This question popped up on Quora:
Really interesting thought!
I am going to take another twist and look at my self. I am thinking why would I give up let’s say 5-6% of my income. I intend to make some serious money in the course of my life!
If I look back at my 15 years as a serial entrepreneur and the millions of dollars that VC and investors put into my different ventures, I think most of those investors would have made more money if they invested in me in this model instead of in my companies. We would have aligned our interests more, and distributed risk over many companies…
Why? Well, I may not be the average Joe (which reinforces other comments here), but if I would have money to put to use where I think I can make the most money that is how I as an serial/parallell entrepreneur would act (in fact even if I would give up 5-6%, I am from Sweden and have occasionally paid 80% tax in the past…).
Money invested in a company is always bound to the initial idea or thought that you where pursuing at that time, and sometimes reality catch up, but as many other VC funded entrepreneurs know, when the investors and VC’s are onboard you are not that agile anymore. Do keep in mind, many of my companies were started in Europe before I came to the Bay area (different type of investors).
Furthermore, today I fund initial steps of many of my new ventures, because I like the control I get doing that. A PIC would get leverage of all of those projects that I can create. And perhaps give more fuel to make them successful…
So my conclusion is I would personally give up a few % of life earnings for a one-time lump sum (if big enough, and with a fair buy-out clause, as in the links Kim posted), but only if I believed it would help me be more successful quicker.
Now wonder how the IRS would treat such a transaction?