Posted on Friday, Jul 5th 2019
The compensation disbalance in the Venture Capital / Private Equity world remains quite stark. Take a look at
the chart a friend once sent me showing some concrete data on VC compensation, and Private Equity industry performance.
VCs without much of an
operating background constitute a trigger-happy lot, operating based on
spreadsheets rather than experience or intuition. Of course there are exceptions,
and VCs like John Doerr and Mike Moritz have created enormous value, and have
effectively helped build the ecosystem as we know it today. Nonetheless, the
few rounds of
Silicon Valley Gold Rushes have made it
possible for opportunists who have also managed to flourish.
As for the
compensations, General Partners at Venture Firms make anywhere between $1
Million to $3 Million a year without counting performance incentives. The carry
is all upside. PE firms pay a lot more, and it is not unheard of that Partners
at PE firms make $50-$100 Million a year. Then of course, there are the Hedge
Fund Managers, who are also absurdly heavily compensated, who these days are
getting into the late stage venture capital game.
contrast, the poor entrepreneur bootstraps a startup, takes enormous risks, and
if (s)he raises venture money, the first thing a VC does is to restrict his/her
salary to a minimum.
It is a
well-known fact that Silicon Valley startup CEOs are a dramatically under-paid
bunch. For what it takes to do the job – the kind of stress, travel,
opportunity cost, failure rates – many savvy entrepreneurs and executives have
figured out that it isn’t worth it to be the CEO of a venture funded startup
(if you have other options, that is). Being a VP is even worse. Only one out of
50 startups succeed (or may be one out of 100, I don’t know the exact ratio),
so the equity component of the compensation package rarely pays off after the
liquidation preferences, etc. are settled.
I would go
so far as to submit, working for a VC-funded startup is more like having any
other job, than true entrepreneurship where you actually are your own boss.
Entrepreneurs / CEOs answer to a Board. There is a compensation committee that
decides how much you make. You get fired and washed out of your equity stake
based on the VC’s whims. This may be perfectly legitimate at times, since not
all entrepreneurs scale to become good CEOs of larger companies. But often, these
decisions are gut reactions, not legitimate, and entrepreneurs get slaughtered
due to the VCs’ lack of experience or seasoned intuition.
history, it is the entrepreneurs who have built companies and shaped economies,
not money managers. It is just plain wrong that we have created a system that
compensates these builders at rates that are so much below the money managers.
incredibly important for us, as an industry, to solve this problem, and come up
with a sustainable business model and incentive structure. Otherwise, talent
will continue to be mis-channeled and applied to unworthy causes.
This segment is a part in the series : Best of Bootstrapping . Bootstrapping to an Exit . Why is Bootstrapping Important? . How Can You Play this Low-Probability Game Intelligently? . Do NOT Go to VCs as Beggars - Go as Kings . Excess is NOT Required for Success . Bootstrap First and Raise Money Later . Some Bootstrapping to Exit Case Studies . The Buy Side of Bootstrapping to an Exit . Blitzscaling vs. Bootstrapping . Bootstrapping to Unicorns More »» . Cinedigm Acquires Bootstrapped 1Mby1M Company Future Today for $60 Million . Mailchimp Bootstraps to $600M Revenue . Bootstrapping from Arizona to $10 Million . Bootstrapped Basecamp Executes a No Nonsense Strategy . How Under30Experiences Bootstrapped to $5 Million . Bootstrapping with a Paycheck . How Algo.ai CEO Amjad Hussain Bootstrapped using Services from Michigan . Seed Investors Who Like Bootstrapped Businesses . How iHeartRaves CEO Bootstrapped a Niche e-Commerce Company to $20 Million . Bootstrapping with Services . How The Intern Group CEO David Lloyd Bootstrapped to $13 Million . How Passageways CEO Paroon Chadha Bootstrapped from Indiana . How SmartBuyGlasses CEO David Menning Bootstrapped to $50 Million . Death by Overfunding . How RainmakerForce CEO Mack Sundaram Bootstrapped Decisively to $5 Million+ . How FormAssembly CEO Bootstrapped a Virtual Company with a Paycheck . TimeSlips CEO Mitch Russo Bootstrapped to Exit with Sage . The VC-Entrepreneur Compensation Disbalance . BioConnect CEO Bootstraps with Sophisticated Strategic Maneuvering . Tremend CEO Marius Hanganu Bootstraps from Romania . Gesture CEO Jim Alvarez Bootstraps to $10 Million . SproutLoud CEO Bootstraps to $30 Million from Florida . Tuft & Needle CEO Bootstraps to Over $100 Million . Co-founders Bootstrap Linguamatics to Over $10M from the UK . Ownership Matters . Vainu Co-founder Mikko Honkanen Bootstraps from Finland . Entrepreneur Couple Bootstraps to $10M from Colorado . Power2Motivate CEO Bootstraps to $80M from Canada . Financial DNA CEO Bootstraps to $10M+ from Australia . Big Barker CEO Bootstraps a Niche E-commerce Brand . PrecisionLender CEO Bootstraps to Over $10M from North Carolina . Master Bootstrappers with Over $1B in Exits . Ultra Mobile Founder Bootstraps to Over $100 Million . Bootstrapping a Two-Sided Marketplace to $10M . Can You Bootstrap a Virtual Company to Over $5 Million? . Capital Efficient Entrepreneurs Turn $1M into $80M . Discussing the Journey Through Failure to Success . From a Small Town to $12 Million . Bootstrapping to Y Combinator and $10 Million Series A . Bootstrapping a Marketplace to Over $10 Million . Freightwise Bootstraps to $33 Million . Bootstraps First to $5M ARR, Raises $10M Later . Bootstraps in Europe, Raises Money and Goes Global in the US . English Major Bootstraps a Tech Company . Bootstraps with a Paycheck to $15M from Tennessee . Queue-It Bootstraps from Denmark to the US . 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Madwire CEO Bootstrapped First, Raised Money Later to $120M . Bootstrap Using Services First, Raise Money Later . Wonderful Bootstrap with a Paycheck Story . RushOrderTees CEO Bootstraps to $23M . Bootstrapping with Freemium and Free Trials to $13M . Bootstrapping, Pivoting, Gaining Liquidity, Scaling to $100M+ . Bootstrapping with Affiliate Marketing . Bootstrap to Exit, Bootstrap Again, Then Raise VC Money . Bootstrapping Using Services to $12M . Bootstrapping an Ad Tech Company from Paris . Bootstrapping a 100% Virtual Company from Ireland . MiQ CEO Bootstraps with Services from London . Bootstrapping to $8M During the Covid Crisis . Bootstrapping a Marketplace from Brazil . Bootstrapping Using Services from Sweden . What Should Startups Do To Raise Seed Capital in 2021? . EdTech Unicorn Bootstrapped First from Canada . Coalition Technologies Co-founders Bootstrap to $10M . Bootstrapping a Virtual Company to $10M from Atlanta . 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Bootstrapping a Highly Profitable Company in Social Media Marketing . Discussing Investments in Indian Startups with Anand Daniel, Accel Partners . Bootstrapping an Evergreen Business from Oregon . Discussing Startups in Africa with Osayi Igharo, Ripple VC . Investing in Concept Stage Startups with Matt Holleran, Cloud Apps Capital Partners . Serial Entrepreneur Bootstrapped Two Startups to Huge Revenue . Discussing Investment Strategy With Deepak Jeevankumar, Dell Technologies Capital . Bootstrapping Hotelplanner.com to $20M with Intelligent Financial Engineering . Discussing Investing Across Sectors in India with Swapna Gupta, Qualcomm Ventures . Bootstrapping Cleverbridge From Germany . Discussing Open Opportunities with Hemant Mohapatra, Lightspeed Venture Partners . Bootstrapping E-commerce Company Fun.com . Discussing Seed Rounds with Bruce Cleveland, Wildcat Venture Partners . From Friends and Family Funding to $30M Exit . Discussing the Evolution of the Indian Startup Industry with Sasha Mirchandani, Kae Capital . Lean Company Bootstraps to $7M . Saatva Co-founder Bootstrapped a $25M E-Commerce Company . Looking at Terms with Heidi Roizen of Threshold Ventures . ADDA Co-founder CEO Bootstrapped with a Paycheck in India . Duda Co-founders Bootstrap with Paychecks . The Importance of Building Value with Shomit Ghose, Onset Ventures . Get Real Health Founder Bootstrapped Using Services . Bootstrapping Unique Vintage Using a Paycheck . Discussing E-commerce Startup Trends with Daniel Gulati, Forecast Fund . Bootstrapping a Digital Startup with a Paycheck . Discussing Seed Stages with Amir Banifatemi of K5 Ventures . Bootstrapping Avelead Using Services from Atlanta . Founder Bootstrapped a Big Data Company Using Services . Discussing Future Unicorns with Warren Weiss, Foundation Capital . Founder Bootstrapped Axosoft with a Paycheck . Raised a Series A with $10 Million in the Bank . 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