I will never invest in a startup where the founder(s) don't believe in their companies. Moving forward all terms I negotiate will explicitly state that this (e.g. things like FounderPool) will not be a possible scenario.
Thats a very nice sentiment. It is nice to hear from investors like you who have a portoilfio for diversifying your own risk, but deny that explicitly for founders, who also have no management fee as a fallback.
Have you heard of founders getting money for secondary shares in series A (airbnb, FB, Clubhouse etc)? Or second time founders (who are financially secure form a prior exit) getting a premium in valuations?
That doesn't sound right... seatbelt laws forced people who otherwise would have felt confident enough to drive without it to wear one. Low confidence drivers always had the option to wear one at any time. From only study I could find on the subject [1]:
"We distinguish, following the literature, between fatalities among car occupants, who may be directly affected by
using seat belts, and fatalities among nonoccupants (pedestrians, bicyclists, and motorcyclists), who do not use seat belts and can thus be affected by seat belt use only indirectly... Our findings indicate that seat belt use significantly reduces fatalities among car occupants, but does not appear to
have any statistically significant effect on fatalities among
non-occupants. Thus, we do not find significant evidence for
compensating behavior."
Maybe the invention of seat belts could have that effect, but that coincided with so many other changes to automobile technology / urban development that any observed effects are correlated at best.
Doesn't that reasoning lead to saying that founders shouldn't get a salary from investors either (or only make minimum wage), since if they really believed in their idea they would be happy with equity and not money? After all, a salary means founders would be trading future risky returns for immediate low risk cash.
Founders really shouldn’t get a salary, or if they do, only the minimum to live.
Founders getting any more than just what they need to live incentivises people to raise money for personal gain rather than raising money to build a company.
It also really blurs the line between founders and employees. How can a founder justify taking a salary at the same or even higher level than an employee while also having a huge share? We didn’t get people moaning about how employees are taking risks until SV founders stopped holding up thier end of the bargain with regard to risk taking.
Founders getting only the bare minimum to survive seems like a good way to exclude certain classes of people -- those without any assets to fall back on, those with families, to name a couple -- from becoming successful founders.
"only the bare minimum to survive" as founder doesn't need to be interpreted as "only just above the poverty line" or "minimum wage".
There's a good argument to say it includes enough money for things like: comfortable bay area rent, ability to replace essential equipment (like lost/stolen/damaged dev-grade laptops) immediately, enough discretionary income to order in Ubereats dinner instead of stopping work to cook whenever in the zone.
The "bare minimum" for a founder to succeed probably rightfully means "enough money showing up every month that they can realistically not ever have to worry about any short/medium term bills/expenses/timesaving-expenditure". You shouldn't be saving for a house deposit or leasing a Lambo on a founders salary, but you also need to not be wondering where tomorrows dinner is coming from or how you're going to cover next month's rent.
"Ramen profitable" should be a choice to eat ramen because it's quick and you can get back to hacking in 4 minutes, not because you've spent the afternoon working out your food budget for the next 3 weeks comes out to $1.27 per meal if you're going to have enough money to not become homeless at the end of the month.
There are obviously two schools of thought here, but IMO a founder who is at least financially comfortable will make better long term decisions and take actions influenced less by personal stress.
I think there's two important timeframes to consider here.
You need to be "financially comfortable" for the 1/3/12 month foreseeable future to be able to fully focus on your startup.
I'm a lot less convinced that being 10+ year financially comfortable is necessarily a desirable trait for a founder. Knowledge that their future financial freedom is 100% dependant on the success of their startup is possibly a stronger driver of "better long term decisions" than someone in a position to think "it doesn't matter too much - even if this fails I have a contingency plan"...
(And I say that as someone who was once part of a team that rejected an acquisition offer that would've meant a half million payout to me, because we believed at the time we were going to be worth at least 10 times that within a year. And we were wrong. But I still stand by that decision at the time and would make it again in the same circumstances...)
I mean it's not really about "should" - if I'm a founder, I'll go with the best offer from an investor. If one wants to offer me a larger salary, that will factor into my decision.
So you would never invest in a founder who does the rational thing? Believing in your own company doesn't preclude one from believing in other companies as well.
Say the founder estimates their startup has an 80% chance of succeeding; they pool 5% of their equity given the non-linearity of the utility of money (the additional 5% upside is negligible in a large exit). You would immediately dismiss that founder entirely because of this choice?
This seems like a needlessly hard-line stance to me. It's not reasonable to think that "belief in one's company" is the only thing that will decide the success or failure of a startup, and wanting to hedge against the scenario where you pour your heart and soul into something for years, only to see it not pay off in the end, is very understandable.
Have you heard of founders getting money for secondary shares in series A (airbnb, FB, Clubhouse etc)? Or second time founders (who are financially secure form a prior exit) getting a premium in valuations?