At least in America, there is so little stigma associated with a failed startup that I don't see the reputation aspect of your argument. Short of flat-out malfeasance, a failed entrepreneur is far more fundable than someone who has never started a company.

But you will have just spent months/years promising people you were going to improve an aspect of their life (through your business solving their problems, or maybe through getting more financial independence for your family etc.), and you were unable to do so. In many cases you've been trusted with extremely important things. You will have been trusted with a leadership role (in society, not just a company), and you will have failed, regardless of the value of the experience. Startups don't really get traction (outside of social) without serious contributions: being involved in solving hair on fire problems.

So, let's say you're starting a banking/commerce related startup like PayPal, and some fraud happens on your network which ultimately leads to it failing to gain trust (though it is relatively secure) and thus failing to gain traction and failing. Sure, you may handle the breach well, and go on to have a high paying job as a security analyst or something based on your specific experience.

But good luck trying to raise capital again. Good luck getting your friends and family to support you and take you seriously when you're going down your second "I'm quitting my job to give everything I have to a startup." Good luck recruiting engineers who know you as the ex-CEO of failed startup XYZ, etc.

Around here we take pains to emphasize the bright side of failure, but that's because nobody needs to be coached in how to mourn. Mourning comes naturally. It is carrying on in the face of negative feedback from the world that takes practice and coaching and teamwork.

Failing at your own startup is a bit like burying a child. You start with all these dreams of a bright future, and one day you find yourself facing the stark reality that it just didn't work out, that there's nothing you can do anymore to change that, and that basically the last X years of your life, where you sacrificed anything, were pretty much for nothing. "Well, at least I learned a lot!" is very little consolation in that context.

It's a pretty fucking tough time to go through, burying your startup. I've been there, and hell, I'll probably get there again some day, but it's not the kind of thing that you go through without after-effects.

As a startup employee, you're a bit like that neighbour who watches the previously happy couple tear each other apart and finally divorce. My, ain't it tough for them, geez, I hope it never happens to me.

As the founder, you're right in the middle, ripping your dreams to bits.

And the best part is, after all that, people still expect you to pick yourself up and do it all again!

Edit: I suppose I'm being a bit melodramatic here, as pointed out by the two responses. That said, I do think that shutting down your failed startup that you poured your dreams into is a deeply demoralising experience. Character-building stuff, I think they call it, when trying to cheer you up.

The reality is a lot simpler. The market simply values a lot of stuff that geeks don't pay attention to, including:

* The initiative to start a company and deal with all the personal, financial, and (importantly) logistical drama that comes with doing that.

* The various forms of capital (financial, relationship, intellectual) founders bring to the critical first 12 months of the company.

* The ability to recruit people into an unproven company.

* The risk --- particularly, the opportunity cost --- of burning 2-4 years of career path on a startup (being the CEO of a failed startup is not a resume bonus for a subsequent engineering role).

* The increased degree of difficulty of --- and, thus, to the market, the smaller pool of people available to perform --- operating a company in its unproven riskiest first 12+N months.

Geeks also apparently don't see the value the market places on the flexibility required to find the best equity comp package. Being "worth 5%" (kind of a nonsense concept, but roll with it) doesn't mean you can get it at any particular company; it just means there's a class of company wherein you might find that role.

Interesting. I believe I have observed this very correlation.

(And, considering that I went away for a few hours and returned to find this thread haunted by the ghosts of metaphorical dead children, perhaps I should not have used the word "mourning". Obviously the overtones are too grim. Perhaps "brooding"?)

I agree that such brooding is not rational, and that it is not a good idea; perhaps I could even be persuaded that it's pathological. I'm not yet quite convinced that it's fictional, though. Maybe it really is. I've never been a founder myself, nor especially close friends with one, and all you can really know of other people is what you see from the outside.

Most people who "succeed" have likely "failed" before (that's where they got the experience), but there are definitely levels at which failure hurts you, in many different ways. To say it is "factually incorrect" is over-simplifying the reality.

We don't have a culture that embraces failure nearly as much as we should, though the tech world certainly embraces what it would call the "right kind of failure."

> But most Japanese don’t want to take the risk of starting a business. Indeed, the social stigma and financial repercussion of failure are so great that the founders of failed businesses become social outcasts; no one will work with them again or fund them; and all too often they end up committing suicide.

While I wouldn't make the case that a serial failed entrepreneur is a good thing, I would make the case that practice makes perfect. A person who fails at startup #1 would ideally learn from their mistakes for startup #2.

Imho, for most, the financial risk and opportunity cost is why they deserve those shares, if you're going to do calculations.

But, even more fundamentally, the founders deserve the shares because if they didn't start the business the business wouldn't exist. Without the founders, the discussion is moot.

Given that many entrepreneurs just keep failing and then trying again and again and again it doesn't make much sense to me at all. There is no risk. Maybe it will be embarrassing if Malhalo fails, but I'm sure that won't stop you trying again.

Personally I think there's no good reason, founders aren't actually worth much more than the employees, it's just the way capitalism works. To the victor goes the spoils. Hence the occasional Marx being thrown into the mix to try and keep the worst excesses in check (overall I think capitalism's been a greater good for humanity). I think we're due a Marx soon if the earnings divide keeps growing as it is.

Don't try and rationalize it, it's just natural greed. But it has benefits too, all those jobs that wouldn't have existed.

(1) people who have never founded anything successful and have nothing obvious to lose, and

(2) people who have already succeeded (like Calacanis) for whom the risk is any the myriad of other things they could have been doing to make money during that time period.

I used to work for a web design shop. My fellow programmers and I hated the fact that our bosses were making money on our backs. They would bill clients these huge fees for our hours and pay us 10% of that amount. What did we do about it? We complained to each other during lunch hours. Until one day when I threw in the idea, "lets start our own company". Then the truth came out, all those brave soldiers started backpedaling. I was in awe. I quit my job soon after, became a freelancer and 3 years later partnered up with another programmer to start a development company. We went through ups and downs at the beginning, not garnering much support, even from our own social circles. It's been a year and only now are some of our clients finally realizing the appeal of our offer. We have more work than we can handle and have had to moved into a larger office in a downtown area. I'm literally starting to hire next week. The same people we tried to get help from at the beginning, who were instead doing nothing but discourage us, are now more than willing volunteers.

I've had many similar experiences all throughout my life. I have once tried to organize a class action lawsuit against a company orchestrating an organized scam. I knew many of the clients personally. So I tried to gather them and the same thing happened, there was fud and people chose to wait and see what would happen as they left me to handle the initial steps on my own. I eventually reached an agreement with the company and got somewhat compensated. Later on when people heard, they tried to join in on the action, but by then it was too late, I had moved on with my life.

Another example, about 2 years ago, I had dealings with an agency that wanted to build this really ambitious website for one of their clients. I was hired as a developer along with other professionals from various fields (design, ux, marketing, etc). The agency ended up not paying any of us and while everybody were emailing each other trying to figure out what to do? I threw in a couple of bold ideas, such as bypassing the agency and dealing directly with the client, suing the agency. As expected the brave mouths didn't feel so tough anymore. I ended up hiring my own lawyer and a few months ago, I obtained a court decision. When people heard, I started receiving emails about "maybe ganging up to get our money".

All 3 stories have the same pattern. There is a problem, a risky proposal gets thrown in, people react to the idea, someone does something about it. I've come to the conclusion that being an entrepreneur is a character trait. You either have it or you don't.

Soon after I quit my job 4 years ago, I read or heard something somewhere, I don't remember the source, but it basically said, you get paid what you deserve. It's only now that I have a small and growing enterprise and that I have to explore the compensation question that I understand this. My coworkers from 4 years ago still work for the same boss. Maybe they got salary bumps, maybe they didn't, maybe they're still complaining during lunch, but one thing is sure we all got what we deserved.

I share this experience. Over and over again.

I've come to call it the 9-5 attitude. As a freelancer it's always a sobering experience to churn through a time-critical project (critical for them) and then have the remote guy drop out of skype at 6:00pm, every day, as if it wasn't their servers that are going to blow up if we don't get this done before the marketing-campaign on friday...

Of course not all companies are like this, but I've observed it even in (funded) startups where it's especially irritating.

I think it has a lot of do with a perception of ownership. As a freelancer I am my business and do my best to deliver high quality work.

As Employee #17 in someone else's company it seems to be more common to gravitate towards the path of least resistance; do just enough to keep those paychecks coming.

And I'm sure the founder of Friendster has no trouble finding a job. Starting a company and failing has enourmous cachet in the States. And Friendster did quite well, relatively speaking, compared to most failed startups.

"This isn't about who is more valuable, this about who took the risk."

Risk? I joined less than a year after incorporation. I feel like I'm shouldering substantial risk by taking 50% of my overall compensation as options in a venture which I have no direct control over—I'm not on the board, I'm not a director. The options are worthless until 4-5 years down the road, and even then, I have no control or say into when we sell, to whom, and for how much.

Myself and the other employee are probably going to leave, because we feel that more like 2-3% minimum is appropriate for our position, and we doubt that the founders will see it that way.

The real answer is way more simple: the founders hold most of the cards, and the engineers don't.

Edit: and if the engineers don't like this, they are free to try to start their own startups.

I agree that the difference is that the founders risk something. What they risked was just money and time. And risking time can be risking more than you'd think because there's an opportunity cost to not creating a career.

It boils down to risk-amortized market for money and time; capital and human-capital.

This is just the market. There is no fairness guarantee mechanism. If I have a billion dollars to put at a very, very slight risk, it is still worth much more than your willingness to risk your time, your "reputation", your health and your $100K.

Seriously though, I agree that founders are taking the risk, but actually I think that is irrelevant as well.

The bottom line is that the founder started the damn company; the company would not exist without the founder. If you go and negotiate a contract with a company, you get what's in the contract. In a profitable business we can argue all day about who's creating the value, but it's subjective and irrelevant; the only thing that matters is that the founder went and started a company and offered you a job and you took it. If you weren't able to negotiate a deal for what you're "worth" then man up and start your own damn company, otherwise you're just whining.

In regards to money, that depends on the process. Did the startup function using the founders cash for a period of time that required a significant financial investment? If so, then there's significant risk on the part of the founder. If the startup functioned for a limited period of time on the founder's cash before receiving an investment that paid the founder as well as employees, then clearly there is little risk. Granted, the former scenario is the more likely.