommendations of decent salary ranges, but then again, serious founders are not going to ask to get paid a Director at Google's salary when they're the CEO of a 5-6 person startup.
Somewhere the inventives are misaligned for sure.
Founders should help themselves by reducing their personal expenses to as close to zero as possible.
There's metric shittons of cash but there aren't a lot of investible teams onto something awesome with excellent timing. VCs and angels aren't just going to write larger convertible notes because you personally want more money. You must demonstrate business value that can be accelerated with varying amounts of cash and deliver when you get it, without giving away too much equity.
But if your first raise is 2M and you want to hire a few people with it and make it last a year, an extra 200k might be a big dent in your runway. Or get your investor to give you 10% more.
For many, being a founder is not just "taking a risk on an unproven idea" it's also a career change from being a solo IC or technical leader to being an executive, with very, very different requirements for success, so the risk here is compounded.
Of the top 10, 4 are VC backed startups, 3 are mature/listed (including Netflix), and 3 are finance.
Of the top 20, 10 are startups, 5 are listed, 5 are finance.
It seems that startups are your best bet for good money overall. If you rank it by seniority, startups tend to pay much higher for less experienced people and MAANG only has the highest end game pay.
Which also reflects why many startup founders are young. If you're very experienced, then you're probably best off joining MAANG. Even then, it's likely that MAANG doesn't even pay the best rates anymore; some of these top paid people likely have tenure as well. There's a flood of applicants, so why should they pay top tier?
If you're really young, you'd be better off joining or starting a mid stage startup, rather than climb up the career ladder of MAANG.
Or the strategy is often to get a job at MAANG as a resume item, so you could raise money from investors later or jump into a top tier company like Roblox.
[0] https://www.levels.fyi/leaderboard/Software-Engineer/All-Lev... (Software)
Maybe I should brush up my Systems knowledge and Korean...
On one side, target IRR and thus valuations are fixed for the investor by their LPs
On the other side, runway and thus survival rate are fixed by local market prices for founders who are risk tolerant and maximize for the same IRR as the investor.
The only solution is to physically move to a place that isn’t as stupidly priced as the Bay Area.
I think there is a reckoning coming, where investors will realize that backing startups in locations where costs continuously increase will become a suckers game. Survival rate naturally will go down due to shortened runway, while fundraising milestones will stay fixed - decreasing the expected IRR of the asset class.
It all comes down to the classic question: do you want a high chance (a%) of getting a decent amount of money ($b) or a very small chance (c%) of getting an enormous amount of money ($d)?
The values of a, b, c and d are different depending on your background, experience, connections, hunger for risk, etc. You have to find the decision thresholds that make sense for your situation.
A lot of the time, founder CEOs decide their own salary, as well as that of their employees. Why would a founding CEO want to shorten their runway by paying MAANG salaries to themselves an others? It decreases their likelihood of success by shortening runway and burn. As soon as the funding that VCs give founders is wired to the bank, the founders are playing a zero-sum game with every dollar. Their job is to decide the best allocation of capital.
A startup, by definition, is a team in search of a business model. They're not profitable or self-sustaining. If you're Google or Meta, you have at least a chance of saying "for every dollar I pay this engineer working on ads, I get this many dollars back." And sometimes that return/salary ratio is very large, so it makes sense to pay them a ton. That reasoning does not apply to startups. That is, you earn your high salary by contributing to a profit-making product.
When your product or profit do not exist, you get compensated in options so that your incentives align with those of the business as a whole.
VCs invest progressively larger sums as an idea is proved out and risk is eliminated. I don't see any other world that makes sense. Most overfunded startups die before they ever find product market fit because they hire too many people, have a hard time pivoting, and lose their hunger.
Given the choice between hunger and complacency, I'd say founders with hunger are probably more likely to succeed that complacent ones. Earning a MAANG salary makes you complacent, all other things being equal.
For the love of god just pay yourself a decent living wage. We don't need founders who spend half their time in a food line or burns out due to personal cashflow issues.
Also, as an intangible benefit, having less cushy life puts you in a more aggressive mindset which is important.
You can definitely give yourself a too high salary as founder.
I’ve learned that I’d make that money stretch a lot longer.
If your startup is a few years old and you’re looking to make more cash, I suggest negotiating a bonus package with your board of up to 100% of your base salary. If you hit targets, few investors will argue with paying the founder a decent bonus.
It sucks but it's the hard truth.
Correct me if I'm wrong though.
Most VCs ik are fine with founders paying themselves a market rate base, but I also work with VCs in the Bay Area and Seattle scene - maybe you're from France, Germany, Canada, or some other less founder friendly VC scene?
Also, as a founder your driving goal is to make a company that would succeed. It's up to you to decide your compensation package, but paying the CEO of a 2 person company $300k is just plain dumb.
What has happened to HN? First a post about a guy selling corruption as a service (yes, employees at private companies can be hit by corruption style laws) and now this?
However, also important to note that VC funding isn't the only way to do a startup.
By phrasing it as "Pay a FAANG TC (most of which is public stock anyhow) or it's not worth it" is clearly hubris, because it implies that FAANG is somehow superior to other employers (they ain't) and it assumes that founders are somehow superior to mid or senior level leadership at large public companies (they ain't - they're the same people a majority of the time).
> However, also important to note that VC funding isn't the only way to do a startup.
Yep! This! VC is just a way to raise private capital. If you can successfully build on the bootstrap model go for it.
People who start companies don’t find any satisfaction making 500k tc. They want 1 billion tc.
I was making a good ton of money working at a unicorn that IPOd but then it’s like okay that’s boring. I came in a few rounds before IPO what must the founder feel like (they’re billionaires lol) What would it be like to have 100 million or more, maybe a billion?
Worst case scenario I get a job and pull in 500k tc plus
Sorry but I disagree. People who start startups are people who don't care that much about making more at a larger company. They do startups because they hate doing what they are doing and want to create something of their own or solve a real problem that no one solved it for them.
If I was a VC and someone wanted me to invest in their "idea" but only if they get paid the same salary they make/could make at a FAANG, I wouldn't trust that founder. Just doesn't work that way. The point of startup is that it is hard and you still want it bad.
Honestly, if you start throwing money like that, it will attract the wrong types or the "Wantrepreneurs". My 2 cents. Feel free to disagree and counter.
VCs aren't employers. They're buying something (equity) startups are selling. The sellers can set whatever price they'd like; the market will clear at a particular price.
As a bootstrapped entrepreneur: “yeah, I wish”.
It's a shame we are in the "get rich quick" era. Private Equity, Vulture Capitalists, "Angel Investing" are all the same types of people. Reckless gamblers that don't give 2 shits about you, your company, or employees.
Your company is just another hedge against their other bets.
