In the development stage of launching a start up. I am initially outsourcing the development as I am not located in a place where there is an abundance of programmers. The dev timeline is 6 weeks. During that time I will be chasing investments, recruiting team members and beginning to speak with clients.
As soon as the development phase has concluded I will be needing additional staffing to handle menial tasks such as contacting potential clients and conducting some basic marketing.
As the sole founder I have 100% of the company but will want to allocate equity to the team-members I will be recruiting for executive roles. In the preparation of my financial projections (more like financial needs for the first 1.5 years) I have built in salaries for all employees, both laborers and execs. From an investor's prospective, is it better to show these salaries (as they add up quick) or should I attempt to divy out more equity in an attempt to present lower operational costs?
If I can raise enough capital, I would prefer to pay industry-standard wages early on and leave myself and 1 or 2 undetermined co-founders the maximum amount of equity to leverage with in subsequent rounds of financing. Thoughts?
Potential investors want to see real operational costs and attempting to artificially lower salary expense by substituting equity will make you lose credibility with them if the salaries in your model are substantially below competitors in your space. In addition, equity compensation is a real expense and will still hit your Income Statement based on your valuation at time of stock grant. So I agree with your plan to hold off on giving out equity to non-executives until your business start-up is more developed. You should re-assess your decision periodically based on your business needs and forecasts.