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Investors prefer Founders take low salaries. But, Investors typically take high salaries. WTF?

Investors seem to prefer that founders take low salaries. These low salaries mean that founders are living off savings, or at least unable to do any serious saving for future lean times (or retirement!). After a few startup rounds without a big exit, most founders will be essentially broke, especially considering what they will need for their later years.

On the other hand, Investors typically take very comfortable salaries – they get paid well, they save for retirement, and they have very little chance of “going broke”.

So, WTF? Why is this OK? How can a founder reasonably accomplish all of:
1. Demonstrate to investors that they are frugal and “hungry”
2. Take care of themselves and their families, now and in the future
3. Avoid going totally broke being a founder

(Yes, obviously a founder that has a big exit won’t have the above issues – but those big exits are very rare, and most founders will get small or no exits during their entrepreneurial careers.)

  • don’t need big exits. founders usually get a comfortable salary (100k range) after Series A. market rate after B. even at seed round, you get a stipend (about 5 – 7k / month). but yeah, if you have 2 kids who have nanny / daycare cost, the 5k/mo is not going to cut it.

    My co-founder and I lived off of personal savings for 2 years with no income what so ever. sure puts a dent in our savings.. but it’s sacrifice that was worth it.

    btw.. and founding a company is supposed to be really tough.

    re: investors pay. that’s market economy. why do teachers get minimum wage vs. hedge fund managers who get $10m bonus? suck it up. you found a company because you love doing it and believe in that vision.. not for the money. if you wanna make money, go work for Google.

    Reply

    • suck it up? Way to be a d-bag. If you are not starting a business with the sole purpose of making money, then you shouldn’t be starting a business. That said, paying yourself a livable wage is important and if you are preoccupied with putting food on the table, paying the mortgage, etc. vs. focusing on executing on the idea, then you have a really shitty investor who doesn’t understand how to manage risk.

      Reply

      • Wow. you are a self-entitled weeper.

        Having been a broke founder with a family and an investor, I understand both positions well. But weeping about it and claiming inequality is complaining. Complaining is not a strategy.

        You are free to choose. If you want to work somewhere and have them pay you. Do it. Another entrepreneur will gladly step into the void lefy by your startup.

        If you want to play the high-risk, high-reward game of startup entrepreneurship, then know the game you’re playing.

        Calling people who cared enough about you to give you real advice (even if you don’t want to hear it) a DB is also not a good strategy. Sometimes the best advice is not what you want to hear.

        Good luck in your ventures.

        Reply

    • Your assertions “founders usually get a comfortable salary (100k range) after Series A” and “even at seed round, you get a stipend (about 5 – 7k / month)” seem highly unlikely to be true given http://blog.startupcompass.co/73-percent-of-startup-founders-make-50-dollars-000-per-year-or-less

      Your comparison between teachers and hedge fund managers is senseless – they are not in the same industry, nor are they working to towards the same goals. Founders and Investors are, essentially, in the same industry, and share many goals – additionally, they are essentially totally dependent on each other – neither can effectively do their job without the presence of the other (bootstrapped startups excepted).

      Finally, when you say “it’s sacrifice that was worth it”, can you elaborate on why it was worthwhile? I’m guessing your “whys” won’t include “we prepared for our retirement” or “we put ourselves in a good position to start our next startup” or even “we made it more likely that we’ll have long-term careers as founders”

      Reply

  • there are two purposes to starting a business – to realize a dream and to make money. Sometimes they are in reverse, sometimes the same. With a family on the way I believe paying a livable wage is important. Unless you can pay yourself (within a reasonable timeframe) you’re not on a good path for your dream or you investor’s goals.

    Reply

  • Don’t take the money if you don’t want to pay it back… And yes your investors do expect you to live frugally while you live off their money… Otherwise you should go take a job and forget the equity in your startup that you keep while living off investor capital.

    Reply

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