Ask HN: Why don't VCs just "suck it up" and pay founders a competitive salary?

Startups are unproven ideas.<p>MAANG companies are proven businesses.<p>Lots of people would say &quot;Yes! I shall pretend to work on establishing a viable business if you throw scads of money at me!&quot; And not ever really develop a viable business.<p>Founders get rich by having equity. Some of them get stinking rich.<p>It&#x27;s basically a form of betting that incentivizes actually succeeding at finding a viable business model. That&#x27;s the only way that makes sense. Otherwise you are paying people to pretend to work.<p>The &quot;pretending to work&quot; issue gets talked about a fair amount. People attend conferences because it feels like work. People rent offices and set up business bank accounts because it feels like work. Etc.<p>Real work involves solving a real problem and getting people to pay you for it.<p>That doesn&#x27;t automatically happen because people call themselves &quot;founders&quot; and invent a business name etc.

As a 2-times founder, one VC funded and one bootstrapped I think there is a fundamental difference of the world view of a founder and a cash-optimizing employee you&#x27;re missing.<p>Startups are just businesses. Business owners value money, but they also value independence and freedom to do what they want to do. The &quot;don&#x27;t tell me what to do&quot; gene is highly correlated with them. The only resource you can&#x27;t buy is your time and investing it into your ideas brings a lot of meaning into the daily slog. Also if you have your own company, you decide the rules and people you surround yourself with. If you spend 1&#x2F;3 of your life working, this is a non-trivial contributor of your quality of life.<p>This is the first reason. Founders really hate working for other people.<p>Regarding salaries, the more cash you burn, the less time you have to understand the market and create the product. Salaries are expenses and you need to be very stingy until you get to profitability.<p>This is the second reason.<p>And something I&#x27;ve seen in the &quot;startup&quot; crowd. From the VC marketing bullhshit they assume that the &quot;only&quot; way to create a company is &quot;to create the next billion dollar company&quot;. It&#x27;s the game of the VC&#x27;s, grow and sell. Yes, 3% of Facebook can be worth more than 40% of 5 Million ARR company, but if you multiply it by the chance of creating the next Facebook you&#x27;ll see that it&#x27;s riskier and you loose too much control and the first reason you&#x27;re doing your own thing.<p>In summary, if you&#x27;re thinking about short term salaries it&#x27;s best not to try to do a startup, better find a good paying job and invest in an index fund. This will be safer and on average yield better.

To play devil&#x27;s advocate - since we&#x27;re talking about &quot;pay yourself less than Google&quot; not &quot;pay yourself nothing&quot; - what would happen if someone was throwing tons of money around and telling founders (and early employees, while we&#x27;re at it, who also take less than Google et al) to pay themselves several more hundreds of thousands of dollars a year?<p>They&#x27;d attract a lot of people to fund, for sure.<p>You&#x27;d lose a bit of a filter around risk tolerance to try to weed out scammers, though. There are absolutely a bunch of people who would take that money with no intent or ability to deliver a solid company in the end.<p>So they&#x27;d probably want to be EXTREMELY selective; moreso than Google by far since there the financial loss is smaller both absolutely (&quot;one bad hire&#x27;s salary for 6-12mo&quot; vs &quot;a multi-million dollar seed investment&quot;) and likely as a percentage of revenue&#x2F;bank account.<p>I think they&#x27;d either get ripped off and disappear in a few years or just be small and stay small and not make a huge difference overall.<p>It doesn&#x27;t seem entirely different than the attempted Softbank &quot;de-risk startups by picking a winner early and pouring in crazy $$&quot; approach.

Founders usually decide their salary, not VCs - if you are raising a seed and decide to use your runway to pay yourself a competitive salary then that&#x27;s on you. How you decide to spend your seed money is up to you (barring fraud). Same for early employees, they negotiate with the founder, not VCs. Founders are the type of people who even if they were paid more, would plow that money back into the business - it doesn&#x27;t make sense to take the tax hit.<p>I may be mistaken, but I&#x27;ve never heard of a VC dictating salaries.

Founders who are too comfortable (past exits or high TC) tend not to be hungry hustlers willing to strive to get over the finish line (mandatory sports metaphor). The people who are hungrier tend to be: recent immigrants (sorry Americans), people who are broke, people who exited another career like military esp. spec ops, sports, or racing.<p>Founders should help themselves by reducing their personal expenses to as close to zero as possible.<p>There&#x27;s metric shittons of cash but there aren&#x27;t a lot of investible teams onto something awesome with excellent timing. VCs and angels aren&#x27;t just going to write larger convertible notes because you personally want more money. You must demonstrate business value that can be accelerated with varying amounts of cash and deliver when you get it, without giving away too much equity.

It’s a test to see if the founder values their equity more or less than the salary gap. If not even the founder values equity more than the gap, then they should close down and go get jobs.

IMO you are entirely correct OP, and it&#x27;s to everyone&#x27;s detriment. A huge talent pool locked out of creating new forms of value because investors are too cheap to bump salary from what is arbitrarily considered &quot;pretty good but fair&quot; to &quot;competitive with top rates&quot;. Seriously, I love some of the comments here saying $300K&#x2F;yr is obscene but implying $150-200K would be fine. This difference is a rounding error in the grand scheme of the money involved.

Founders can make a &quot;competitive&quot; salary, if they have existing experience for the actual job of being a founder (i.e., previous executive leadership experience).<p>For many, being a founder is not just &quot;taking a risk on an unproven idea&quot; it&#x27;s also a career change from being a solo IC or technical leader to being an executive, with very, very different requirements for success, so the risk here is compounded.

It&#x27;s an outdated perspective. MAANG doesn&#x27;t appear to pay the most anymore [0]. Across levels, only Netflix scores top 50.<p>Of the top 10, 4 are VC backed startups, 3 are mature&#x2F;listed (including Netflix), and 3 are finance.<p>Of the top 20, 10 are startups, 5 are listed, 5 are finance.<p>It seems that startups are your best bet for good money overall. If you rank it by seniority, startups tend to pay much higher for less experienced people and MAANG only has the highest end game pay.<p>Which also reflects why many startup founders are young. If you&#x27;re very experienced, then you&#x27;re probably best off joining MAANG. Even then, it&#x27;s likely that MAANG doesn&#x27;t even pay the best rates anymore; some of these top paid people likely have tenure as well. There&#x27;s a flood of applicants, so why should they pay top tier?<p>If you&#x27;re really young, you&#x27;d be better off joining or starting a mid stage startup, rather than climb up the career ladder of MAANG.<p>Or the strategy is often to get a job at MAANG as a resume item, so you could raise money from investors later or jump into a top tier company like Roblox.<p>[0] <a href="https:&#x2F;&#x2F;www.levels.fyi&#x2F;leaderboard&#x2F;Software-Engineer&#x2F;All-Levels&#x2F;country&#x2F;United-States&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.levels.fyi&#x2F;leaderboard&#x2F;Software-Engineer&#x2F;All-Lev...</a> (Software)

There is an equilibrium function that is basically unyielding.<p>On one side, target IRR and thus valuations are fixed for the investor by their LPs<p>On the other side, runway and thus survival rate are fixed by local market prices for founders who are risk tolerant and maximize for the same IRR as the investor.<p>The only solution is to physically move to a place that isn’t as stupidly priced as the Bay Area.<p>I think there is a reckoning coming, where investors will realize that backing startups in locations where costs continuously increase will become a suckers game. Survival rate naturally will go down due to shortened runway, while fundraising milestones will stay fixed - decreasing the expected IRR of the asset class.

The main draw to starting a startup is not to get rich from the salary, but from the equity. Founders are not really equivalent to employees, they create value from nothing and revolutionise industries, if they&#x27;re doing it right.<p>It all comes down to the classic question: do you want a high chance (a%) of getting a decent amount of money ($b) or a very small chance (c%) of getting an enormous amount of money ($d)?<p>The values of a, b, c and d are different depending on your background, experience, connections, hunger for risk, etc. You have to find the decision thresholds that make sense for your situation.

You don&#x27;t understand.<p>A lot of the time, founder CEOs decide their own salary, as well as that of their employees. Why would a founding CEO want to shorten their runway by paying MAANG salaries to themselves an others? It decreases their likelihood of success by shortening runway and burn. As soon as the funding that VCs give founders is wired to the bank, the founders are playing a zero-sum game with every dollar. Their job is to decide the best allocation of capital.<p>A startup, by definition, is a team in search of a business model. They&#x27;re not profitable or self-sustaining. If you&#x27;re Google or Meta, you have at least a chance of saying &quot;for every dollar I pay this engineer working on ads, I get this many dollars back.&quot; And sometimes that return&#x2F;salary ratio is very large, so it makes sense to pay them a ton. That reasoning does not apply to startups. That is, you earn your high salary by contributing to a profit-making product.<p>When your product or profit do not exist, you get compensated in options so that your incentives align with those of the business as a whole.<p>VCs invest progressively larger sums as an idea is proved out and risk is eliminated. I don&#x27;t see any other world that makes sense. Most overfunded startups die before they ever find product market fit because they hire too many people, have a hard time pivoting, and lose their hunger.<p>Given the choice between hunger and complacency, I&#x27;d say founders with hunger are probably more likely to succeed that complacent ones. Earning a MAANG salary makes you complacent, all other things being equal.

Startup founders often decide their own salaries. With a limited capital, it makes sense to invest it into hiring the best talent and doing the best marketing, paying yourself a minimum viable amount to survive. If the startup works out, there is a big payout in the end. Paying yourself less, you increase the likelihood of everything working out.<p>Also, as an intangible benefit, having less cushy life puts you in a more aggressive mindset which is important.

Competent founders should pay themselves $110k. No glory in going into debt for a bet with rich people&#x27;s $$. At the very least enough to cover your expenses post tax.

Basically, they&#x27;re doing what they do because they can. Both sides want the maximum moo for the minimum of milk and investors have the upper hand because they have the money. While many people have smart ideas, it&#x27;s challenging to get those ideas to succeed without tons of money.

If a would-be founder doesn&#x27;t want to start a company because of their salary, then it&#x27;s probably for the better. An early-stage startup isn&#x27;t a vehicle to funnel VC money into your account at the rate that multi-trillion dollar companies give it out.

I joined a startup as the first employee. One year and €1M in VC spend later, and they were in a cashflow problem.<p>You can definitely give yourself a too high salary as founder.<p>I’ve learned that I’d make that money stretch a lot longer.

Paying code monkeys fair wages ain’t a good way to get rich …

Supply and demand. If you don&#x27;t like it supply a better skillet, less ownership, or better yet fund someone yourself in a way that lives up to your ideals.

Supply, demand, and unproven ideas. There are plenty of ideas and founders willing to work for peanuts and this is business not a charity.<p>It sucks but it&#x27;s the hard truth.

This is a feature, not a bug of the system.

I think you may be wrong on 3, I think more founders want to stay, and investors want a fast exit for big bucks.

What is a &quot;competitive salary&quot; as defined by you?<p>Most VCs ik are fine with founders paying themselves a market rate base, but I also work with VCs in the Bay Area and Seattle scene - maybe you&#x27;re from France, Germany, Canada, or some other less founder friendly VC scene?<p>Also, as a founder your driving goal is to make a company that would succeed. It&#x27;s up to you to decide your compensation package, but paying the CEO of a 2 person company $300k is just plain dumb.<p>What has happened to HN? First a post about a guy selling corruption as a service (yes, employees at private companies can be hit by corruption style laws) and now this?

Because if they did, they would end up attracting more of the wrong kind of founders, that’s why.

Because they only want other middle&#x2F;upper class founders like themselves.

You can pay yourself a high salary, you just have to raise more to do it.

That’s not how it works.<p>People who start companies don’t find any satisfaction making 500k tc. They want 1 billion tc.<p>I was making a good ton of money working at a unicorn that IPOd but then it’s like okay that’s boring. I came in a few rounds before IPO what must the founder feel like (they’re billionaires lol) What would it be like to have 100 million or more, maybe a billion?<p>Worst case scenario I get a job and pull in 500k tc plus

&quot;Most startups that COULD exist are never actually started because the founders want to be making higher salaries working at Google&#x2F;Microsoft&#x2F;Meta&#x2F;etc.&quot;<p>Sorry but I disagree. People who start startups are people who don&#x27;t care that much about making more at a larger company. They do startups because they hate doing what they are doing and want to create something of their own or solve a real problem that no one solved it for them.<p>If I was a VC and someone wanted me to invest in their &quot;idea&quot; but only if they get paid the same salary they make&#x2F;could make at a FAANG, I wouldn&#x27;t trust that founder. Just doesn&#x27;t work that way. The point of startup is that it is hard and you still want it bad.<p>Honestly, if you start throwing money like that, it will attract the wrong types or the &quot;Wantrepreneurs&quot;. My 2 cents. Feel free to disagree and counter.

Putting more cash in means making fewer bets, holding constant the stage of startup VCs want to invest in.<p>VCs aren&#x27;t employers. They&#x27;re buying something (equity) startups are selling. The sellers can set whatever price they&#x27;d like; the market will clear at a particular price.

&gt; Most startup founders and early employees make about 1&#x2F;2 of what they can working for MAANG companies.<p>As a bootstrapped entrepreneur: “yeah, I wish”.

Because VCs don&#x27;t have a hard time finding startups whose founders will stay around for lame pay.

I wish founders would think about building their company sustainably rather than relying on cheap cash from VCs and giving away all of your equity.<p>It&#x27;s a shame we are in the &quot;get rich quick&quot; era. Private Equity, Vulture Capitalists, &quot;Angel Investing&quot; are all the same types of people. Reckless gamblers that don&#x27;t give 2 shits about you, your company, or employees.<p>Your company is just another hedge against their other bets.

Yes, I have this cake. Why can&#x27;t I have it and eat it. You should be able to eat the cake you have and yet still enjoy it. I am so angry with investors because the world is zero sum &#x2F;s