Why Some Investors Think Entrepreneurs Should Not Take a Salary

Are there any investors who still think that the founder should not draw a salary? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.

Answer by Adam Gering, Futurist, software hacker, entrepreneur, startup geek, on Quora:

I think a founder should take exactly zero from the check I write to the company in the form of salary. If they earn a salary, if should be paid from revenue; or from growing the company to the stage it can attract much more investment capital.

Why? Because I'm a pre-seed investor writing a relatively small check.

It depends on the stage of the company, the amount of the investment, and some simple math. Salary should equal percent of investment, how much does it take away from growth spending, and how much does it impact runway? A $100K salary is going to be a very relevant allocation from a $250k investment, and a mostly irrelevant allocation from a $2.5M investment.

Seed investors often feel the founders should continue to bootstrap off their personal savings, and spend all seed money on new spending (development and marketing). They want their investment to accelerate the company, not just maintain the status quo burn rate. If the existing burn rate is too high versus the amount of investment sought (or seekable based on valuation), it will make the company unfundable.

So absolutely yes, if I were to write a $10K-$50K check to a startup, not part of a much larger seed round, I'd expect them to spend it on new things they need, not pay it to themselves as salary. That is the point: use it to reach a milestone, not transfer risk from founders to investors.

At the point of a Series A or a well-endowed seed round, investors would like founders to make the minimum amount of salary they need. In this manner, founders cover their living expenses, but no more. That can range from minimum wage, for a serial entrepreneur with saving or a student entrepreneur in a dorm room, to 75% of market wages. Runway math still comes into play.

Finally, at the point the company is well off the ground and has raised substantial capital and is achieving meaningful revenue, salaries can approach market. Personally, I believe market wages and taking a small amount of money off the table during a later stage funding round, will put founders in a position to find their maximum global outcome rather than seek a local maximum and an early exit.

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