Investors should take the time to look at a founder’s life circumstances, and set their pay to optimize time-at-work, even going so far as to pay a nanny and house keeper directly to ensure the founder isn’t wasting precious hours on household chores.
I have kids, you don't. I "should" make more.
I am trying to have kids, you already have them. My IVF treatments are expensive and mess up my partner to the point that it's expensive for me. I should make more.
I am trying to adopt because my partner is infertile. That's a long and laborious and expensive procedure. I should make more.
My partner and I want kids, but she's infertile because of ongoing chemo treatments. Life is rough. I should make more.
My partner or I don't even think about kids because we have medical issues that we do not want to advertise. What does this have to do with my salary?
The only sane way to answer the question of salary is "how replaceable are you, and what can they afford to pay?"
Anything else can and likely will leave a festering wound that will affect the company later.
In fact, a simple, approximate model for this phenomenon is inheritances split among siblings when parents die. It was (and is) quite common to have one sibling inherit more because they have had a difficult life in some way, or because boys should inherit more money than girls, or other such blather.
It rips families apart.
Do you really think that your startup will survive better?
Could be kids. Could be IVF treatments. Could be student debt. Could be geography. Could be past success/failure.
Doesn’t really matter the specifics - kids are just one example - but paying founders enough so they can frugally live and not stress about their financial situation is the optimal choice, and it may result in differences in comp early on.
If the founding team has a big problem with small inequalities in salary, there are bigger issues at play that will likely eventually surface.
$10K won’t make much of a difference in the final outcome.
$10K can make a massive difference in alleviating personal stress levels - and have limited marginal benefit for a founder with fewer expenses.
Any founder who genuinely doesn’t need the extra $10K, and has a problem with a co-founder who genuinely needs the extra $10K getting the $10K - and accepts that that $10K is not likely to make a difference in the final outcoming - is not acting rationally.
Causing friction in this scenario is, to me, a huge sign of immaturity, ignorance, and a lack of commitment and/or understanding of the long game.
The reason most people raise early stage finance is to reduce their personal risk, and push that onto the investor. Which is fine if both parties understand the deal they're getting (risk reduction for potential massive upside).
But since this is mostly done to take risk away (during the riskiest phase of the company), I also believe you should equal the salaries. With equal equity stakes, one party shouldn't be taking more risk than the other by foregoing salary.
Founder one is 19, has no-one to depend on him, can happily live for 40k a year.
Found two is 27, has a wife and a kid, has a mortgage, the lowest "stress" free amount he could live on is 80k a year.
So what are the options:
* Pay both 40k. Founder two cannot make end meets, and has to get a second consulting job on the side. He therefore puts less work into the product.
* Pay both 80k. This is "fair", but it is literally just padding the bank account of Founder one. You are cutting your runway N months short for no real gain in output.
* Pay one 40k, pay two 80k, give 1 a bit more equity. This can also be seen as "fair", but it may not be. Founder two is bringing 10 years of experience to the table. Founder one is bringing only two. So in the long haul, you are giving one more money.
* Pay one 40k, pay two 80k, give each equity based on what they bring to the table. Maybe founder one gets more equity. Maybe founder two does. Decent chance it would be founder two, as he has more experience.
To me the right play is pay people what they need to not stress, and give equity based on what they bring to the table. Obviously I am closer to founder two in the above scenario, and I suspect a few people advocating equal pay are closer to founder one.
At the end of the day, each founder is either worth it or not. Some wizard that lives in SF so needs 120k to live? Maybe he is worth it. Some guy with a party problem that needs 95k to live, despite being a junior dev? Maybe not worth it. I think it is better to evaluate each person and see if what they need is worth it, if not keep looking for someone else!
If you lean on early stage investment to pay yourself a salary (which imo shouldn't happen in the early stages, but I do understand why people do it: to take risk away) then by default you are "padding the bank account" of the founders.
Generally equity divisions will be decided before setting up an entity and raising investment, so by the time you get there, it will have already been decided.
Given 1) the low probability of an exit when playing the venture game, and 2) the small equity stake you'll be left with at the end if you do magically manage to exit, I don't think it makes sense to forego (any) salary if your partner is taking out a much larger amount.
But again, I don't follow the line of thinking that states investors should be paying you a salary in the early stages either way.
I understand the gist of what you’re saying, but in the early stages, investors might provide advice about salary but certainly shouldn’t be controlling salary. That’s the company’s job.
Investors get to have a say about the CEO’s salary once they have board seats but not until then.
Perhaps someone decided to wait with kids because they want to have more time for the startup and/or more money left over for it.
You really don't want to be the person who took more money out of your startup than necessary either though. That's what you're arguing in favour of - a higher burn rate and consequently less time for building your business in order for things to be 'fair'.
If you're in that situation I'd recommend agreeing to track the difference and only pay it in the event of an exit, maybe with a multiple (say, double) to recognise the risk you took. That'd be better than increasing the burn rate just to make things equal.
If you're doing this, either: 1) both don't take any salary and use the raised money to build out the business (this is really how it should be), or 2) both take the same salary.
All the rest makes no sense to me and will most likely cause friction, unless one of the founders is already wealthy.
I really like this idea as a way to expand access to startup opportunities.
Have any acceleartors/incubators experimented with offering child care? I imagine that economies of scale could make that more economical than having X% of each investment go to child care with no coordination, even if it was just a group-rate contract with a local child care center.
I think you are better off just giving the person that needs childcare enough money so he can cover it...