I'm currently working full time for an employer of mine. I've run numerous small business on the side, including a web software company, a web design company, and a forum... but now I'm working with a friend of mine on an entirely new, much larger idea. This idea is so big that I know there is no way I can do my job and run this business, at least not after we really get started.
My plan without divulging too much is to get our prototype up & running with a few local businesses and do planning in the next 4 - 6 months. I have a partner who is doing all of the coding / design and I'm putting together marketing materials, business plans, and meeting with potential customers. Ideally, and probably realistically, the only way I can grow this business the way I want is with some sort of outside investment.
I'm wondering how VC works in this regard. I have a mortgage, and my wife and I are trying to get pregnant. In a nutshell, I need my salary, to pay my bills.
I don't expect to pay myself any more than I make today, but I would need to pay myself a salary when we went full-time on the idea. Is that reasonable and what do venture capitalists expect? I don't expect to make more than I am now, or pay myself anything exorbinant, I just want to take enough that I acn meet my financial obligations. I have no problem eating Ramen noodles, but I still need to pay for the house, ya know :)
What do most others pay themselves? Is something approaching $100k reasonable, depending on your living conditions and location?
Most intelligent angels and VC's will be willing to pay you a market salary for the function you perform; but it's all negotiable.
It's not unusual for an Angel/VC to tie the level and actual payment of salary to a series of milestones like the completion of a prototype or the acquisition of the first x number of customers.
From a VC's perspective, generally it's a negative if a founder is not willing to "quit his day job" to accelerate the startup of a venture. They want you to have some "skin in the game."
Investors will not expect you to work for free. Typically most of the money raised in seed and angel rounds is used to pay the salaries of the team since all other expenses are kept to a minimum. In terms of how high your salary should be, the lower it is, the longer the runway you will have to get to the next value point on a given amount of money raised.
I would not think of this in terms of what you made in your last job, but more in terms of what you need to cover your mortgage, etc. as your salary level will also set a precedent for the rest of the team and frugality is one of the marks of a great startup culture.
When i have been an investor, I would pay 60 - 75 % of what I could hire someone to do the job for, and expect 60+ hour weeks.
The reason for this is it takes sacrafice to build a solid business. My thoughts on it is:
If i am going to pay you a full salary, and invest in your idea, so at the end of the day I could have less than 50% of it, what do i need you for?
Thanks for the Idea, Ill hire someone more qualified than you, and build it with my money.
Smart investors look for opportunities where the founders are willing to sacrafice. A business that spends more on dev, and marketing and less on salaries is one that i love.
If i ever started doing Investing again I would buy a big warehouse (like a prison camp) with desks, and bunk beds, and a big ass kitchen. The sweat shop would allow companies to incubate without the pressure of bills. Plus being around other startups 24/7 would be so unhealthy it is bound to be successful.