| What do you mark founder value/salary to though? My impression spending time with investors has been that they need productive assets for their portfolio of depreciating cash, and they need exposure to companies in markets where they perceive growth. To get that exposure, they're usually in a few companies in a space already, so as a founder, your company is just one of many. I'd like to propose what a more cavalier approach would look like. The next piece is venture isn't regular value investing. The participants in a given fund (LPs) probably have a horizon of 5-7 years for the total age of that funds portfolio, where they are expecting one or two of upwards of 20+ companies to hit. VC money isn't a loan, the equity a founder sells them is the ticket price VCs pay for admission to the market exposure they need. (Buy the ticket, take the ride.) When you look at what founder/ceo comp should be in that relationship, just as one reference point, a technical founder can probably pick up a consulting gig for a quarter million a year. It has no equity, taxed as income, discounted to risk, no leverage, no scale, all opportunty cost against life and running a year of startup runway, and they're just running a one person time and ass rental business, but that's a founder's base BATNA in the comp discussion. Founders typically pay themselves less before later rounds because of some conventions, but you can't moralize what makes a successful company. Myths about frugality and the protestant work ethic are uncorrelated to returns in venture portfolios. (PE is another story imo, because it doesn't invest in growth, it invests in ways to optimize existing cash flows) So when it comes to founder comp, if a round gives a company 18-24 months of runway to get to their next growth stage, I'd measure comp against the value of that binary outcome. Either the founder gets you there, or they don't. It's hard to imagine, but if you have a portfolio of cash and you need for it to grow, and you believe in a startup, you need as much of that cash working for you in that company as you can stuff into it. If you need one of your companies to have a 30x return and you can't predict which one it will be, any "savings" the founder provides back to their company with frugal comp that comes at the expense of any early stage growth trajectory at all, results in vast value destruction. e.g. If you put $10m into a company and then the one person responsible for all that capital is paid less than some random interchangeable consultant, I'd say you've earned that loss honestly. If a founder took the money from a round and put half of it in a pile on a beach and set it on fire, it literally shouldn't matter to an investor because the investor now owns something better than cash, which is equity in something that is growing. Surplus cash is opportunity cost against growth runway somewhere else. I've seen a few companies who should have set half their cash on fire, because the money made them lazy, political, and stupid. So in terms of what it's reasonable to mark founder salary to, the two co-ordinates I'd reckon with would be somewhere between their consulting opportunities they could just walk away to today, and just setting half your money on fire. I write, am not an investor or founder, this isn't advice, but the conversation from the OP seemed too polite to be useful. |
Come on now, do you really believe this? Investors absolutely should be extremely upset if the company is squandering the resources it purportedly requires in order to execute on strategy and grow.