Sure, all of that makes sense, but I don't see why the CEO of an unprofitable company should be making six figures, pulling out 7 figures and getting a ton of equity. Aren't the employees taking a risk too?
In almost all circumstances, until very, very late in a companies funding cycle, a funded company is designed to be unprofitable.
Investors want to see two thing at that point:
1) A scalable business model. This means that as you add more users the cost of user acquisition goes down, and it is possible to see where the income per user becomes more than the cost per user.
2) Growth in the user base
Combine those two, and the lack of current profits doesn't matter (usually).
If a company is profitable then investors will want to know why that money isn't going into growing the company faster.
I don't see why the CEO of an unprofitable company should be making six figures, pulling out 7 figures and getting a ton of equity
Presumably they are being rewarded for that growth, and making a scalable business model work.
Aren't the employees taking a risk too?
Are they?
If they are being paid market rates, then it is hard to argue they are taking much risk at all.
If they are being paid below market rates then yes, the deserve other forms of compensation.
Employees are taking a risk. Employees can negotiate terms when they are hired. Employees can choose not to be employees and start their own companies.
In some cases, as nl points out, it's because the strong growth and expected future profitability means the investors are happy paying the founders for value they've created.
Other times, it's simply a case of founders transferring investors' money straight into their own pockets.
It's a very, very useful skill as an investor (or employee, for that matter) to be able to distinguish the two.
