Are startups kind of pyramid schemes?

With poetic license, yes. But only at a low resolution of analysis, if you squint. Otherwise there's a mountain of difference between the inherent intentions. One is fraud, the other is servicing a new group of customers to make their lives better (ostensibly).

There's some similarities, but it's still a job paying you wages (unless you're only working for equity), so it's not anywhere near as bad as actual pyramid schemes, which often require a monetary buy-in from you in order to pay people directly up the chain (as well as the sales you make).

You just have to evaluate the startup based on their offer (heavily weigh the compensation, benefits, and learning opportunities, but don't weight the equity too much, imo), where they're at (series A/B/C, burn rate, other factors) and see if it's worth it to you to take a chance on the job.

Ostensibly, founders should have a lot of the equity because they took on a lot of the risk; often going months or years either without collecting pay or at least below market pay for their skillset. I worked with a founder who spent 7 years, spent tens of thousands (if not over $100k) of his own savings, and took on loads of debt before he finally landed a $100m Series C last year.

The execs and employees joining later are by nature taking less risk because they are being paid near market rates with equity making up the rest. The later employees get less of the pie because the early employees took all of the risk.

Look at the business model. In a pyramid scheme, the primary business model is recruiting other people into the scheme, rather than selling actual goods or services. They ostensibly sell goods or services, but to join, you typically have to pay money to buy products from someone else at the company. You hope to sell at a profit, but the only real way to recoup your 'investment' is to recruit someone else into the scheme.

That said, startups can be full of toxic hierarchies, exploitation, unequal distribution of benefits, and similar qualities, but that's been true for centuries of capitalism.

Short answer, no, for the reasons other people described.

There is something really pyramid-scheme-like about moving up the management chain. An early engineer becomes a manager. Then more people join thinking they'll become managers. Maybe they do and the first manager becomes a director. But, just like a pyramid scheme, this isn't really sustainable without huge turnover. The math just doesn't work out.

I would not say so. Saying a "pyramid scheme" implies intentional fraud, which is not the business that (most) startups are in. Theranos, etc. aside, most startups are sincere attempts to build viable businesses and are not committing fraud. It's just an inherently risky game. shrug

> A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products.

So, no.

It's not a 'pyramid scheme' like Amway, but yeah, it's pyramidal.

The moral discomfort you notice is not because there is something wrong with startups per se, but with the winner-take-all dynamic that emerges in poorly-regulated markets. https://www.amazon.com/dp/B00K33AFOK?plink=B7Qs6pIL3Rfw7mh2&... You are looking at the most basic feature of capitalism: that the rich tend to get richer. The usual mechanism is that rich people can afford to take on more risk, and therefore earn more reward.

Your moral intuitions are correctly picking out injustice, but failing to notice that your entire life takes place among pyramids. Sure, startups are pyramidal, but so are corporations -- don't forget Zuckerberg telling the 'metamates' to put his company before themselves. Size doesn't matter; nor does industry; the same dynamic plays out in banking, agriculture, and all the rest.

If you follow that intuition, you may, like me, discover with surprise that you're a socialist progressive.

And once you've adjusted to that self-reperception, you may want to get active. The only way out of the Valley of the Pyramids is redistribution.