

Another reason many startup founders are young - salary - johnrob

A 22 year old founder can take a low salary, and not be too far from the market rate.  What if the market rate for the founder is 300k?  There is no way anyone would take anything near that much salary at a startup.  The older you get, the bigger the sacrifice becomes.  Now, maybe the older founder gets more equity, but any significant amount of equity is still pretty much an all or nothing payout.  The younger founder gets a better deal - salary closer to market, same all-or-nothing equity.
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mhartl
I was just thinking about this today. I was reflecting on how I'm giving up >
$100K/yr. for a small but reasonable chance of making > $2m in ~2 years.

I agree that the opportunity cost is higher for older founders, but (as others
have observed) so is the probability of success, at least vs. non-YC younger
founders. It's also true that, if you are willing to live like a grad student,
you can mitigate your risk by doing consulting/contract work beforehand or on
the side. So could a 23-year-old, of course, but for a variety of reasons they
usually don't bill at nearly as high a rate. I don't have to work very long at
$100-125/hr. before I've got a year's living expenses saved up.

The real catch is if you have a family to support. I'm (un)lucky enough not to
have that problem.

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QuestionBoy
What do you do that you can charge $100-125/hr??

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kingnothing
I don't know what he does, but if he's in the tech industry, it's probably
consulting.

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lhankins
In general - the older you get, the more responsibilities you have (house
payment, kids, etc). People with those types of responsibilities are generally
more risk averse than those who are young and free (no kids, house payments,
etc).

I started my current company when I was 26. I think back to that time (1999)
and I didn't blink an eye when it came to the risk. I jumped in quickly,
without worrying about it.

Now its 8 years later. I have a wife, a kid, a house payment, etc. I would
definitely think a lot harder about making that type of move now. Obviously,
my salary is higher (which is one aspect of it), but the big reason is that my
obligations are much higher. If I miscalculated now, my family would suffer
greatly.

So in general - I'd say younger people with less obligations and
responsibilities, are more able to take that type of risk.

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electric
Are you assuming that every would-be 40-something founder makes 300k? That is
rare.

Also, a company may be formed by tech people who get laid off and motivated
out of necessity. What is the risk for them in this case?

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davidw
This is called opportunity cost:

<http://en.wikipedia.org/wiki/Opportunity_cost>

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johnrob
Yes. But I guess my point is that you can't compensate for the opp cost with
equity, because the reward is binary.

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davidw
Theoretically, you could make one of those calculations like the one that says
that a 50% chance at 2 million dollars is equal to a sure million dollars. To
real-world proof it though, you'd have to factor in risk aversion.

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timr
That's called an expected value calculation:

<http://en.wikipedia.org/wiki/Expected_value>

I'm only pointing it out because I also want to note that it's a _great_ way
to determine if the contestants on Deal or No Deal are being boneheads.... ;-)

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anamax
"older" isn't the relevant factor, and neither is market value.

First "market value". All other things being equal, someone who has a typical
salary of 300k has a lot more opportunity to save for a couple of years of no
salary and will find it easier to come back to a decent salary if the startup
fails than someone who only makes 20k.

However, all other things are not equal. The relevant factor is overhead.
Overhead is associated with age but isn't determined by age. For example,
young folks supporting other folks have exactly the same problem as older
folks supporting other folks.

Note that overhead is typically the result of choices and comes with benefits.
Those with less overhead typically made different choices and don't get the
benefits. Also, "young founders" are often delaying overhead.

Note that overhead contributes little/nothing to a startup's odds of success.

BTW - One could argue that the market actually undervalues not-yet-known-to-
be-successful 22 year old founders.

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johnrob
My point does seem obvious after re-reading. What I really wanted to imply is
that the current startup system basically penalizes experienced people. Is
that a good thing? Is it even possible to change that?

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alaskamiller
I think you drank a bit too much kool-aid.

For young folks, there's little risk and opportunity cost but with zero
experience likelihood of success is small.

For older folks, there's more risk and opportunity cost but with more
experience and connections likelihood of success is greater.

This isn't a penal system, this is a distribution system. Being young isn't
the prerequisite to success. Everyone harps and focuses on it because of that
trait is unique (remember, likelihood is small) in an otherwise older folks
dominated field (remember, likelihood is bigger).

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steve
The risk is higher for younger people.. and yet so many more younger people
are successful? Hm.

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jsjenkins168
I always considered being "founder" status to indicate you have NO salary. At
least in the early stages. You pay your bills, then every dime you have left
you put back into the company. Basically, the startup is your life, with all
of your financial incentives being driven by your equity ownership.

But maybe you are referring to early startup employees? I can see what you say
being the case in that type of situation, where salary is typically low in
exchange for more equity.

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vegashacker
Not speaking from experience, but I believe that it's very common for founders
to pay themselves a modest salary once they have received funding.

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jsjenkins168
I could see that being the case, especially after VC funding. I guess I would
just personally have a problem with that, knowing I was increasing the burn
rate of the company I'm trying to build. That money could be used to hire
another good hacker.

But I'm not speaking from experience either.

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steve
You could burn yourself out much faster with a $0 salary over a number of
years though.

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cstejerean
If the market rate for the founder is 300k then it's all the better for the
founder. The problem is if the founder's burn rate is also close to 300k /
year. Otherwise the founder making 300k per year can hopefully save up a
decent amount of money quickly and perhaps bypass the need for angle funding.

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edw519
Your "market rate" argument assumes that this year's compensation is the
primary motivator.

Very often not the case.

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rkabir
I think this is somewhat in line with how it seems Noble-prize winning
research happens when the winner is a grad student...

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steve
and by salary you mean - no family/spouse to support.

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andy
There are tons of reasons why more people are more successful when they're
young. God, getting old is depressing.

