If The Shoe Fits: Founder Compensation
Friday, November 17th, 2017A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.
KG Charles-Harris, who has written here in the past, shared a Medium post from Brandon Evans explaining how/why startups are mostly minimum wage (or less) jobs.
For instance, 50% of founders are making less than $6 an hour.
After raising $15 million Evans company reached a million in revenue the first year and tripled that each of the next three, but when Evans wasn’t interested in raising another $20 million he was fired.
Our investors are great guys and were doing their job. But that job is to maximize the returns for their investors. Homan Yuen in his VC Math post clearly shows why VCs are almost exclusively focused on unicorns (or those rare $1B+ exits). For them to generate an acceptable financial return, they typically require 2 to 3 of them per fund. “Small” $50 million or $100 million dollar exits do little for keeping their investors happy.
What those “small” companies do do is drive the economy and create jobs, obviously a goal of little-to-no interest to VCs and those who invest in their funds — despite their talk to the contrary.
Even an IPO isn’t a guarantee for enormous founder wealth, as shown in the recent SendGrid IPO.
On the other hand, two of the three cofounders no longer own as much as 5% of the company: Tim Jenkins, and Jose Lopez. Both are still listed on the company’s website as engineers who work there. The biggest winner in this IPO among the three cofounders is Isaac Saldana. He still owns 4% of the company and, at $18, his stake is worth $33 million.
Not that $33 million is anything to sneeze at, but Foundry Group was the big winner walking away with $171 million.
It’s interesting to note that SendGrid seems to have put as much effort into its culture, via its four pillars, known as the four H’s: honest, hungry, humble and happy, as its growth.
“We’re so ridiculously over the top with it, it would absolutely scare you away. If these things didn’t resonate with you, you wouldn’t come to SendGrid because you’re like, ‘OK, these guys are like a cult with those four values. That’s not for me, I’m out,” CEO Sameer Dholakia said.
“I’ve been in software and high-tech for 22 years. I know a lot of absurdly talented professionals who would hate SendGrid. It would literally be their seventh Hell because there is nothing humble about them,” he said. “And that’s OK. They’re absurdly talented and in other cultures they can thrive where it’s a star-centered culture. Great! But they would hate us.”
Any one of those values, let alone all of them together, seem to be in short supply at most of the recently headlined unicorns.
And contrary to many in the startup world, values do scale if the focus goes all the way to the top. This is how you do it, according to Sameer Dholakia, SendGrid CEO
- Keep values simple so employees will remember.
- Make them distinctive to attract people who support them. Not everyone will or should fit.
- Be conscious of behaviors that impact the values and reinforce them.
The second is where most founders fail, because they aren’t willing to walk away from stars, AKA brilliant jerks.
Of course, many founders are members in good standing of the brilliant jerks club, but SendGrid is proof that you neither have to hire them nor be one.
Image credit: HikingArtist