It would be hard to appreciate this without thinking like an investor. Let's say you pitched an investor. He has seen your passion and drive 100s of other times before. He decides to give you $200K as seed money so you can keep getting same income as your corporate cushy job. He knows your chance of failure is 90%. Next year very likely investor is going to loose all of that money.
On the other hand, you have no downside. For you, it's pretty much the change of job because you get to keep same income as before. In fact, it's much better than a change of job because now you get to work on stuff you want in your pajamas in your backyard of your 4 bedroom home. Come next year, there is 90% probability that your startup would have failed. But you would have zero loss in any material respect. Instead most likely you are just going to move on with your life and find another corporate cushy job with minor or even major promotion given that now you can brag about having tried your own startup and claim that experience.
So you see, we have a transaction where one party has 90% chance of loosing everything and other party gains 110% always. Anyone fantasizing about such transaction would have to find a great fool or own a casino. This is why you can't expect any competent investor funding your startup so you get to keep your "cushy job" income.
PS: Betting your "name" and "reputation" is meaningless to investors unless you are Evan Williams or Kevin Rose.
PS2: If you think investors are still getting fair deal because they have chance of hitting a jackpot, know this: Average VC fund has less returns than S&P 500. Rate of failures of startup takes away pretty much everything but small slice of big pot.
1) Investors can vastly improve their odds by knowing what they're investing in. There's a reason Paul Graham and YC are the gold standard in these circles now, and that is because Paul Graham and YC are one of the only informed investors in the game. Practically everyone else is just playing a favorable casino game.
2) If an investor wants to give you $200k seed money, and you can make a justifiable case that you need $200k to maintain a reasonable lifestyle based on your family's needs, then you're going to need more than $200k.
That said, I don't argue that most founders need $200k, I just argue that they should be given reasonable allowances to provide some basic decencies for themselves and their families, instead of ending each pay cycle with less than ten bucks left in their pockets.
3) The risk should be appropriate on both sides. If $200k is a risk that jeopardizes the welfare of an investor, he shouldn't be investing it; "never invest more than you can afford to lose". And if taking a job at a startup is a risk that jeopardizes the welfare of a founder and his family, he shouldn't be risking it, for the same purpose. A good founder is worth a good salary. He probably shouldn't be rolling in the dough, but most investors seem skeptical if the founder isn't living off of ramen. This is not acceptable if you have a family to support.
What does a VC really lose if a company goes under? Not that much. The founders are pouring years of their life into the development of a product. They are asking their friends and colleagues to trust them to build something great and join them, transferring responsibility for their livelihoods as well. Founders have a legal and moral obligation and fiduciary duty to output the best product possible with their investment. Most founders take this responsibility very seriously. The failure of this venture is a major emotional loss to the founder. And what's the loss to the VC? Oh yeah, a rather insignificant portion of their total play, because it was specifically engineered to be that way. In fact, most of them hardly notice when these failures occur, unless they begin to occur en masse.
I find the argument "VCs have everything to lose if you don't take a 50-70% pay cut!" despicably shallow. VCs never have anything to lose except money, and certainly make sure never to jeopardize that in a serious manner, so what do VCs have to lose? Almost nothing. What does a founder have to lose? Oh, a few years of his life, emotional health and well-being, reputation and trust among his family and friends, etc. Just petty stuff compared to the $200k check an investor will write and instantly forget about.
The founder should be made to put even more on the line! He shouldn't be allowed a salary that's commensurate even with a cruise-control corporate position for all that responsibility. He shouldn't even be allowed a salary that will afford him a few basic privileges like a decent mode of transportation, decent living quarters in a decent neighborhood, or a bit of leisure every so often. No income to fiddle with new gadgets or experiment. No room to breathe. On top of the stress of the company, he must endure the stress of barely meting out enough to make his mortgage, which several people rely upon for shelter. He should do all of this because he needs more to lose, so that the VCs are satisfied.
The founder's only way to make any decent income backported over those years of indentured servitude is to make the VCs a billion dollars first. Seriously. And if anyone doesn't like this, then the VCs try to shame him and lecture him about the stakes. Remember how I said VCs depend heavily on the naivety of founders to maximize profits? Here you go.
On the other hand, you have no downside. For you, it's pretty much the change of job because you get to keep same income as before. In fact, it's much better than a change of job because now you get to work on stuff you want in your pajamas in your backyard of your 4 bedroom home. Come next year, there is 90% probability that your startup would have failed. But you would have zero loss in any material respect. Instead most likely you are just going to move on with your life and find another corporate cushy job with minor or even major promotion given that now you can brag about having tried your own startup and claim that experience.
So you see, we have a transaction where one party has 90% chance of loosing everything and other party gains 110% always. Anyone fantasizing about such transaction would have to find a great fool or own a casino. This is why you can't expect any competent investor funding your startup so you get to keep your "cushy job" income.
PS: Betting your "name" and "reputation" is meaningless to investors unless you are Evan Williams or Kevin Rose.
PS2: If you think investors are still getting fair deal because they have chance of hitting a jackpot, know this: Average VC fund has less returns than S&P 500. Rate of failures of startup takes away pretty much everything but small slice of big pot.