There's a weird set of assumptions in this piece that make me a bit nervous about the state of the startup ecosystem.
When I was first getting into startups (late dot-com boom to about 2009), the assumption was that your startup was your identity, and an expression of your power to change the world. You owned it, or a big chunk of it, and you got rich by growing the size of the company (and hence your share value). This is the Warren Buffett, Jeff Bezos, Steve Jobs, Page & Brin, and Zuckerburg model. Control and ownership stake are the forms of "compensation" that matter here - instead of you taking compensation as CEO, you paid out compensation as owner of the firm, and slowly gave away equity in exchange for deals that would make the overall firm worth more. The article alludes to this model with "your entire life and self-worth is wrapped up in the company".
But the whole premise of this article doesn't exist with that model of a founder's role. Founders don't take compensation; they own the company, and dole it out based on who increases the value of the company most. Founders put their allies on the board, they don't take orders from the board. Founders wouldn't consider an outside CEO, so that comparison would be moot.
It makes me think that the "change the world" phase of tech startup history is over, and we're now in the "fill in the gaps" phase, where a "founder" is a hired gun that slots into a VC's portfolio. Which I've suspected we were getting close to for a while now, but if true, it makes the job description of "founder" a lot less attractive. If you're going to be a hired gun, why not work for a FAANG and probably make a bunch more money?
"For the last few months, I've been cautiously testing a radical-sounding hypothesis on smart people: entrepreneurs are the new labor. Or to put it in a more useful way, the balance of power between investors and entrepreneurs that marks the early, frontier days of a major technology wave (Moore's Law and the Internet in this case) has fallen apart. Investors have won, and their dealings with the entrepreneur class now look far more like the dealings between management and labor (with overtones of parent/child and teacher/student). Those who are attracted to true entrepreneurship are figuring out new ways to work around the traditional investor class. The investor class in turn is struggling to deal with the unpleasant consequences of an outright victory." (2012)
My experience has been the opposite: investors are very smart late career people who defer, encourage and support. Compared to the "CEO fired for missing the quarter" days, it's very civilized, arguably strongly biases towards founders tbh.
Valuations on early stage companies have never been higher—we’re talking eight figures for pre-revenue businesses—which means millions of dollars before hitting the ~20% equity for a round.
Founders sometimes have shares worth multiple votes, the board is entirely them (since the huge supply of money gives them leverage), and VCs are so afraid of being labeled “founder unfriendly” that they defer almost entirely to founders.
Whether it’s good or bad is a much longer thing (some of each, of course) but it’s certainly not founders working for investors. It’s never been less so.
In my opinion, the relationship between founders and investors has changed with time. The role of “founder” has become much more of a structured profession, whereas it used to simply be a random person who started a tech company. In the modern version, I would argue that the role of the founder is to create high-performing investment vehicles for venture capital. This is explicitly understood by some founders and creates a different relationship with investors than “building a company” founders. Even though the activity is essentially identical, the perspectives and priorities are different because you are optimizing for slightly different things. Building companies is just a means to an end for investors.
The biggest implication is that the primary "customer" of the founder is different in these two versions of the role.
My experience is that founders who internalize that their role is to create and manage investment vehicles for venture capital have a different and higher leverage relationship with investors, including compensation, than founders that think their primary purpose is to build a company.
The size of VC funds exploded in the past 3-4 years thanks to SoftBank. Raising 5 mil A round used to be a big deal, these days most seed rounds are around that and it's not hard to see A rounds in the 50mil range. It's much easier to cut yourself a larger check with so much money in the bank and it attracts a different type of crowd.
> It makes me think that the "change the world" phase of tech startup history is over, and we're now in the "fill in the gaps" phase, where a "founder" is a hired gun that slots into a VC's portfolio.
I don’t think it’s over, but it has shifted into what was previously known as lifestyle businesses.
There isn’t much room left for “change the world” startups that have broad impact unless you come prepared with a massive war chest to outspend your competition. Most famous startups still have to buy their customers often through the IPO stage, which is why we still see companies like Uber or even Gitlab being cash flow negative when they go to market. If you’re not prepared to spend your way into the market, you’re unlikely to get very far (there are exceptions, but they are rare). So yes, this space is mostly a VC game.
However, I know of more small tech startups than ever before that are bootstrapped or have minimal investment. These small companies aren’t targeting highly competitive, broad markets like ride sharing or Git hosting. They’re playing into a founder’s personal passion or addressing unmet needs in their own domains. They won’t be the next unicorn but they’re producing good work and making a difference close to home.
In many ways it has never been easier to start a small startup. Working for a decade at a FAANG job or even a good tech job with an eye toward savings can give someone plenty of savings to coast for years while they start up. Tooling has never been more accessible for rapidly assembling prototypes and gathering customers. Even knowledge about starting companies and scaling software is freely available online.
> If you're going to be a hired gun, why not work for a FAANG and probably make a bunch more money?
One of my unpopular tech opinions is that “just get a FAANG job” isn’t as easy as it sounds. I know many smart people, including some who went on to become successful entrepreneurs, failed to get FAANG jobs after years of trying. I know several more who got FAANG jobs and then burned out or failed out. If money is your goal and you can get in then it’s a good option. It’s not the easy button, though.
There's plenty of "change the world" opportunities left. How about a company that mines the ocean floor for minerals? What's completely full to the brim are tiny companies that are pretending to change the world but are really just thinly veiled ad-based/subscription models, which are half-hearted attempts in various sectors to replicate the success of Google and Amazon.
The world still needs companies that are actually looking to change it, we've barely scratched the surface on what we can do with what's available to us.
Your observation is very interesting. Mark Suster's article ("The Changing Venture Landscape"[1]) also discusses how today's startups raise significantly more early funding and how this is changing the venture landscape -- more money chasing fewer deals, raising valuations, but also non-angel investors having certain expectations of their startups.
Taken together, do these observations imply a structural change to how venture and startups work?
When I was starting my first company in 2012, your point on identity rang true -- I tied my identity to the startup and so did our early employees. Now, many of the startup CEOs (and venture studios, angel funds, incubators, etc.) seem more like money managers and financial engineers.
...and I guess this might be why compensation expectations are changing.
Thanks for sharing your thought. I've been bothered by the way startups seem to work nowadays and I haven't been able to fully articulate why. The above is helping me clarify that.
EDIT: as I try and clarify my thinking here, it sometimes feels to me like many startups today feel more akin to private equity (PE) projects. In such a scenario, you'd expect founder compensation to change (as per the original link). It'a also in line with Suster's post + observations of hedge funds and PE shops funding more startups[2].
Yeah these days the best business model seems to be out raising the competition and using your cash to let you bleed long enough to gain a monopoly in your market.
Sadly this also works in favor of VCs, who get an excuse to raise 10-20x larger funds and live off of the management fees.
This is less about founders not tying their startup to their identity, and more about the exponential growth of VCs and the power they wield over non-leveraged founders.
Take a first time founder for example.
You’ve been working on an idea for a while. You’re just now getting traction. You likely don’t make much, if anything at all. Either because you are pre revenue, or you’re putting everything back into the company.
Now, a VC comes by and says I’ll take 20% of your company in exchange for $2 million.
Another VC comes by and says I’ll take 20% for $2.5m.
And so on.
The founder now has a hard decision. Do you take the money, grow the company A LOT faster and be able to pay yourself a salary? Or, do you continue to grind away, hoping the business grows organically, which could take 10-20 years? Do you even have enough savings to wait that long? Are you killing the business by not taking the money?
Okay, so let’s say you take the money. If you’re a repeat founder you know what to do. Don’t do a priced round, or if you do, don’t create a board. If you do create a board ensure founders still have majority. Essentially put everything in place so you don’t get fucked. So the option for you to be replaced by a hired gun doesn’t even exist. This sounds reasonable right?
Well most first time founders don’t even know you have to do these things. Or even if they do know they still might have zero leverage and take the money anyway, knowing they’ve relinquished some control. Knowing they will likely be replaced in 3-5 years.
This is how VC works now. The leverage has shifted completely.
> This is how VC works now. The leverage has shifted completely.
I don't think this is entirely true, as always it varies by VC. Each person is different.
Also VCs as a category know that they cannot bully founders and overplay their hand too much because if founders perceive that they are about to be diluted into irrelevancy or replaced they still have these little weapons called constructive dividend and constructive salary that they can "pay" themselves in so many various forms that VCs will be left wondering what the hell happened.
> Well most first time founders don’t even know you have to do these things. Or even if they do know they still might have zero leverage and take the money anyway, knowing they’ve relinquished some control.
As a founder, can't you just demand that you keep 51+% of voting shares? Or more, if you intend to sell at any point?
Or put poison pill clauses into the company founding docs with provisions if you're removed?
The feeling I get is that founders aren't looking to the long-term anymore, either because they aren't confident of their ability to make it on their own or they're only working toward an acquisition. I assume the latter is the dominant mentality in undergrad/MBA/GSB subcultures. Cowardice vs. greed, I suppose.
There’s a third reason here. With the current size of a round a founder can become very wealthy by converting personal shares (ie cashing out) in each round. They can literally get F-you money regardless of the company’s outcome.
Look at Clubhouse. It reached Unicorn status while still at, essentially, Alpha. It would be silly for the founders not to take $20M home during those rounds right?
Are you suggesting that our universities are teaching short-term thinking cowardice and greed? Or is it just certain programs? For a while I thought it was "STEM" programs that alluded most to easy-money themes in academia, with business schools teaching more of the long view and social responsibility of financing then managing a business.
It does put you in a different club and give you a lot of credibility to successfully exit. You can replay the game on VC boards and other places and at a higher level. It is a small club and successful (e.g founders with a solid exit) just have more options. You can use a variety of skills to grow a business. You have to win the tech meritocracy in a FAANG and competition can be a lot more narrow.
From a market point of view, founder of a startup is unlikely to have lots of opportunities to be CEO at other companies. The kind of person who comes into an established company and takes the CEO spot has much more leverage because they are a generalist who could be CEO at a bunch of different companies. The founder is a specialist in their own venture, but doesn't have much market value outside of that role. And of course the founder presumably has a large chunk of stock and therefore has an order of magnitude more upside than anyone else who might run the company.
Finally, there's the fact that psychologically the founder often believes they know best, and has a higher level of expectation for the company's prospects than a cold-eyed third party who wasn't part of the founding story.
It’s extremely unlikely founders own the majority of the company post Series B. In fact, it’s closer to 10% by the time a company exits. So I would say the article applies in most cases.
Extreme outliers. You have a better shot at winning the lottery or being struck by lightning than ever having a company that resembles Facebook or Amazon in any way, including founder compensation and ownership.
To answer the question though it’s all about leverage. You can’t go into a situation like VC funding without it. Leverage can almost be anything, but is commonly:
- revenue
- traction with customers
- traction with users (if d2c)
- a previous exit
- nepotism
It’s in a VCs best interest to take as much of the company as possible without causing disruption. That means making you feel like you didn’t get shafted in the deal. This dynamic shifts when you have leverage. So instead of you taking a term sheet and just eating whatever they give you, with leverage you set the terms. But again, you’ll need a lot of leverage, likely almost every point above, in order to get a deal that isn’t complete garbage (save for nepotism).
The funny thing here is that it makes running a startup/working at a startup relatively pointless. On average it’s probably about equal difficulty to convince the right person at a FAANG to invest in a pitch as it is to raise a series A. Except your more or less guaranteed to make ~1-2 million over the course of 4 years and you have a good option to make more via promotion.
You Lone the opportunity to be your own boss and the possibility of extreme upside. But it sounds like VCs are taking that away as well.
I wonder if any VCs have added options into the deal to increase founder equity later if company performance dramatically outperforms expectations.
The overlap between would-be successful founders and people that can not only pass the interview exams, but function within a FAANG is probably very slim.
You need high conformity and extreme inside the box thinking to thrive in FAANG. Conversely, you need essentially the opposite set of traits to be a successful founder.
Curious why you believe you need in the box thinking to thrive at a FAANG. I haven’t seen anything more than what you’d need to keep up with customer expectations of what your kind of company should be able to do.
Amazing that he goes into such detail about how unequal pay should be slightly less unequal.
People are always going to take advantage of other people if they can or if things are structured that way. It is traditional for VCs to take advantage of founders. It is harder for them to take advantage of people who know there is already funding and are coming in after.
And VCs will go into excruciating detail rationalizing all of this.
What about the programmers who are actually building the software and often getting a pittance in relative compensation even though the business is 100% reliant on them to solve most of the problems (which are technical).
The value of a programmer at a startup isn't their output... it's their value relative to the second-best person the company could have hired. Sometimes the employee is a critical component, and sometimes they are a replaceable code-monkey. If you are easily replaced, code-monkeying simple code that makes $1B doesn't mean you provided $1B of value.
It's easy to follow your line of reasoning to the ultimate end point that no one is really worth anything much at all. Even if it is logically sound the main outcome of thinking like that is to limit your own potential...
Note how very few of the non-labor class will refer to themselves in those terms.
My impression spending time with investors has been that they need productive assets for their portfolio of depreciating cash, and they need exposure to companies in markets where they perceive growth. To get that exposure, they're usually in a few companies in a space already, so as a founder, your company is just one of many. I'd like to propose what a more cavalier approach would look like.
The next piece is venture isn't regular value investing. The participants in a given fund (LPs) probably have a horizon of 5-7 years for the total age of that funds portfolio, where they are expecting one or two of upwards of 20+ companies to hit.
VC money isn't a loan, the equity a founder sells them is the ticket price VCs pay for admission to the market exposure they need. (Buy the ticket, take the ride.)
When you look at what founder/ceo comp should be in that relationship, just as one reference point, a technical founder can probably pick up a consulting gig for a quarter million a year. It has no equity, taxed as income, discounted to risk, no leverage, no scale, all opportunty cost against life and running a year of startup runway, and they're just running a one person time and ass rental business, but that's a founder's base BATNA in the comp discussion.
Founders typically pay themselves less before later rounds because of some conventions, but you can't moralize what makes a successful company. Myths about frugality and the protestant work ethic are uncorrelated to returns in venture portfolios. (PE is another story imo, because it doesn't invest in growth, it invests in ways to optimize existing cash flows)
So when it comes to founder comp, if a round gives a company 18-24 months of runway to get to their next growth stage, I'd measure comp against the value of that binary outcome. Either the founder gets you there, or they don't.
It's hard to imagine, but if you have a portfolio of cash and you need for it to grow, and you believe in a startup, you need as much of that cash working for you in that company as you can stuff into it. If you need one of your companies to have a 30x return and you can't predict which one it will be, any "savings" the founder provides back to their company with frugal comp that comes at the expense of any early stage growth trajectory at all, results in vast value destruction. e.g. If you put $10m into a company and then the one person responsible for all that capital is paid less than some random interchangeable consultant, I'd say you've earned that loss honestly.
If a founder took the money from a round and put half of it in a pile on a beach and set it on fire, it literally shouldn't matter to an investor because the investor now owns something better than cash, which is equity in something that is growing. Surplus cash is opportunity cost against growth runway somewhere else. I've seen a few companies who should have set half their cash on fire, because the money made them lazy, political, and stupid.
So in terms of what it's reasonable to mark founder salary to, the two co-ordinates I'd reckon with would be somewhere between their consulting opportunities they could just walk away to today, and just setting half your money on fire.
I write, am not an investor or founder, this isn't advice, but the conversation from the OP seemed too polite to be useful.
> If a founder took the money from a round and put half of it in a pile on a beach and set it on fire, it literally shouldn't matter to an investor because the investor now owns something better than cash, which is equity in something that is growing.
Come on now, do you really believe this? Investors absolutely should be extremely upset if the company is squandering the resources it purportedly requires in order to execute on strategy and grow.
I'm saying you as an investor don't know which half is being squandered, and if the company has non-linear growth, you aren't going to care. You only notice waste when you aren't getting value, and if you're getting growth, you aren't going to notice the waste. See: WeWork
> Some founders create structured equity that only pays out after the company’s stock appreciates significantly. Other CEOs have out-of-the-money options (Elon Musk is famous for this).
I looked up OTM options and it looks very similar to the first sentence. Basically, you (the founder) tie your compensation to the success of the company. You win big if the company wins big. Can anyone disambiguate the two situations in the quote further?
An option gives the right but not the obligation to buy (or sell) something at a given price (the "strike") in the future. Equity in this case is that thing. The equity can be structured such that it sits behind other investors in liquidation preferences etc meaning it doesn't have economic value until the share price/valuation hits a particular hurdle (similar to the strike price on an option).
So while they are similar in terms of economic impact, the equity can have other rights attached (eg voting, ROFR for dilution etc) that a founder might want. Also crucially you already have the equity so you don't have to pay up to buy it (as you would in the case of a call option).
Finally as always there may be tax implications which make the difference meaningful. Tax arbitrage is often part of the calculus for any kind of weird compensation package.
Funny when someone comes to the shocking realization of what's happening to the workers under them, only when it happens to themselves. "People are getting paid less than they're worth unless they renegotiate or leave! We must do something about this!"
I hear this kind of complaint so many times especially from individual contributers but honestly can you realistically imagine a world in which this wasn't the dominant form of compensation adaptation model?
For the most part, your salary is affected by supply and demand. As soon as you leave your job, the demand to fill your position goes up. If you don't leave, the demand stays the same. The demand to keep your position filled won't be as high as when a vacant position needs to be filled. Am I missing something?
> As soon as you leave your job, the demand to fill your position goes up. If you don't leave, the demand stays the same.
That sounds like poor accounting that's overly dismissive of the outside world. If it's going to cost $X to fill the position, why is the person currently in the position worth $X (ignoring for the moment that filling the position will also often actually add a bunch of one-time costs like recruiters/interview time/signing bonuses..., but potentially also be offset by unvested bonuses/stock/whatever that the departing employee is relinquishing).
If you are in charge of salaries, and you don't pay attention to the fact that you're paying $0.7X for someone that you'd have to spend $X to replace, you've put yourself in a weak position compared to the companies who are immediately willing to pay >$0.7X for that person. The demand has already gone up, you just weren't paying attention.
An employee is like a subscription, you pay on an ongoing basis. And they can quit on you any day. Paying an employee currently and in the past doesn't necessarily mean you have no demand for their services in the future - having someone in-house who'd be happy to continue working for you is basically the best-case scenario in a role that you still demand. Don't try to exploit it by hoping they don't notice they're being shortchanged...
Assuming a replacement of equal skill, the demand to keep the position filled is the same as the demand to backfill it, because either action results in the same number of people in the same role.
Many companies don't just undervalue their current staff, they underestimate the market value and demand for that staff. My wife was in this situation, pushed for market analysis of her staff (mostly PMs) to take to management in an argument to give out raises. That analysis was some employees were underpaid by almost half the market rate. Management disagreed with the analysis. Within 2 years, the entire department was depopulated, having taken alternate job offers for considerably more money. The CFO couldn't grasp that people wouldn't just stay out of loyalty at 60% of what they could make elsewhere.
>For the most part, your salary is affected by supply and demand.
We've had a bullseye object lesson in the US over the past year and a half where company owners are complaining endlessly about being on the low side of the supply curve, trying to force the supply to act against their own interests via government action. Suffice it to say, I don't agree that supply and demand is the primary driver in salary budgeting, it's power.
Aren’t you missing the fact that the demand can change while you’re still at your job because of the fact that you can leave at any time? I see no good reason why people need to switch jobs to get significant pay increases, other than apparently there is psychological or bureaucratic “stickiness” of compensation.
I’ve occasionally wondered if a policy of giving a 10-30% total raise over the first 3-ish years of an employees tenure would pay off: the value of the domain knowledge of someone who walks + the cost of recruiting and training a new hire is probably about $50k+ and, so, it might be less expensive in the long run to just match the raise someone could get by switching jobs.
You need to be careful with lockstep compensation plans. Your high, and even mid, employees will resent that low performers are getting the same as they are.
Most places I’ve worked had some concept of an “expected raise”: 1-3% a year. What I’m suggesting is making that a bit steeper and still paying performance-based raises on top of that. (I’m not sure what exact numbers make sense here: maybe a total of 10-20% expected raise over the salary offer + up to 10% based on performance?): the goal here is to save money by reducing the amount of domain and operational knowledge that just walks out the door.
When you look for another job, there may be way 10k companies recruiting.
Most will pay less than your current job. You only need to find one that pays more.
They might do that because they lack of engineers is what is holding them back from growth.
Or they desperately need a certain skill set.
There is a lot of money sloshing around and opportunities to get paid more elsewhere.
Now if you are underpaid it might be you are in the 30-percentile and 70% pay more so you can walk into a pay raise with eyes closed.
Logically you are right that the current company should pay more. I think there are too many companies whose business model can’t support all staff being paid what they can get on the market. They rely on people being loyal.
(They could survive if they became more efficient but few companies seem interested in really doing that)
I guess your missing the elasticity in your equation.
Your statement makes sense if there are only a handful of people in the market that can provide what you provide, but for a job that can be done by thousands it doesn't hold.
Yeah I'm usually very anti crypto anything but DAOs sound like a promising concept. Might be a great way to get rid of VCs and run international workers coops with initial funding though ICOs. A DAO based startup studio / incubator would be interesting too.
How about a DAO that only transacts in DAI and has no token representation of its shares, just prorata ownership and voting weight from initial funding via that decentralized stablecoin
The irony being that nobody would notice if these exist or are prevalent specifically because there is no token doing the advertising
OlympusDAO is doing something like this, but they do have a token - DAO members get paid and theres a staking process that lets them accrue more of the token. The token is backed by a treasury and is worth at least 1 DAI.
Decentralized autonomous organization. It’s a collaboration mechanism for forming an organization wherein you can define the compensation and governance structure as open source code. Moloch DAO is one of the better known and simple to understand instances of a DAO, though it’s scope is limited to managing membership and voting on projects to fund [0].
I don't understand why you'd prefer to work in a structure governed by contract-written-as-code compared to contract-written-as-anything-else. Seems like you could put any arbitrary set of rules in a regular contract too.
Because it can be enforced without being tied to a specific jurisdiction, expensive lawyers and army of accountants.
Imagine a company the size of Google/Alphabet organized in a similar way to something like https://dxdao.eth.link/#/, where employees have more say in what they work on and don't have layers of expensive management.
Or a Y Combinator or a DAO of indie hacker businesses working as a cooperative, investing in new products, sharing resources, etc.
Or an open source alternative to Uber / Seamless / Instacart where users can vote and bid on features and reward contributors who implement them. I'm sure a product driven by customers and makers would look a lot different than the exploitative middleman businesses that dominate tech at the moment.
The users cannot do anything with the funds outside of what is dictated by the contracts, and there are various forms of incentives for executing specific contract actions for varying amount of actors.
I.e. if you want to borrow stablecoins against ones assets on aave, you must deposit up to 150% (and the limits of how much one can borrow are up to 100% of the value of the assets) of those assets and they will be liquidated if you do not pay back the debt before its due.
There more complex examples than this. Law doesn't stop people from breaking laws or not upholding contracts in the same way that code on the evm doesn't force users to interact with it (people break laws and get arrested after the fact and get liquidated all the time).
Ok, so it makes sense that you can build certain financial derivatives out of it.
However, there is no explanation of how you build an ‘organization’ out of this.
> Law doesn't stop people from breaking laws or not upholding contracts in the same way that code on the evm doesn't force users to interact with it (people break laws and get arrested after the fact and get liquidated all the time).
Agreed. However this Subthread is a follow on to this earlier comment from another commenter:
“Because it can be enforced without being tied to a specific jurisdiction, expensive lawyers and army of accountants.”
> However, there is no explanation of how you build an ‘organization’ out of this.
There's not a one size fits all of what being a DAO is (and many people bicker about those calling themselves a DAO when they may not be[0], and some protocols are more decentralized on day one than others), maybe this can help you understand some of what's going on by some of the examples listed [1] and the various actors (there are non financial DAO's not talked about here).
> And it seems like you are saying this isn’t true.
It is true to the degree that for the positive/negative incentives to take place -- “a specific jurisdiction, expensive lawyers and army of accountants” -- are not needed like they are with centralized organizations who incorporate in a particular jurisdiction.
Sure, but the point is that there is no mechanism for building ‘organizations’. Nobody is explaining how to build anything other than financial derivatives.
This is useful, but really just an optimization on finance as usual.
Because people can write whatever contracts they want that allow of group users to execute actions. The contracts do not need to have any financial incentives at all.
No one tells people how to build/run a company (and neither does the law in any particular jurisdiction, though they may set some boundaries, just like the evm sets a different sort of boundaries), people come up with their own methods for doing such and spread/share those methods with others.
> No one tells people how to build/run a company (and neither does the law in any particular jurisdiction, though they may set boundaries,
This is essentially false. Corporate law, labor law, contract law, IP law, Tax law, and other legal disciplines do a lot to tell people how to build and run companies in every jurisdiction. If you don’t obey them, the state will impose liabilities by force.
> just like the evm sets boundaries)
This is a completely false comparison. Boundaries set by the evm are nothing like legal boundaries.
> people come up with their own methods for doing such and spread/share those methods with others.
Can you think of an example outside finance, where someone has build a company as a DAO instead of using legal incorporation?
> Corporate law, labor law, contract law, IP law, Tax law, and other legal disciplines do a lot to tell people how to build and run companies in every jurisdiction.
If you fork uniswapv2 code and deploy it on chain, it enshrines a bunch of rules that essentially tell one how they can interact with it in the same way these laws do.
People have to come up with these things, turn them in to law (or code), while also varying by jurisdiction (and highly susceptible to selective enforcement unlike code the executes the same way thru the evm) that people break/exploit those rules all the time that go against whats stated in them (people can hack contracts whose logic isn't tightly defined).
> Boundaries set by the evm are nothing like legal boundaries.
I'd say they are far superior than legal boundaries at enabling consistent and transparent interactions between people to the degree that some groups of people decide at using them vs incorporating in any jurisdiction at all like they may have in the past.
> Can you think of an example outside finance, where someone has build a company as a DAO instead of using legal incorporation?
If you are seriously interested, look here[0] (which is not a comprehensive list)
> If you fork uniswapv2 code and deploy it on chain, it enshrines a bunch of rules that essentially tell one how they can interact with it in the same way these laws do.
Except with no actual enforcement mechanism. Can we stop saying these are equivalent? It’s just not true to pretend they are.
Can we not ignore when any given enforcement mechanism associated typically with laws don't get executed when laws are broken by various actors? It's dishonest to pretend that traditional enforcement mechanisms are consistently used.
> although from what I can see nothing breaks out of the financial derivatives space yet.
You'd probably think that traditional non profit organization with a bank account is a financial derivative then if you research some of these Social DAO's and consider them being in the financial derivatives space.
> Can we not ignore when any given enforcement mechanism associated typically with laws don't get executed when laws are broken by various actors?
> It's dishonest to pretend that traditional enforcement mechanisms are consistently used.
If you can find a quote indicating that I’m pretending that they are consistently used, then by all means call me dishonest.
What certainly is dishonest is to pretend that a mechanism that isn’t used consistently is equivalent to no mechanism at all.
> > although from what I can see nothing breaks out of the financial derivatives space yet.
> You'd probably think that traditional non profit organization with a bank account is a financial derivative then if you research some of these Social DAO's and consider them being in the financial derivatives space.
I looked. However I haven’t researched them all.
Perhaps you have a single good example you can point to? I assume you must think at least one of them is good.
> What certainly is dishonest is to pretend that a mechanism that isn’t used consistently is equivalent to no mechanism at all.
Arguably, any instance where such enforcement mechanism fails to happen in response to an infraction in law, or fails be applied consistently to all actors, is a failure of said enforcement mechanism in totality (compared to evm where the contract will revert at runtime to the state before such method reverting execution if inputs + contract state go beyond the bounds defined within the contract and within the evm, every single time, for all actors as defined by the contract). Just because enforcement of the law sometimes works, does not remove its systemic flaws that might as well make it no real enforcement mechanism at all (especially so for some actors who can bypass meaningful enforcement pretty much any time they make an infraction).
Granted, you do not have to use anything defined by the evm. But others have and will continue to do so without any jurisdictions permission.
> Perhaps you have a single good example you can point to? I assume you must think at least one of them is good.
I think at this point, you have enough info to start to DYOR if you want to or not. I don't think there is much point in me spoon feeding you more stuff, and you can come to your own conclusions of ones "goodness" or "badness" and not rely on mine, and what ever you conclude, everyone else will not be bounded by such.
> Arguably, any instance where such enforcement mechanism fails to happen in response to an infraction in law, or fails be applied consistently to all actors, is a failure of said enforcement mechanism in totality
No, that’s not ‘arguable’. It’s ridiculous and obviously wrong.
> there is much point in me spoon feeding you more stuff
Or, far more likely, you simply can’t actually produce a good example.
Given that you could simultaneously prove me wrong and inform other people by doing so, I think it’s clear this is just bluster.
> No, that’s not ‘arguable’. It’s ridiculous and obviously wrong.
I'm arguing it now, you may disagree, but I can for sure tell you that If I had at least 5 felonies like certain corporations do (and the exact same ones they were charged with and merely paid punitive fines for that barely scratched the surface of the profits extracted), I certainly would not be able to continue to operate in certain jurisdictions like they can and continue to do. You may not think such is a utter failure of enforcement, but I do. Thankfully, my actions, thoughts and ideas are not bounded by what you think.
Regardless, there are dao's that are not incorporated in any jurisdiction and are sufficiently decentralized that even if any one or many of their actors that are distributed in many jurisdictions we're arrested or killed, their evm deployed contracts will continue operate just fine regardless of what you or I think of such dao's and the assets of such daos, will remain out of reach of punitive actions of any particular jurisdiction.
> Given that you could simultaneously prove me wrong and inform other people by doing so, I think it’s clear this is just bluster.
Right, ignore the social and non finance related dao's listed in the link I provided, and continue to form your opinions strictly based on someone else definitions of "goodness" or "badness". All just bluster ;)
There's the enforcement aspect that other commenters mention, but what's maybe more relevant to the OP is that every member's contract is open source. You know exactly what everyone is making and the mechanism for making decisions at the governance level is totally transparent by design.
But we're not talking about scams here, as far as I can tell. Contracts aren't being thrown aside and blatantly ignored. Just misunderstood, possibly even exploitative, rules. Or in the case of "go forward" comp like in the article, it's really just a negotiation thing, more than a contract thing.
Exploitative, deceptive, or otherwise malicious contract rules are still possible, here, no? I have a hard time imagining an automated code checker that is smart enough to figure out "this is a more risky investment based on how the rules are set up!" in a way that a paper contract couldn't be similarly analyzed.
After all, a public company is about as decentralized as it gets - decentralized enough that most of the owners have basically zero individual power compared to the people appointed to run it - and there have been plenty of shenanigans in those over the years (which is why they now have a lot of regulation as a result).
Is this effectively just "corporations, now with less regulations because we haven't yet seen the ways this particular form can be used maliciously?"
Consider "hollywood accounting" - if the smart contract says "profit is split 60% to 40% between the two of us" but I'm in a position to choose to classify expenses and various other costs in a way that means "profit" gets computed in the system as X instead of 5X, what happens?
Which part of the system is transparent? The smart contract?
Despite the name, a smart contract is just a software program. It is not a legal contract nor is it recognized as such in a court of law. As such it has no legal force.
When that changes, I’ll sit up and take notice. Until then, the crypto folks are just spinning their wheels pretending one is like the other.
When I was first getting into startups (late dot-com boom to about 2009), the assumption was that your startup was your identity, and an expression of your power to change the world. You owned it, or a big chunk of it, and you got rich by growing the size of the company (and hence your share value). This is the Warren Buffett, Jeff Bezos, Steve Jobs, Page & Brin, and Zuckerburg model. Control and ownership stake are the forms of "compensation" that matter here - instead of you taking compensation as CEO, you paid out compensation as owner of the firm, and slowly gave away equity in exchange for deals that would make the overall firm worth more. The article alludes to this model with "your entire life and self-worth is wrapped up in the company".
But the whole premise of this article doesn't exist with that model of a founder's role. Founders don't take compensation; they own the company, and dole it out based on who increases the value of the company most. Founders put their allies on the board, they don't take orders from the board. Founders wouldn't consider an outside CEO, so that comparison would be moot.
It makes me think that the "change the world" phase of tech startup history is over, and we're now in the "fill in the gaps" phase, where a "founder" is a hired gun that slots into a VC's portfolio. Which I've suspected we were getting close to for a while now, but if true, it makes the job description of "founder" a lot less attractive. If you're going to be a hired gun, why not work for a FAANG and probably make a bunch more money?