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.
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.
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)?
> 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.
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.
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
> 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.
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.
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.
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.
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.
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.
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.
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.
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).
Any rules of thumb for how much cash compensation a founder can expect to draw in the first ~5 years of a successful startup? The stock compensation numbers make is sound like these founders are rich but it isn't liquid and could go to zero.
Do founders need to be independently wealthy before starting a company?
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.
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.
[+] [-] finite_jest|4 years ago|reply
[+] [-] lph|4 years ago|reply
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.
[+] [-] q1w2|4 years ago|reply
It's not like they're throwing tons of cash on him/her.
[+] [-] tmccrary55|4 years ago|reply
[+] [-] alisonkisk|4 years ago|reply
[deleted]
[+] [-] random_savv|4 years ago|reply
"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)?
[+] [-] JumpCrisscross|4 years ago|reply
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
[+] [-] refurb|4 years ago|reply
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|4 years ago|reply
They're talking about companies that are, or are about to become, public - so a stock grant is closer to being cash.
[+] [-] chrisseaton|4 years ago|reply
Doesn't the title say 'pay package'? Stock awards are part of your pay package. Where did you read 'salary'?
[+] [-] mind-blight|4 years ago|reply
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
[+] [-] yarky|4 years ago|reply
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.
[+] [-] aspaceman|4 years ago|reply
You're already expecting way too much intelligence from a journalist.
[+] [-] giantg2|4 years ago|reply
[+] [-] avs733|4 years ago|reply
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%
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] trjordan|4 years ago|reply
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.
[+] [-] nishithfolly|4 years ago|reply
[+] [-] cryptica|4 years ago|reply
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|4 years ago|reply
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.
[+] [-] andy_ppp|4 years ago|reply
[+] [-] wpietri|4 years ago|reply
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.
[+] [-] batty_alex|4 years ago|reply
Everyone is done pretending to be the “good founder,” that ship seems to have sailed
[+] [-] iamstupidsimple|4 years ago|reply
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] MomoXenosaga|4 years ago|reply
[+] [-] xwdv|4 years ago|reply
[+] [-] niros_valtos|4 years ago|reply
[+] [-] moneywoes|4 years ago|reply
[+] [-] achenet|4 years ago|reply
One memorable comment was "I am that early engineer that got nothing" (or similar, may not be exact quote).
[+] [-] arthur_sav|4 years ago|reply
[+] [-] sjg007|4 years ago|reply
https://m.youtube.com/watch?v=phmJhHhNOUs
[+] [-] zthrowaway|4 years ago|reply
[+] [-] motohagiography|4 years ago|reply
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.
[+] [-] lngnmn2|4 years ago|reply
On the other side there is over-complicated and bullshit-infested IOHK projects which failed to deliver for years.
Tech could matter a lot.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] supermatt|4 years ago|reply
What does this mean from a taxation perspective? Could it be that "todays tech founders" want to "pay their dues"?
[+] [-] jacob_rezi|4 years ago|reply
[+] [-] mindvirus|4 years ago|reply
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).
[+] [-] jlizzle30|4 years ago|reply
Do founders need to be independently wealthy before starting a company?
[+] [-] topkai22|4 years ago|reply
[+] [-] varelse|4 years ago|reply
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.