[imagnitude]

I know you're just trolling, but I'll comment anyway, because it's important to set the record straight.

The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup. Before getting funding, most bootstrap for years, neglecting family, friends, vacation, working 14 hour days, all for a business idea they believe in. The equity a founder gets is small compensation for giving up years of his life. Even after raising money, a founder will continue to live on subsistence wages, giving up the opportunity cost of a cushy 6 figure job. In pretty much every venture backed startup, the founders are some of the lowest paid employees at the company. Most of the funded startup founders I know make less than $50K, which is a big improvement from the minimum wage salary they paid themselves in the first two years of the startup.

When your startup falls, there's not some kind of cushy EIR gig waiting for you at the friendly VC. Unless you're a tech celebrity, you're lucky to get an entry level PM job at a Google or Facebook. Source: Dozens of founders I know who raised money and failed.

Your portrayal of all founders and investors as some kind of scheming robber barons is insulting and incredibly demeaning to every single entrepreneur on this forum.

Guess what: founders are regular programmers, just like you. And they deserve every last bit of equity they get.

[tptacek]

This EIR thing† is one of the weirder beliefs he has about the startup market. I know hundreds of people involved with startups and many tens of founders, and I have never even heard of someone in my social network getting an EIR position.

The reality of EIR positions seems to be that they're places that VC firms park executives that they're almost willing to fund "on spec". That is: people who have already made them a shitload of money. I cannot find a way to give a shit about some VC firm paying a 50 year old former CEO to wait around for the next social cat picture startup to helm.

† He didn't say it here, but use the search box below to look for the phase "EIR sinecure"

[michaelochurch]

That is: people who have already made them a shitload of money.

Also: people they owe favors, kids of Senators whose votes they need to sway, and people they did embarrassing stuff with in MBA school who are now getting the EIR job as a form of hush fee.

The whole world runs on extortion, influence peddling, and favor trading. That's thousands of years old and hasn't changed much. But technology was supposed to be different and maybe, at some point a long-ass time ago, it was.

[tptacek]

You write comments like this and I worry about your mental health.

Not because I think EIR positions are fairly allocated among deserving people, but because you've clearly fixated on something as petty and irrelevant as EIR positions at venture capital firms.

What in the world could possibly matter less to young entrepreneurs than EIR positions?

And yet here you are with stories about EIRs used to hush up things that happened at business school or bribing Senators. You've taken the time to actually tell yourself stories about them. About EIRs. The most boring feature of a VC firm. The guy they bring into the room to screen you when you're not compelling enough to get a meeting with an associate.

If I'd been offered an EIR position at a VC firm, I'd worry about what I'd done wrong, shortly after checking my hairline and hair color to make sure I hadn't suddenly gone grey and bald.

[michaelochurch]

About EIRs. The most boring feature of a VC firm. [...] If I'd been offered an EIR position at a VC firm, I'd worry about what I'd done wrong

See, you're doing the right thing here. You're ridiculing the welfare-for-rich-people system out there, just as I am. That's a first step. First, you use ridicule and attack prestige; after prestige falls (and mild embarrassment does that job) you hammer away at legitimacy underneath. Then, the corrupt edifice falls away and you can build something new.

High real estate prices and low occupational autonomy are the surest sign of congestion. It means the wrong people are winning and it's up to the rising generation to fix the world.

[tptacek]

Michael, the other thing I do right is not bothering to tell myself stories about the injustices of EIR positions. I'm not simply "mocking" them. I'm right about how irrelevant they are, too. Not in some grand-scheme-of-things way, but in their irrelevance to getting companies funded in 2013.

[mjn]

The vast majority of founders are not spoiled rich kids playing with daddy's money.

I can believe most aren't rich, in the grew-up-in-a-mansion sense. But it'd be interesting if there were some hard numbers on it. What is the distribution of socioeconomic backgrounds of founders who raise VC? I've got some anecdotes myself (mostly suggesting solidly upper-middle-class), but data would be more enlightening.

[michaelochurch]

The vast majority of founders are not spoiled rich kids playing with daddy's money. The vast majority of founders take a massive risk when they go all in on a startup.

"The vast majority of founders" never take VC and aren't even working in a space that VCs will fund. I'm not talking about lifestyle businesses, which actually involve a lot of risk and sweat, I agree with you.

When your startup falls, there's not some kind of cushy EIR gig waiting for you at the friendly VC.

If you're VC-funded, there is. If you never get funding in the first place, then what you say is correct, there's no guarantee of anything.

By the way, the fact that it's unfair I don't believe to be worth complaint. My problem is that we've ended up supporting a game that actually increases and perpetuates inequality by making pre-selected rich kids look like they earned it.

In fact, the real respect goes to the risk-taking, unfundable, silent majority founders you described.

[tptacek]

I was funded in 1999, at 2013 A-round levels. No EIR position awaited the failure of that company. Again: I don't even know anyone who's ever been offered an EIR position, and I know a fair number of people, many of whom have been funded, some of them by huge name VCs.

So, why don't we do it this way: why don't you name a couple people who've been recipients of "EIR sinecures"?

[U32LnJfiYoiLQP]

I know of a company where the parent of one of the founders made a ton of money for the VC. Twice. In exchange, one of the partners has put some seed money into the kid's startup. The seed money is a pittance compared to how much money the VCs got.

What's sad about it is that there's no entrepreneurial spark in the founders. They're not hungry for success. They're paying themselves way too much and working with no effect. The company will fail, and they'll go on to whatever nice lifestyle awaits them.

(edit: Note that I'm not saying that this is typical, just that there are examples of this "insider" activity.)

[michaelochurch]

What's sad about it is that there's no entrepreneurial spark in the founders. They're not hungry for success. They're paying themselves way too much and working with no effect. The company will fail, and they'll go on to whatever nice lifestyle awaits them.

This is interesting and insightful. I suppose the learned laziness these kids have is just as adverse to creative accomplishment as the learned helplessness that the rest of us end up with.

I should add that I don't actually think every VC-funded startup is bullshit. It just seems that the good ones are quite rare. They're also very selective (which they should be) but that becomes a problem when you've worked for garbage startups that have damaged your career. So you have to be really careful in the VC-istan game.

[yuhong]

Note the "in 1999". michaelochurch can you comment on when it started?

[danielweber]

Over the past decade I've had the, um, interesting experience of watching a number of start-ups fail, VC-funded or not, sometimes competitors to 'tptacek's companies. I've never seen an EIR landing. I'm not even sure there are enough EIR spots available.

Maybe lightning will strike and your name becomes recognizable on the front-page of the business section and then people throw results and funding at you in a self-fulfilling prophecy because they want to be on your good side. But I've also seen a lot of people team up with these famous folks only to massively regret it.

It's definitely not the most efficient graft-free super-meritocracy ever, and there's a lot of luck even once you get past that, but I just don't see it.

[imagnitude]

My comment is specifically about founders of VC funded startups. It might be different outside Silicon Valley. But in my experience in SV, I know the founders of about 20 venture funded startups socially. One of them is what you would call a "rich kid". The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay themselves subsistence wages, just enough to eat so that they can pay market rate six figure salaries to the engineers on their team.

This might be unique to the West Coast. But around here, social/country club connections mean nothing for raising money. Anyone can get a meeting with a top tier VC pretty easily, even if you are a complete nobody. Having a well connected family might help with other things, but it has absolutely zero effect on fundraising.

[michaelochurch]

The rest bootstrapped for many months, paying themselves virtually nothing, getting deep in debt, before their Series A. Even after raising an A round, they pay themselves subsistence wages, just enough to eat so that they can pay market rate six figure salaries to the engineers on their team.

I actually agree with you that, if they're truly suffering financial hardship (but I'm never impressed by a rich guy taking a $1 salary) they deserve a lot more than the engineers taking full salary.

What about those horrible executive implants installed by investors, though? They also get an order of magnitude more equity and full salary, and that's wrong.

[tptacek]

You don't actually agree with that. You said, just downthread, that only 4 such founders actually existed.

As for horrible executive implants --- I've been the "victim" of those, scare quotes included because my victimhood was partially my own damn fault. VC firms don't "implant" executives as a way of soaking their own funds back from companies they've invested in; they do it because (a) they think those executives are going to help and (b) they are dumb. If you accept those people, or if you acknowledge the roles they're supposed to fill should exist but can't recruit your own credible candidate, you're dumb too.

Being in a sticky situation in a board meeting where you acknowledge that you need someone to lead marketing but can't yourself find a viable candidate is, yes indeed, a good reason not to seek venture capital. The VC model requires you to strap yourself to an unguided missile that everyone hopes is aimed somewhere lucrative but is just as likely going to carom off a series of brick walls. Things move fast, because that's the model.

What, exactly, does that have to do with the fairness of equity grants to executives?

[imagnitude]

You are completely right in this case. Sometimes, when the company is not doing well and the founder CEO is not hitting the performance targets agreed on earlier, the VCs will fire the founder and install one of their MBA buddies to try to turn the company around. This is usually a condition of further funding when the company is in a weak negotiating position and on the verge of shutting down, and it's incredibly unpleasant for everyone involved. However, the executive implants only come in when the company is circling the drain. It's basically failed at that point, and the founders get nothing. Sure, the executives may get a big chunk of equity to lure them into a company that's going to zero, but barring an incredibly rare miraculous turnaround, that equity is completely worthless by the time the VCs get their liquidation preferences.

All of the things you describe are aspects of bad startups. Things are very, very different in good startups that are doing well, even the VC funded ones.

[bokonist]

I have been working for a fast growing/successful startup that has brought in a number of outside executives (though not a new CEO). I am sure those executives have 100x the stock of the average engineer on the team.

These executives get paid the big bucks because a) they are scarce and b) their job has way more leverage than the job of an engineer.

The nature of hierarchies is that there are fewer people at the top. Thus the number of people with a proven track record as executive is always much lower than the number of engineers. Thus there is a small pool of executives for a company to hire from.

It is worth it for a company to pay top dollar for proven executive talent, because an executive has 10-100X more leverage than that of an average engineer. The old line is that engineers can differ in productivity by orders of magnitude. Well, the executives determine which engineers you end up with. So the difference in executive talent is that order of magnitude times the number of engineers. The executive determines how well they the team works together and how much distraction and interference the team gets from the forces of entropy and chaos that surround the department. We have hired outstanding executives that have brought their divisions to new levels. We have hired bad directors and VPs who were disastrous and were fired. In some cases, a person who grew up with the company did not scale, and had to replaced. In other cases a person has risen with the company and taken on enormous responsibilities.

I'm guessing that the outside executives brought in at a startup that is struggling are on average much, much worse than the outside executives we have brought in. After all, the good executives will opt for a position at the company that is growing fast. Who wants to try and save a sinking ship?

[michaelochurch]

All of the things you describe are aspects of bad startups. Things are very, very different in good startups that are doing well, even the VC funded ones.

That could be. I supposed I'd benefit from a different set of experiences to understand more of the spectrum.