Is a $100K salary too much for an angel/VC-backed startup co-founder?

I answered this question on Quora. Click here to get to the question and all the answers. I keep getting impressed by the quality of answers people give on Quora.

Question: 

"Is a $100k salary too much for an angel/VC-backed startup co-founder?"

After 9 months of part-time work, my co-founder and I are about to start seeking funding to quit our jobs and go full-time. Our goal is to raise $500k. My co-founder says he won't accept less than a $100k salary. I think this will make it difficult to raise money and he should accept less. Are investors going to agree with me or will they accept him taking such a large salary? He's a software engineer/architect with a stellar resume, if that helps.

My answer:

Ideas are a dime a dozen. So are startups. There is a reason why most of them fail (not saying yours will). For the amount you are raising $100K salary is a little high. In fact you might run out of money pretty quickly because every time you hire some one with a good resume – they will expect the same from you. Unless your co-founder has a proven track record in building startups from scratch and carrying them to the next level, this discussion shouldn’t happen at all. Here are some more thoughts:

1. If by stellar resume you mean a fabulous experience of working with big corporations, then his demand for a minimum $100K salary doesn’t inspire confidence. Most successful corporate guys are used to having tons of resources at their disposal without any significant risk (paying for those resources themselves) – people, brand, money, tools, information etc. They are often too soft for the ruthless experience of working in startups and dealing with uncertainty.

2. “Minimum salary” is not a typical startup way of thinking. Any amount of salary will be negligible compared to what you guys can make by building a valuable company.

3. Most of the investor’s money initially should go in value building activities rather than paying people as per their resumes. Once you have a decent business model with access to enough money, you can start paying people based on their resumes.

4. Benefits are proportional to risk taken. If you get to own significant equity and get a decent salary then where is the risk? Why should investors pay you guys to play your game? You should have your skin in the game and that’s the only way you will be desperate enough to succeed. If you want to pay him a good salary then it doesn’t make sense to give him too much equity (unless you are talking about a 1 in a million kind of talent).

Once you raise money, investors will answer this question pretty quickly. Maybe they will agree to a good salary and maybe they won’t :) All of that depends on how valuable your product/service is and how special your talent/experience is. If you have produced something that has a clear business model and can be scaled to serve a decent addressable market – I say 100K is too less. From the nature of your question and the amount you are raising it seems you are still early in the journey and this mindset is probably not a good idea. Also since you are asking the question, it seems that you don’t really like the idea yourself. Better to sort that out right now instead of carrying a baggage and opening a can of worms later.

In the end - if you are serious enough, you will find a way to work it out. It is simple at least in that sense.

No comments:

Post a Comment