Why are founders and startup employees expected to take minimal salary while VC partners rake in $500K-$1M per year plus carry?



You know, this used to really drive me nuts as a founder.

I mean, really.

Hearing about the wrong colored stitching in your latest Ferrari.  The VC complaining about that at one of my board meetings really bugged me, man.  Sorry.  SEND IT BACK TO MODENA.

But … my learning is … get over it.

The thing is … founders think VCs are like them. Unless it’s a very small fund (<$50m-$60m or so) … they aren’t.

If your VC is a general partner in a fund of >$500m or so of Assets Under Management — they are highly specialized money managers.  Highly specialized money managers with an expertise in start-ups, yes.  But a money manager.  Period.

Money managers are pretty well paid.  And the more money under management, the more well paid they are.

And they have to return a lot of capital.  Much, much more than you need to, really. To do 3x net on a $500m fund, you have to do about 4x gross, or return $2,000,000,000 in cash.  Two.  Billion.  In cash.

That’s nothing at all like being an early-stage founder.  Maybe a little like being a unicorn-stage founder, but nothing like an early-stage founder.

Even if it sounds like it at the “board meeting” in your crappy co-working space.

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Published on November 6, 2015
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