Editor’s note: Serial entrepreneur Steve Blank is the author of Four Steps to the Epiphany. This column originally appeared on his blog.)
At times, VC’s forget who their business is built on…
Last week in a car showroom (of all places) I ran into a VC who had sat on the board of my last company. We hadn’t seen each other in ten years. As we chatted and made small talk, it quickly became clear that he had no memory of a phone conversation my partner and I have never forgotten.
It was the Internet bubble – and after almost three years, our startup had found a business model. We were scaling revenue and headcount fast. Our second round of funding was from a firm and VC whose names were household words. This partner lived up to his reputation and helped us hire an experienced, world-class CEO from a large consulting company that we thought would be the guy to take our company to a billion dollars (think Internet-bubble Kool-aid.)
The legendary VC was too busy to sit on our board, so we got another younger partner in his firm with seemingly the right pedigree – engineering degree, MBA, lots of boards, etc. As we would find out the hard way, though, he had zero experience as an entrepreneur.
Now that the big name CEO had tentatively accepted our job offer, we were having a board meeting via conference call to approve his compensation package. My co-founder and I gulped as we went through each part of the package. The equity we were offering would make him an equal founder. And his salary, while a huge cut for him, was a lot more than the starvation budget we had put ourselves on.
However, the new CEO was hungry to join a hot Internet startup, work with this legendary VC and not miss the bubble. We were just as hungry to hire him. We thought he’d be worth it – a point the young VC on our board kept reminding us of.
When the call was almost over, my partner and I mentioned “We want to remind you guys that we’ve been working at founders pay for almost three years. We’d like to adjust our salaries to reflect the new pay scale.” We had hoped for parity with the new CEO, but any offer of some kind of raise would have made us feel good. Instead, what we got from the VC, was “Who the hell do you think you guys are. You’re just the founders.”
Then he proceeded to give us a lecture on why we should consider ourselves lucky to get this new guy. He and his firm were the ones that were going to do the heavy lifting and we should be happy that we were going to make our money on the stock, etc.
We never did get a raise. Luckily the company did go public, but I’ve never forgot the conversation.
There were a couple important takeaways I learned from this: Having a VC who has been an entrepreneur is a plus, but it’s attitude that matters. And if you’re a founder, ask for a pay-parity agreement with a new CEO upfront and in writing.
For the last 12 years as friends and then students have asked me about how to approach this big name venture firm, I’ve managed to steer them to other venture firms in the valley – by suggesting that there were firms who would treat them like they mattered. I’ve averaged about 6 referrals a year.
I figure when I get to 100 I’m even.