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.