It seems to me that the claim he makes re $73k per year is misinterpreting the study he is basing it on.
His claim: "Even if you do raise money and sell a company or take it public, your median time to doing that is probably 49 months. Assuming there are three founders, your median expected payoff would be $300,000 each — that’s the equivalent of $73,000 a year."
From Pg. 2 of the Hall/Woodward paper: "Our most important finding is that the reward to the entrepreneurs who provide the ideas and long hours of hard work in these startups is remarkably small, once risk is taken into consideration. The contract between venture investors and entrepreneurs imposes the burden of the idiosyncratic risk of a startup on its entrepreneurs. Far from shifting the risk toward the diversified investors, the contract exacerbates the risk the entrepreneurs face. Although the average ultimate cash reward to the entrepreneurs of a company that succeeds in landing venture capital is $9 million for the group, most of this expected value comes from the small probability of a great success. With a coefficient of relative risk aversion of 2, the entrepreneurs would sell their holding as of the time they receive venture funding for about $900,000 to avoid the undiversified risk of their claim on the company.
It seems to me that this $900k figure (which is the basis for the $73k per year figure) is based upon a scenario where the entrepreneurs sell "as of the time they receive venture funding" and not a scenario where "you do raise money and sell a company or take it public." Isn't the $900k figure referring to a risk-adjusted founder sale a much earlier stage in the process?
Also, from page Pg. 20 of the Hall/Woodward paper: "The median time from first venture funding to exit in our data is 49 months. We do not have data on the typical number of entrepreneur-founding shareholders, but we believe that three is probably representative. The return based on the $900,000 figure is a little over $6,000 per entrepreneur-month. The extreme idiosyncratic risk of venture-backed entrepreneurship and the inability of the venture contract to insure entrepreneurs against the risk result in a tiny incentive facing a prospective entrepreneur."
His claim: "Even if you do raise money and sell a company or take it public, your median time to doing that is probably 49 months. Assuming there are three founders, your median expected payoff would be $300,000 each — that’s the equivalent of $73,000 a year."
Based upon his Stanford talk (http://www.youtube.com/watch?v=m2sj-U2QSHs at approx. 27:15), these calculations are based upon the paper "The Incentives To Start New Companies: Evidence From Venture Capital" by Robert E. Hall and Susan E. Woodward (http://www.nber.org/papers/w13056).
From Pg. 2 of the Hall/Woodward paper: "Our most important finding is that the reward to the entrepreneurs who provide the ideas and long hours of hard work in these startups is remarkably small, once risk is taken into consideration. The contract between venture investors and entrepreneurs imposes the burden of the idiosyncratic risk of a startup on its entrepreneurs. Far from shifting the risk toward the diversified investors, the contract exacerbates the risk the entrepreneurs face. Although the average ultimate cash reward to the entrepreneurs of a company that succeeds in landing venture capital is $9 million for the group, most of this expected value comes from the small probability of a great success. With a coefficient of relative risk aversion of 2, the entrepreneurs would sell their holding as of the time they receive venture funding for about $900,000 to avoid the undiversified risk of their claim on the company.
It seems to me that this $900k figure (which is the basis for the $73k per year figure) is based upon a scenario where the entrepreneurs sell "as of the time they receive venture funding" and not a scenario where "you do raise money and sell a company or take it public." Isn't the $900k figure referring to a risk-adjusted founder sale a much earlier stage in the process?
Also, from page Pg. 20 of the Hall/Woodward paper: "The median time from first venture funding to exit in our data is 49 months. We do not have data on the typical number of entrepreneur-founding shareholders, but we believe that three is probably representative. The return based on the $900,000 figure is a little over $6,000 per entrepreneur-month. The extreme idiosyncratic risk of venture-backed entrepreneurship and the inability of the venture contract to insure entrepreneurs against the risk result in a tiny incentive facing a prospective entrepreneur."