Jonathan Abrams of Nuzzel set off an interesting conversation on Twitter about founder and VC compensation recently. It’s not a topic you see discussed often so I thought some elements were worth highlighting.
The conversation began due to a line from this article in Harvard Business Review titled “VCs get paid very well to lose money” by Diane Mulcahy (holy clickable title):
“Several VCs support the idea that entrepreneurs should be paid $100k (or less) per year until their companies are profitable. What if LPs structured VC compensation that way?”
Within the convo is some more data from Sand Hill Econometrics which found that
“When adjusted for risk, the payoff for an entrepreneur taking venture capital money was no better, on average, than taking a salaried job for a person of similar background.”
Given this apparent dichotomy, it’s been interesting to see some of the newer funds emerge which are trying to do things a bit differently. Think Felicis, which recently said it would vote in-line with its portfolio founders, or Kent Goldman’s Upside Partnership, which is sharing carry with founders.
So we wonder, is the misalignment between VCs and entrepreneurs really as big as suggested above? And if yes, what models are emerging, if any, to address this? And are these new models real substantive changes or just marketing?
Would love to hear your thoughts in the comments.