1. "Seasoned" CEOs with ridiculous packages are a little like wearing a dark suit to work. Everyone knows it doesn't matter, but it's a way of signaling that you're willing to play the game. That doesn't matter a whit when you're trying to sell products to customers, but it matters a great deal when your game plan is to create a certain illusion that someone else can flip to a third party. This is known as "Banking on the Greater Fool Theory." It's a game, and the other players want to know you're playing along.
2. You are just the founder. The VC's model is that they take your company, put their money into it, and then they decide how to spend their money. What's in it for them to spend their money on you personally? Be sure you have an amazingly persuasive argument before asking them to take their money and give you some of it. Never think of it as your company compensating you for value you put into it. Sorry, but even though those are the words everyone uses, that's not what is actually going on.
Sorry for the gloom and doom, I'm off to have my first coffee of the day. Here's an old chuckle, I hope it makes up for my mouthful of lemons:
Nice counterpoints, but I think #2 isn't quite the whole story.
Economically it makes sense for an investor to minimize expenditures. If the founders are willing to work for peanuts, then it's the investors prerogative to keep them that way. No foul there.
However for any VC to ever utter the words "just the founder" in the founder's presence is a massive managerial fail. Founders are not the people who you want to "put in their place", they are the ones who make the company succeed. Even if you think you don't need them anymore, why would so blithely burn a connection with a talented entrepreneur?
Economically it makes sense for an investor to minimize expenditures. If the founders are willing to work for peanuts, then it's the investors prerogative to keep them that way. No foul there.
We agree.
However for any VC to ever utter the words "just the founder" in the founder's presence is a massive managerial fail.
So this VC is guilty of "What You Can't Say?" I'd rather have a VC look me in the eye and tell me the deal than have a VC tell me how wonderful I am but there just isn't enough cash in the kitty to feed my family after paying for the new CEO.
If the VC ends up paying the CEO to eat Sushi while I eat Ramen, I don't care how I'm spoken to, there's a deal there I have to take or leave.
If the VC ends up paying the CEO to eat Sushi while I eat Ramen, I don't care how I'm spoken to, there's a deal there I have to take or leave.
It's unwise for a VC (or anyone) to assume the person they are talking to is this objective.
Calling the founder "just a founder" is a recipe for resentment, and it's totally unnecessary. There are about a million ways to tell the founder that they can't get paid the same amount as the CEO, and this is pretty close to the most potentially damaging way I can think of.
Ignoring that this apparently came after the VC's investment, I too would prefer that a VC tell me "the deal" that he has neither respect nor appreciation of me and the others who brought the company to the point where he can help.
It's not about money per se, it's about the signal this sends. Like the previously discussed archetypal new CFO who shows who's who and what's what by terminating free soda.
Although that brings up the question of "which game?" SarBox was the last nail in the coffin of the conventional IPO exit; with very rare "struck by lightening" exceptions that's just not in the cards anymore, and if it is it's something that will only come into play late in the game.
Nowadays a "flip" is most often (only???) a sale to another high tech company, which if they have a clue will want the people as much or more than the technology (which if they have a clue they know is nearly worthless without the people).
So, maybe this is mostly an obsolete thing for us to be worrying about. Sure, if you find yourself in a red hot company like Google or Facebook it'll come up, but it's sufficiently unlikely you probably don't have to wonder about it at all by default.
(This is a rather jarring thing for me, I started working in 1980 in the Boston area and therefor witnessed up close last two decades of the old VC/IPO game plus heard all about the go-go 70s minicomputer days. The fact that's all gone is hard to adjust to.)
Also, to get to this point the original founders may retain enough power and influence that it's less relevant.
I have an idea for a fun business model: raise a ton of cash, hire all the most talented engineers, hide them in a remote cave for 8 months while your company is in "stealth mode", and then ransom yourself off to Google for a tidy profit.
I read something back in the 1980s about an idea to come up with something really revolutionary. Hire a bunch of really good researchers, give them great facilities, then leave them alone. They argued that they would eventually come up with something remarkable and totally unpredictable.
Comments
Two thoughts:
1. "Seasoned" CEOs with ridiculous packages are a little like wearing a dark suit to work. Everyone knows it doesn't matter, but it's a way of signaling that you're willing to play the game. That doesn't matter a whit when you're trying to sell products to customers, but it matters a great deal when your game plan is to create a certain illusion that someone else can flip to a third party. This is known as "Banking on the Greater Fool Theory." It's a game, and the other players want to know you're playing along.
2. You are just the founder. The VC's model is that they take your company, put their money into it, and then they decide how to spend their money. What's in it for them to spend their money on you personally? Be sure you have an amazingly persuasive argument before asking them to take their money and give you some of it. Never think of it as your company compensating you for value you put into it. Sorry, but even though those are the words everyone uses, that's not what is actually going on.
Sorry for the gloom and doom, I'm off to have my first coffee of the day. Here's an old chuckle, I hope it makes up for my mouthful of lemons:
http://news.ycombinator.com/item?id=10054
Nice counterpoints, but I think #2 isn't quite the whole story.
Economically it makes sense for an investor to minimize expenditures. If the founders are willing to work for peanuts, then it's the investors prerogative to keep them that way. No foul there.
However for any VC to ever utter the words "just the founder" in the founder's presence is a massive managerial fail. Founders are not the people who you want to "put in their place", they are the ones who make the company succeed. Even if you think you don't need them anymore, why would so blithely burn a connection with a talented entrepreneur?
Economically it makes sense for an investor to minimize expenditures. If the founders are willing to work for peanuts, then it's the investors prerogative to keep them that way. No foul there.
We agree.
However for any VC to ever utter the words "just the founder" in the founder's presence is a massive managerial fail.
So this VC is guilty of "What You Can't Say?" I'd rather have a VC look me in the eye and tell me the deal than have a VC tell me how wonderful I am but there just isn't enough cash in the kitty to feed my family after paying for the new CEO.
If the VC ends up paying the CEO to eat Sushi while I eat Ramen, I don't care how I'm spoken to, there's a deal there I have to take or leave.
If the VC ends up paying the CEO to eat Sushi while I eat Ramen, I don't care how I'm spoken to, there's a deal there I have to take or leave.
It's unwise for a VC (or anyone) to assume the person they are talking to is this objective.
Calling the founder "just a founder" is a recipe for resentment, and it's totally unnecessary. There are about a million ways to tell the founder that they can't get paid the same amount as the CEO, and this is pretty close to the most potentially damaging way I can think of.
> It's unwise for a VC (or anyone) to assume the person they are talking to is this objective.
I never said I was objective: It's really a question of which circumstance I dislike the least. :-)
Fair enough, I just thought you were talking past my main point...
Ignoring that this apparently came after the VC's investment, I too would prefer that a VC tell me "the deal" that he has neither respect nor appreciation of me and the others who brought the company to the point where he can help.
It's not about money per se, it's about the signal this sends. Like the previously discussed archetypal new CFO who shows who's who and what's what by terminating free soda.
"[Y]ou're willing to play the game."
Although that brings up the question of "which game?" SarBox was the last nail in the coffin of the conventional IPO exit; with very rare "struck by lightening" exceptions that's just not in the cards anymore, and if it is it's something that will only come into play late in the game.
Nowadays a "flip" is most often (only???) a sale to another high tech company, which if they have a clue will want the people as much or more than the technology (which if they have a clue they know is nearly worthless without the people).
So, maybe this is mostly an obsolete thing for us to be worrying about. Sure, if you find yourself in a red hot company like Google or Facebook it'll come up, but it's sufficiently unlikely you probably don't have to wonder about it at all by default.
(This is a rather jarring thing for me, I started working in 1980 in the Boston area and therefor witnessed up close last two decades of the old VC/IPO game plus heard all about the go-go 70s minicomputer days. The fact that's all gone is hard to adjust to.)
Also, to get to this point the original founders may retain enough power and influence that it's less relevant.
"Just for the people..."
I have an idea for a fun business model: raise a ton of cash, hire all the most talented engineers, hide them in a remote cave for 8 months while your company is in "stealth mode", and then ransom yourself off to Google for a tidy profit.
I read something back in the 1980s about an idea to come up with something really revolutionary. Hire a bunch of really good researchers, give them great facilities, then leave them alone. They argued that they would eventually come up with something remarkable and totally unpredictable.
The underpants gnomes were way ahead of you.
That sounds like Agnilux. What were they working on? Nobody knows; maybe nothing.