By Art Reisman
I know what you might be thinking ,”Really? High tech workers being exploited?” And my answer is yes. I’ll concede that this exploitation is not like the indentured servitude of the rubber barons of the late 19th century. The players are more sophisticated, but the motives are the same. Get a bunch of naive, young, impressionable people and waive a carrot with the possibility of riches and game on. Here is how it works.
Many top tech companies of today have started as more or less small unfunded garage shops, such as Google, Facebook, etc. Venture capitalists have taken note of this, and they have also noticed how some of these young engineers will work day and night once they get sucked into thinking that their idea is the next Facebook.
The odds of any company growing into a valuation of a billion or more is quite small. What products will take off, what idea will get picked up on social media? You just can’t predict this, but you can improve your odds by spreading your investment across a large number of infant startups.
From the investor standpoint, the equation makes sense. If you have a million dollars, you could perhaps fund one marginal existing company and hope they blossom; or you could take 50k and waive it front of 20 early stage startups who have not accomplished anything yet and are most likely running on fumes.
I see the articles 2 or 3 times a year in the local papers. Boston alone has 50 start up incubators. A typical investment company trolls these incubators, often sponsoring them, looking for promising, hard-working tech people with an idea and a prototype. They offer them a small amount of cash, perhaps a nicer work space, advice, and so forth in return for a percentage of the fledgling company. Is this evil or wrong? No, of course not. But there is the concept of subtle but very real exploitation going on here. I’ll get to that part shortly.
A typical deal works something like this. Come to our incubator for the summer, we will give you office space, advice, and 50k for the three month period. You’ll also get your company featured in a few newspapers and journals. Local newspapers love giving free publicity to these incubators, especially if some big name VC is behind them.
Most likely 18 of these startups are going to fail through no fault of their own, it’s just their idea/product will go nowhere. One out of twenty might struggle along and create a small viable company with a niche market. And perhaps, just one will return 1000 fold or more on their 50k investment. That is the game. Even that is a long shot, and you may have to play this game for several years before you hit that jackpot.
So now let’s take the 50k investment. Divide it by 3, for 3 months of summer and divide it again by 4, assuming the start up has four employees. That breaks down to about 4k per person for three months, and most of these blokes are working 80+ hour weeks minimum, because they are chasing a dream. That is the culture of a tech startup. Somehow, if you beat yourself into a tired frenzy, you are more likely to succeed, right?
Not really. There are some people who do these insane hours, but the good ones are knocking off at 40 and are much more productive. But that is another article for another time.
Conservatively, I can assign 300 hours a month per employee. That breaks down to about $4.50 an hour. Now granted, many of these tech startup people were working for free anyway before they struck a deal. So is this exploitation?
I don’t know, but take this into account – many of these investors are worth 100’s of millions or more and have multiple houses, boats, planes, etc. Essentially, when they buy a big stake in these start-ups, the engineers working for them now become their indentured servants. Yes, the company employees are also driven by the potential of a big payout, but the odds are stacked against them. Most will end up with a pile of credit card debt, and an old newspaper clipping for their resume. I would hope that if I were the investor in this scheme I would make sure the people in the trenches made a living wage, perhaps $20 per hour?