What has a higher chance of making you money, being a venture capitalist or a startup founder?
VCs have a much higher chance of making good money. Truly great founders make the most by far.
Let’s use a “fun” example in Zoom. As I type this, Zoom is worth $40 billion.
And here was the cap table at IPO:
Roughly, this means the largest VC firm, Emergence, has a $5 billion stake (wow!). And Sequoia is close at $4.5 billion.
Eric Yuan, CEO (a very modest CEO who really doesn’t care) however is worth 22% x $40b = $8.8 billion.
But it’s more subtle than that. The VC partners don’t get to keep it all themselves.
Let’s break down a $5 billion stake for a VC firm — an incredible stake:
- LPs (the VCs’ own investors) keep 80% of the value of the investment: $4b. (Sometimes 70%-75%, but doesn’t matter too much for this point).
- This leaves the VCs themselves 20% ($1b) to split up. Now, let’s assume 4 partners split 80% of the $1b, and 20% goes to everyone else at the fund. And let’s assume the partners are truly equal (which is rare).
- Then here, each VC firm partner makes $1b x .80 x .25 or $200m. An insane amount, yet. But …
As crazy as an individual VC making $200m from Zoom is, the CEO on paper makes 44x more.
Working 80 hours a week, for a decade, sweating it every day, taking insane risk.
While the VCs sit in their office and come to board meetings. And get to make dozens of bets. And get rich. But only 1/44th as rich. Without really being the ones that did it.
Which would you rather be?
It’s complicated.
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