That doesn't sound very risky. Why are these founders getting outsized rewards again?
The risk that founders undertake when starting a business, that risk is primarily associated with small businesses, which are a very different concept from VC-funded startup companies. If I take a small business loan and start my cupcake truck, that's me taking a huge personal risk.
My read is, the way the system works is as follows:
- VC firms have lots of money but no ideas to grow that money further than the overall market growth rate
- Startup incubators find ideas and nurture them
- VC firms don't incur any level of unpredictable risk, as they have spread their risk across dozens of funded firms and the risk/reward is rather predictable - 9/10 of the companies are expected to fail and leave the majority of their employees with nothing more than a resume bullet point
- Successful founders of VC-funded companies are rewarded disproportionately from early employees and all employees in the company in general.
This seems totally fine on the surface and certainly it's worked well, but I still detect an undertone of exploitation here. The only thing the structure of these businesses value and significantly reward with equity are the founders with ideas, and of course the VC funds themselves who provide the capital for the funding rounds.
At the bottom are the employees who actually built the product. Without their work none of these ideas would have any value at all. But they don't have to be paid like they are highly valued since they're just interchangeable market rate implementers. In fact, they'll take below-market rates to work for a startup because of the excitement and the lottery effect. If I see the YC brand on a company and I think if I work there I could be the next Airbnb millionaire (and of course the founders of Airbnb are billionaires while the early employees are taking home 1/1000th of that wealth despite doing a much larger share of the labor than 1/1000).
Here's an example: Glimpse is hiring a Security and Compliance Lead in New York City and is only paying $150K - $225K.
Meta is paying a Security Engineer (not a lead) $271,000/year to $347,000/year + bonus + equity + benefits across the following locations: Bellevue, WA, Menlo Park, CA, Washington, DC, New York, NY
VC-backed Startups are much different than small businesses where founders take personal financial risks. The VC itself is also not taking any kind of outsized risk as it has mitigated that risk by betting on dozens of companies. They expect most of their companies to fail and leave their employees high and dry, but that’s not their problem.
Essentially VCs have plenty of capital and no ideas, so they pay outsized equity compensation to founders for ideas. But the early employees are just interchangeable implementers and get basically nothing by comparison.
If I started a cupcake truck with my friends, they wouldn’t be my friends anymore if I decided I get 50x their equity stake just because it was my idea.
Importantly, people are free to walk away from a bad deal. If you don't like a store's wares, you can go to another store. If you don't like a job offer, you can apply to a different job. Freedom of choice creates competition, which puts pressure on buyers and sellers alike to actually come to terms.
Your post comes across as someone who is consistently in the seller position (selling your labor for compensation), and who's simply advocating for his own personal interests in wanting higher wages. But for some reason, you think your own personal opinion about exactly how much you should be paid is what the bar is for "fair", rather than the prices set by the market, that is, the repeated agreements by tens of thousands of people day after day for years.
And that perplexes me. Why are you so special? Why is your opinion or anybody else's opinion supposed to be the basis of what's fair? I've never met someone who's not just going to argue for their own interests here, exactly as you're doing.
If you don't think it's a good deal to work at a startup and get the equity that you're offered, then you can negotiate or you can just walk away from the deal and work somewhere else. There are many tens of thousands of jobs that I personally don't think are a good deal, or I wouldn't work there. But for other people, they are a good deal. I don't really understand where this belief comes from that, because you personally don't find it to be a good deal, that it's objectively unfair for everyone else, even as they're accepting it willingly.
> But you said earlier that YC pays founders for living expenses. What risk are YC founders taking?
I could have easily gone and gotten a job at Google and made a lot more money very easily. Instead, I spent a ton of time and effort trying to create something new in the world and take it from zero to one. That was a lot of personal sacrifice, giving up my nights and weekends and living off Ramen noodles and almost no money. Just that I could get something successful and useful enough to be in a position to realistically even apply to YC and hopefully get accepted. And I was still rejected twice before finally getting in.
If you think being a founder is so risk-free, so easy, and such a good deal because of how much equity you get to keep, then presumably what should happen is many more people should find the prospect attractive and become founders, relative to becoming early-stage employees, and that should drive up the prices that early-stage employees are able to charge.
Selling labor on the labor market, well, you can just go find whatever offer is on the labor market (e.g., your first five paragraphs)
You had to beat out a bunch of other people and get rejected twice in order to go the startup route. However, I think you are mistaking hard work and low pay for risk in this transaction.
There's no risk because, like you said, "I could have easily gone and gotten a job at Google and made a lot more money very easily." You can always go back to selling your labor on the market.
You aren't risking any personal property or savings. A college student is also living on ramen and giving up nights and weekends, but they are actually taking a bigger risk than a VC founder by paying tuition to the school.
What is happening here is that VCs/incubators are using scarcity as a quality filter since they're trying to buy good ideas/stake in early stage companies and dangle the founders' lottery ticket/casino jackpot to buy those ideas.
I think that startup founders are in weird sandwich between being exploited by VCs in the worst case and being unfairly over-compensated by them in the best case. I'm sure many of your early employees also worked nights and weekends just like you did, but they have less of an ownership stake than founders do.
Maybe the founder's scenario is similar to an NFL player, where average players have short careers and are left with broken bodies and dreams, while the star quarterbacks leave as billionaires. This is why the NFL has a players union.
The risk is the opportunity cost. Going and getting a job at Google pays a lot of money. Repeatedly starting and failing at startups, or getting rejected by YC, doesn't pay you anything. I was a student and then a recent grad with lots of debt, so I had all the normal risk of a college student living on ramen and giving up nights and weekends.
> I think that startup founders are in weird sandwich between being exploited by VCs
What makes an agreement between two parties exploitation, exactly?
> the star quarterbacks leave as billionaires.
I think it sucks that the NFL destroys people's brains and bodies. But why is it so bad that the star quarterbacks command such high pay?
What? The employees had infinity other options! They could have negotiated harder. They could have declined the job. They could have taken a job somewhere else. They could have taken the risk to start their own startup, and been in the founder position, instead of choosing to be in the employee position and getting the security and reduced stress that comes along with it.
> That’s another point I forgot to bring up entirely: PG also hand-waved over the quantity of billionaires from his accelerator that came from families of very decent means where they have the luxury of risking failure. The quantity of true rags to riches billionaires is extremely slim.
Over 200M Americans come from middle class backgrounds are above. YC also provides founders with the funds to pay themselves while they start their company. I did YC when I had almost $0 to my name and no well-off family to rely on.