[twic]

The one way it makes sense is as a mechanism to buy cheap equity stakes. The person running the scheme adds more money to pay market rates for sufficient staff, which effectively buys them a 5% stake in each company.

If it is the same four people across all companies, and their fully loaded cost is 200k (not a lot in the valley, but plenty in many other places), then that works out as 32k for a 5% stake. Compare that to Y Combinator's 125k for 7%.

If you accept that you can't run 20 startups with four people, no matter how much Club-Mate you feed them, then you could try staffing each position at 25%, and be paying 200k for that 5%. Not so hot, but maybe still good enough?