The Quest for the ideal CEO-type Co-Founder
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That's something we struggle with, as technical people. We want to believe that "what makes a good CEO" is meritocratic, but it's largely about contacts. Can this guy get us to full salary on an idea alone, so we can build something? Same for college presidents; they aren't hired for the work they can do, but for the contacts they can bring in to the university.
See, part of being a CEO is bridging the gap between the meritocracy we wish to create (because we won't be able to compete if people are already playing political games at <10 people) and the connections-based non-meritocracy of Bullshitland outside. Freedom (or meritocracy, in our case) turns out not to be free, and the CEO's job is to make it happen because most talented people come from the working and middle classes (this isn't a dig against higher classes; it's just that the lower classes are much larger) and have zero in the way of such resources.
That requires an extremely rare combination:
1. Comes with the resources (i.e. funding, contacts) already in hand.
2. Not arrogant about it. The problem is that people who have such resources are usually such dicks about it that they become sources of Bullshit, rather than being able to protect others against it.
Real Connections (capital-C) that can actually reshape your career are something you're born into.
What you work for are connections that make inevitable things happen slightly faster. You get a job (not a great one; just an average one at market salary) 2 weeks quicker if you know a software engineer "on the inside". But make-or-break career-altering connections are something that aren't worked-for; people are either born into that or not.
I'd like to pick this point out, I think it's worth discussing. No one should get to "full salary" on an idea. Investment money (which presumably is all you'll get on an idea) is to build the business, not pay you a cushy salary, if you're a founder with significant equity. You get a nice salary from the business when it can be taken out of profit. Until then, you should be on "minimum to not be preoccupied with personal finances".
That last point is why I would be cautious going into business with someone who has significant personal outstanding debt.
Full salary == market compensation, not "cushy salary". Considering that you're working 5x as hard as a typical checked-out corporate worker, you're actually taking an 80% haircut already.
I don't think a mid-career software engineer should take $750,000 per year out of his startup, because even though their work is arguably worth that-- of course, this is an expected value calculus because the realized value is zero or $10+ millions-- VCs wouldn't be able to make any money if founders demanded that.
I do think that it's not unreasonable for a decent idea to merit full salary. Again, "full salary" to me means a market salary, not "cushy"; it's not the half-million or more that a decent software engineer is arguably worth. It's the $100-150k that he'd be able to get on the market right now.
The difference would be that the entrepreneur is working 5-10x harder than anyone in a corporate job and only getting 1x what corporate denizens get. That's a hell of an improvement over 0x or 0.5x.
If you can't already tell, I fucking hate the VCs who earn $500,000+ per year and take absolutely no professional risk but get sanctimonious about "skin in the game" when a software engineer (intending to work 60-80+ hours per week) asks for the 125-150k he'd command on the market. That boils my fucking blood.
If you're not going to operate that way, don't try and run your business as a startup that takes funding. You'll be doing everyone involved a disservice, including yourself.
Because they actually care about their work, they'll be 5-20x more productive, and that's what the value of the equity (shared between them and investors) comes from. I argue that they should be paid at market rate for more typical work. Why should they have to pay me to work for me when they're already signing up to work 5-20x harder than typical corporate employees?
Yet sanctimonious VCs still talk as if they're performing a charity rather than investing. It should be a symbiotic relationship (a transfer of control over capital from those who have it to those who know what best to do with it) rather than this "I've got the money, so lick my balls" arrangement that currently exists.
My argument is that valuations should be higher in order to include a fair salary for the founders. In fact, given the monstrous amount of bullshit involved in raising money, I'd argue that an even higher salary is in order.
By the way, the reason VC is losing money is not that they valuate companies too high or that founders take too much out in salary. It's that they have a herd mentality and they suck at picking companies. Have you seen some of the assholes they fund? I could do a better job than 99% of those gatekeepers, and I don't even have an MBA. I'm just a far better judge of talent than they are. (I'm not a great judge of character, which is why I've worked for some horrible companies; I'd need to hire a partner for that. Judging talent and character are opposite skill sets. But I'm one of the best judges of talent out there, and almost certainly in the top 100-- at judging talent, not in having it-- in the world today.)
VCs are trying to put founders into a race to the bottom, not only on valuation/salary but more dangerously on terms (e.g. liquidation preferences) and autonomy; those are far more severe because they create an adverse selection where the best people avoid you outright. I'd do it very differently. I'd give very generous terms-- I would actually make it a fireable offense for any associate even to suggest participating preferred or multiple liquidation preferences-- but make a lot more money than any of them by not falling into the traps (mostly, social obligations to fund undeserving morons to return favors) that cause other VCs to fund idiots.
I think this is the crux of what you are struggling with. A VC investing in your business is not hiring you as an employee. If you have an idea you want to implement as a business, that's on you. The VC is offering money in return for equity in hopes of generating capital for the fund's investors. The person managing that investment for the fund is paid a salary based on their ability to do that.
Conversely, you as a founder of a business are compensated based on your own success. Taking investment is not an indicator of success. Investment money is to grow the business faster than it could on its own. Revenue, and more importantly profit, are where you see your own success. The large exit for many funded startups is also more commonly heard about success indiactor, because solid monthly margins aren't a) usually reported for private companies and b) don't make very interesting news, where as a big sale usually is/does.
Starting and owning a business is an entirely different world from being an employee, and never should you apply the principles of one to the other.
Terms significantly improve for "proven" founders.
Out of curiosity, have you ever gone through the process of building a funded company yourself?