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I was reading an interesting post on Gaurav’s blog about founders of startups taking significant paycuts when raising funding from VCs. i was going to post a comment but am having some trouble connecting to Gaurav’s blog.

VCs in India are applying what they’ve learned operating in the US and Europe to an economy and economic conditions which are very very different. This isn’t to say Gaurav is right and Sundar and Krish are wrong. However, there’s probably a medium that is a bit more amenable to both sides. VCs need the founders to be up to their eye balls in the business for many reasons. However, having a founder who is financially struggling, on top of all the other issues related to doing a startup increases the risks associated with the investment. It is conceivable for a founder with significant negative cash flow to throw in the towel and pack up her bags or worse, to stay on and throw themselves into a deeper and deeper grave, potentially filled with debt.

On the other hand, most entrepreneurs start a business because they are confident of their abilities and they are sure they can hit a home run ( or a century for all the cricketers out there ). Ideally, an entrepreneur will raise money from a VC when the business is moving in the right direction and there is revenue coming in. The founders might need the additional money to grow exponentially, diversify, or gain the valuable advice of an experienced team. Hence, it’s important that the founder takes a substantial pay cut in order to show the investor that they are “believers”. What “significant cut” means is relative. To a VC, a 75% cut is significant but to the entrepreneur, 25% is significant. At the end of the day, the entrepreneur must decide how much control she is willing to cede to investors and how costly the capital raised will be. A good negotiator might convince investors that it’s in ther interest to give the founders a 10% paycut from market rates.

Each founder has to evaluate their financial position and decide whether the delayed gratification is an economic reality and if they can afford to do it. If they can’t, perhaps it’s time for them to leave the bargaining table, or worse, leave the business.

Here’s a great post on Amit Ranjan’s personal blog about how large technology and outsourcing companies in India are turning the cream of the crop engineers into just more cogs in their wheels.
I worked at a very large Wall Street firm for a few years and then I’ve worked at small companies (small in terms of the number of people). The best part of working at a small company, by far, is seeing the results of your labor on a daily basis and how it directly affects the business. Good luck seeing how busting your hump on a daily basis benefits Infosys.

There are, however, significant drawbacks to working for a small company.

1. The likelihood that your family and friends will know the name of the company that you are working for is close to zero.
2. The pay is usually lower at small, unknown companies.
3. The benefits are usually not as good as they are at large companies.
4. The dangerous of a small company going out of business is generally higher than a large company going out of business.

The benefits of working for a small company are:

1. You’re a name, not an employee number.
2. The excitement of helping to build a business is enormous.
3. Seeing how your work affects the growth of that business is an even bigger high.
4. Working at a small firm helps you develop a sense of camaraderie that goes deeper than the relationships you can develop at a large firm.
5. You could be learning and contributing much more in a small company than a larger one if you prove that you’re a doer not a talker.
6. There’s more work and less politics at a smaller firm.

For more, in depth, details, jump over to Amit’s blog below.

Ques- What warning sign is written on the boundary walls of the TCS office in Madras?

Ans – �??Beware Trespassers- If you are not careful, you will be recruited�??

amit ranjan

technorati tags:Business, Small Companies, Large Companies, Recruiting, Hiring, Job Searches

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