[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.