>Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP?
>The only reason I would postulate for this trend is an increasing amount of non-technical founders who need to pay for developers to make and maintain their product, but don't want to give these developers significant equity in the company.
I think this is the best explanation. It's not just tougher to find engineers period, but you have to incentivize them away from the big co's who are paying like 120k/engineer. Equity helps, vision helps, but more than anything so does cash. However it is telling if companies need to rely primarily on cash to incentivize rather than the first two.
Maybe this could be a good litmus test for you as a founder: can you get your early engineers to work at half, or less, their market rate? If so, it implies you're putting something together worth working on (or you're really damn good at recruiting). But if not, if you have to pay close to their big co salary, then I think there's a problem.
I think there are a couple of reasons why cash is a major motivator for start ups:
1) People understand the true value of equity which is to say in most cases, really not that much. As someone who was a non-vested dollar millionaire back in 1999 (and if you were working then who wasn't...), this time round I'm just far cannier about what that might be worth.
2) Big companies are getting wise to the vision thing. Maybe not the "put a dent in the universe" stuff, but the vision of what a company should be like and how it should work which is the stuff that impacts you day to day. Casual dress, flexible working, social activities... These aren't the exception any more, you can get them at large multinationals, you don't need to go to a start up for a nice working environment.
Unfortunately, you can't pay your rent or student loans with underwater stock options or "cool company vision". Most companies have something interesting or unique about their vision or product, so that's rarely a differentiator. And, the equity portion of a job offer usually ends up being close to worthless unless you're employee #1-10. So, at the end of the day, cash is king.
If you want the really good engineers from those companies, they're often making more than $120k - they can be making up to $160k.
Speaking as an engineer who has already been pitched at by others working on startups due to my formidable scalable productivity in my domain (while only being in the Bay area for 4 months), I prefer the security of a good salary and a good amount of stock. It would be very hard to convince me to leave without offering some level of immediate financial security.
Note: I work at a startup that raised a Series A round - I was offered $140k + signing bonus & generous stock options. I believe the company has been very happy with my results so far.
I'm a decent engineer; not top 10% necessarily, but maybe in the top 25% and certainly well above the median. I earn almost $160k doing pretty basic/routine software work at a non-software/tech company in the Bay Area. I'm underpaid (as an hourly contractor)--that is, I know for a fact that the hourly rate I'm currently working for is 20%-30% less than what I could get doing something else. Your salary, if you are as good as you claim, is less than what it should be by a good 10%-20% (factoring in benefits and bonuses).
On the other hand a good litmus test for the worth of the company is whether it can afford to pay market rate (or more), and offer appropriate equity along with that "something worth working on."
This whole industry has a serious problem with compensation and startups are particularly egregious offenders. People are expected to work "for their passion" rather than for fair compensation for giving up quite literally a portion of their lifespan (time). It's absurd.
>The only reason I would postulate for this trend is an increasing amount of non-technical founders who need to pay for developers to make and maintain their product, but don't want to give these developers significant equity in the company.
I think this is the best explanation. It's not just tougher to find engineers period, but you have to incentivize them away from the big co's who are paying like 120k/engineer. Equity helps, vision helps, but more than anything so does cash. However it is telling if companies need to rely primarily on cash to incentivize rather than the first two.
Maybe this could be a good litmus test for you as a founder: can you get your early engineers to work at half, or less, their market rate? If so, it implies you're putting something together worth working on (or you're really damn good at recruiting). But if not, if you have to pay close to their big co salary, then I think there's a problem.