You can upgrade from ramen to TV dinners though.
The number one motivating factor for startups and the reason why they're able to operate more efficiently than larger competitors boils down to one thing: desperation. Having limited resources makes you desperate and hungry. Besides, living in a cramped apartment and eating ramen is a good reminder of what you get when you don't win (and having a roof over your head ain't too bad).
Paying yourselves $300K when you guys probably don't have revenue is a great way to mislead your investors, create politics amongst employees, and, most of all, make you complacent.
Now, (mis)using investors' money to live the life isn't unheard of. I once interned at a company that basically lost hundreds of millions of dollars every year and addressed this by systematic studio closures and layoffs. The company's misfortunes resulted from poor oversight by the management team and had almost nothing to do with those being laid off (they all went on the be headhunted by competing firms). Following suit, every year, product-producing employees were let go while executives maintained their $400K salaries. The management team basically did whatever they could to keep the company alive while they drew as much salary as possible. Interestingly enough, this behavior actually began when they got funded in the late 1980s.
In a startup you generally want to make your salary as low as possible. You're not going to get rich from salary but from the company scoring, so why take money out of it?
At this point, do the founders still have to share a crappy 2 bedroom rental and eat ramen? Or, can they pay themselves $300K a year and use their salaries to put a down payment on a decent condo?
You are not rich. The money comes with strings and it will almost certainly say what you can and cannot do with it. It is not your money, it is the companies money. The company which you no longer have full control over. As well, when and if a liquidity event occurs, conditions on the series A financing may have the VC's taking several times their listed percentage. On the chance that this doesn't happen and you go out of business, which you probably will if you give everyone a quarter million dollar salary and a cushy office downtown, the VC's will take several times their initial investment and this time... this time you get nothing.
VC funding is not an end. It is only a step. And it is a step that can, and in my mind should if possible, be skipped. Five million VC bucks in the bank isn't cash in your pocket, it's debt. Holding debt doesn't make you rich.
In the Bay Area, VCs expect and want the founder/CEO to make approximately $150K to $175K per year after the VC round (i.e. Seies A). I have confirmed this by asking VC panels here in Orange County during open-mike sessions.
What should be clearly understood is that you are actually financing a part of that compensation via your significant equity dilution that would result from the new vesting schedule put in place by the VC! You typically can't escape this new vesting if you want VC money...which is why PG's question about how much cash will you take to just walk away from it has real substance behind it.
This seems useful, but I don't fully understand it. Are you saying that the VCs will force you to take a high salary, so that they can take a bigger chunk of your company?
And there are other factors. If your compensation becomes a benchmark for the rest of the team, now your company is in real trouble. You can't expect to hire key team members at less than the norm. It just won't happen. VCs know that.
Also, a VC's main job is to put out as much of their committed capital as possible into good deals. Allocating a large part of a preferred equity tranche to fund the maintenance and creation of a solid team is the right thing to do.
And comparing with large companies is not apples to apples. That's a different world; here's an extreme example of that world: http://valleywag.com/tech/greed/the-grotesque-1-salary-251104.php
I agree with everything else that you said though.
This is an important question, and one that may have not been answered. To the people who say you can take a $150K salary: how sure are you? ($300K seems wildly excessive to me, as CEOs of 400M corporations don't make that much in salary, they usually get stocks + benefits to augment salary to the $500K range)
This would have been great to ask at startupschool.
And if you care about the business, you won't take a $300k salary either.
So while you won't be rich, you will be able to upgrade from a 7-11 diet to Whole Foods.