Investors willingness to pay founders to enable full t-ime effort


2

I have read all the streams here on this topic but didn't find an answer to the following specific concern:

I am one of two founders of a new web service of an idea I first developed months ago and brought my co-founder in more recently. My co-founder works part-time and I have a full-time job. I have self-funded our outsourced development so far, but my hope is to use the prototype to raise some funds with the ultimate hope of doing the start-up full time.

Two issues have become apparent from reading this forum over the past several weeks:

  1. Investors wants founders to work full time
  2. Investors want to pay them minimal cash -- preferring they be compensated from some exit event down the road

Neither my co-founder or I are the prototypical 26 yr olds who can drop everything to cohabitate some accelerator for 3 months. I am a single dad, and have obvious related expenses.

I would love to do this full time, but how can I get an investor to pay me enough to do that? I am assuming it we raise $500k to last 6 months, the investors are not going to want to see 20-30% of that go to pay founders salaries...

How do I solve this issue?

Founder Compensation Investors

asked Sep 30 '11 at 23:10
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D Moore
174 points

2 Answers


1

Don't focus on the salary first. Focus on creating something that's worth investing in. If you can afford to self-fund/bootstrap long enough to build something that has actual users, and eventually, paying customers, then you're on your way. I've noticed that when discussing salaries, people often mention minimal salaries paid to high-profile startup CEOs funded by VCs. Like the CEO of Mint.com or whatever. Yes, investors look at you at having all the upside because presumably you'll have founder-level equity, but you will be able to make a reasonable case for cost of living. You have to create value. Investors have nothing to gain in starving you into distraction, looking for freelance work to make ends meet - they want you focused. Not padding your savings, but able to commit to the startup 24/7.

Also, salary isn't the only way to get compensated. As you create value, work with your board to create scenarios where selling founder shares are a possibility as you go along. Not all founders are alike, and at the same life stage.

answered Sep 30 '11 at 23:51
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Nicko
840 points
  • This is helpful -- I just want enough for basic subsistence for me and my kid while we get this project going, not looking to pad anything. Thanks very much for your comment! – D Moore 9 years ago
  • I'm in the same boat. – Nicko 9 years ago

0

I think the answer to your question needs first for you to define you goals.

Are you looking for a fulltime job quitting your current job, or are you hoping to sell a good idea with the goal to exit later on (you will have to quit your current job anyway though).

Getting funding for a startup I feel is pretty much the end of it (even those 3 months summer camps that give you 50K capital I feel are pretty hard to get out of).

500K funding would have the VC defiantly looking for a big exit down the road not to mention probably taking the majority of the shares as well. The chance of increasing company value to compensate the VC and also leave you something for your troubles would require a buyout in the millions. What do you think are the chances for that?

The posibility for you to generate a cashflow from sales to avert a buyout is astronomically small. The best outcome would be you stay on as CEO or some similar role after the buyout if it came to that.

I would say start lean, and continue lean. Not knowing the business that is not easy to say. but for example instagram runs with 6 employees. Try hard to increase your sales. As the cashflow starts your options will increase. If you really need cash then try the banks, their terms are similar to VC you need to be making money to get money. But at least their terms are more humane compared to VC, and since you are making money you can see the exit. This way you probably wont become a millioner before 30 but you'll own your own business and have a decent income.

BTW I'm a programmer if you need help on programming related issues or advice on outsourcing I would be glad to help.

answered Oct 2 '11 at 03:36
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Ekim
141 points
  • This is helpful advice. I think the ultimate valuation and market size (>$10 bn annually) would support a decent size initial investment. we are trying to stay lean as possible, but also want to get ahead of some other early stage potential competitors. We will try to build as much of a working product as possible before reaching out to funds. we are currently in very early stages with a potential strategic investor who can help with money and product development if they decide they are interested. Thanks! – D Moore 9 years ago

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Founder Compensation Investors