If you’ve raised venture capital, you have to pay yourself
techcrunch.com
techcrunch.com
> Try this on for size: “I am raising $3 million right now, and once the financing closes, I will pay myself a salary of $130,000. Once we hit $300,000 ARR three months in a row, I will pay myself a $30,000 bonus and raise my salary to $150,000 per year. Once we hit $1 million ARR three months in a row, I will pay myself a $50,000 bonus and raise my salary to $250,000 per year.”
IMO one of the challenges I've never personally seen solved well is how to truly share the fruits of success with all the people who were necessary for it to happen. In this example it's of course not clear how much of a team there is, but I'm sure any non-founder employees are also working below market and would love for their wages to increase as revenue grows and the product matures.
Founders, investors, pretty much everyone "successful" in the industry wants to promote this so that they can get cheap labor for their next spin at the merry-go-round.
Again, VCs don't care about ability to liquidate because they are diversified, but an employee certainly does because they are not diversified at all.
This is why common is valued "way below"-- and it's rational for employees to view it the same way.
Those young whippersnappers wouldn't even buy your house in 2009 either!
A little over a year ago seems to be the recent peak of VC funding and valuations.
We posted a job for a certain compensation, they applied to and accepted the job at that compensation. If they could make more money elsewhere I don't know if it's their fault for accepting our offer, but it was their choice.
I don't think they were signalling their inferiority. Some we paid above market to, some we paid below market to. People we paid below market to we try to increase their salary to match market.
We never sold any intangibles, and the only intangible we offer but don't advertise is we're very flexible with hours and it's low pressure environment.
At the end of the day these are not children but adults who need to do what's best for them. If our offer and job isn't what's best for them then they shouldn't have applied and accepted the offer.
What they're really doing is gambling. The odds are that the equity such employees earn will never pay off, but if it does pay off, it can pay off huge.
Personally, I gave up on working for equity a long time ago except in my own companies. The odds of it working out are just too low for my tastes.
That doesn't seem to match with reality, sadly.
I always thought a co-op would be an interesting model but I don’t really know how to synthesize that with raising venture capital
Most VCs are herd animals that gamble: they follow others and are afraid to lose out. But they never have the guts to bite first.
Conducting VC investment as a scientific/engineering discipline means thinking about systematically constructing 10x, 100x, 1000x wealth from the capital given, in a systematic way, and while minimizing risk. So your thoughts about rewarding everyone that is included in making a startup a success is a very good idea.
Co-cops sound leftist, but actually mean sharing risk and reward, so economically that makes sense. I had a related idea: imagine 10 entrepreneurs that trust each other, all involved in independent startups that do not compete with each other. They take a 5% stake in each other's business. Suddenly your assets as a founder include 10 stakes in 10 companies, which means you have an interest in the fact that not just you, but also your 9 trusted friends make it, and you will happily make your network available to them accordingly. Given that 9/10 startups fail (a cruel but true descriptive statistic), you will not even necessarily lose if your own startup does not make it. If most would not give 5% of their own startup for another particular startup's 5% stake, this may also be a pretty good litmus test that the idea may be flawed.
Pooling risk is what insurances do as their business model. Startup entrepreneurs have not yet embraced this idea to self-organize in this way.
If a rational founder thinks they can gain more by working on their friends startup, it might be better for the collective to have more people working on the more promising project.
and most importantly, its granted at a huuuuge discount to prices you ever see online. 90% below initial public prices. many employees are still not experiencing losses even with the steep decline in the crypto market. for tokens, a lot of that decline is a death spiral from employees vesting and selling.
Do you delay your own financials in order to hire an additional guy or do you pay yourself what you're worth and ever so slightly increase the chance of running the company into the ground by doing so?
I'm surprised that 13 years later this is still a topic. It seems braindead obvious. I know that I would never take money under those kinds of circumstances again.
Pay yourselves for fucks sake.
It should be the amount being considered, and the amount should be low.
The $130k amount in the article is absurd and that's just the starting point.
The truly unfortunate thing is that we were really starting to pick up momentum, and the company now profitably employs a couple dozen people.
I think 130k is a pretty reasonable starting salary after investment these days, given market conditions for technically competent folks.
The advice I was given when I raised my first round was to pay myself a salary that meant I could focus on growing the business without worrying about personal financial stuff. It was spot on. All your energy should be going on the business.
Anyone trying to minimize their spend to the point they can't eat properly, or paying themselves a salary high enough to have a serious impact on runway, would be a major red flag.
I'm always fascinated by compensation conversations on HN, because they seem to come from a place of... very high expectations. Don't know how to say that without sounding snarky, that's not my intent.
Curious.
I know this because I hired many people last year and some were entry level.
If they don’t make high six/low seven figures, who will? Bankers? Lawyers!?
Employees and contractors, and founders contingent on equity. Also some who don't agree that founder salaries funded by investment should be modest.
Region doesn't matter to me, the floor of cost of living never truly goes that low.
Sector? I build and deploy web or mobile apps, and I do as many parts of that as my team doesn't.
Experience is 10 years, including with Senior and Engineering Manager titles.
Besides the fact that I can make more than $130k by walking in the door across the market, I also believe I could generate a MRR that would return after-expenses revenue higher than that with a new business within 1 year. So I also don't see why I would take a moonshot on a poor salary, when I can aim lower, still have big upside, and avoid VCs stepping all over me
Come again?
Now, mind you, I'm not saying it would only be the product, I would also be willing to be a consultant (trading the singular VC for multiple, not-quite-fungible-but-closer-to customers), but making only $130k for your soul and a lotto ticket does not sound like an appealing deal.
You can see housing prices for whatever areas people are talking about and how much the monthly mortgage comes out to be to get baseline on cost of living.
I believe the $130k is meant to be in addition to whatever equity the founder is retaining.
Why would you ask this question?
> I believe the $130k is meant to be in addition to whatever equity the founder is retaining.
Obviously. But I would control 100% of my bootstrapped business, and not be eligible to being outplayed by the VC who controls all the strings and always makes all the money in the end.
However, in a bootstrapped case, I can just work as a consultant if I need some extra revenue. In a VC case, I don't have extra hours available in my life.
I'm also not rich and don't have an appetite for extreme wealth, I'll make a couple milly and call it a career, so that should color your perception of my statements
Side-note: $130k being competitive obviously depends on your area/market, but that's far above average rate for senior devs, let alone C-suite, in many areas of the US (and especially outside of the US), so I can see why it might be a baseline for others. Seems like you should adjust this number for you. :)
We're talking about founders who opt to take VC money. You can talk about the benefits of bootstrapping vs. VC, but these are already people who decided to work at below market rate to retain the equity upside.
It’s absolutely ridiculous and unprofessional.
The waters get muddied because of how VCs operate. VCs want to take 50 shots, or whatever, and make their money on the 1 that hits. That works for them but doesn't exactly work for founders since founders don't get 50 bites at the apple. In that scenario it makes sense for founders to take some money off the table so that if things go bad it's not a total loss.
Understandably VCs don't really want to do that. They want you to take their money to grow the business.
The approach in the article is one way, but I don't like the lumpiness of it and the big bonuses won't work if you're bootstrapped.
A better approach is to pay yourself a fixed percentage of MRR. Some VCs may add salary caps but this works until you reach that point. I’ve found that 2% works well.
I wrote this a while ago and a bunch of founders (particularly bootstrapped / tiny seed rounds) said they found it helpful in figuring out their pay structure: https://ghiculescu.substack.com/p/how-to-set-your-salary-as-...
Also, the whole "ramen-profitable" concept needs to die. Artificially reducing expenses beyond reasonable fools people into thinking they've developed a business model that's sustainable.
Not paying founders is just a tactic to burn them out and push them out. It doesn't have to be market rate, but it has to be more than half of market rate.
BTW, while we're on this, if you're interviewing someone and it's going to last 3 hours, feed them lunch.
Run far, far away from any investors who are obsessed with “their side” of the deal so much they don’t care how many lives they have to destroy to get what they want.
For context, I'm a one-man shop that sometimes hires contractors to do pieces of work for me.
This should NOT be interpreted as me giving anyone else advice.
My businesses can't pay me my going wage at the start because I try to avoid debt when starting a business to the greatest degree possible. There are much more crucial expenses that money needs to go to (such as paying others).
Thread 1 is whether or not the behavior you describe is a crime
Thread 2 is whether or not anyone will ever enforce it and what might the penalties be (if any)
My guess is that it's technically a (minor) crime but will never be enforced unless you become a political problem or something and they just need to find any old crime to get you.
None of the above should be considered legal or financial advice. It is solely my personal opinion and I am not an accountant or lawyer.
I might hire a Junior developer to do the coding, a salesperson to land the gig, etc. If you're not bringing in enough revenue to fund those "positions" + profit then you are not billing enough for your work.
Those people get paid and so should I for performing those duties.
And it won’t be long before millions at the early stage is a rarity in California, as well.
65k + 1 * 65k = 130k
65k + 0.5 * 65k = 97.5k
86k + 0.5 * 86k = 129k
But even so, living in SF on 97K before taxes is questionable experience. It also seems that with 30K a year or 2.5K a month we are essentially nickel-and-diming. As a CEO you have to sometimes look presentable, you may need to travel, you also need to eat, exercise and rest. Sure you can do ramen style for couple years in your 20s, but how much money will you realistically save your startup if you pay yourself 97 vs 130k
https://www.wyzant.com/resources/answers/287237/word_problem
Here's another one: https://www.wired.com/2015/01/coin-jar-crowd-wisdom-experime...
> The actual value of the coins was $379.54. The mean value (x̅) of the 602 guesses submitted was $596.12, about 57 percent too high. What's more, a massive (by crowd-wisdom standards) 40 percent of the individual guesses were closer to the actual value than that of the crowd.
Here "57% too high" you can arrive at the original number by dividing by 1.57.
The bootstrapping mentality becomes counterproductive after you pass a certain stage (e.g. if you can afford 20 employees and are bootstrapped, you can probably afford to pay yourself the median salary of a C-level exec). It will make your life more comfortable and will make acquisition offers less appealing if you're already drawing a good salary.
My very powerful GPT-4 based startup progress is currently kind of one hold all day today while I wait for someone to answer me in Slack about his $1k contract which he completely blew up the scope on this weekend and I am counting on to pay rent.