

Ask HN: Giving raises after a series A round - mpc

Do co-founders usually give themselves large pay raises after closing their first big round of VC money?<p>For example, a startup that has lasted for 1year on  200k of seed and angel money closes a 3 million dollar series A round. The company has 3 cofounders and 2 additional hackers and everyone is taking just a little more than their monthly expenses.<p>Do you avoid the temptation in order to save as much as possible? Here in Cambridge, hiring top notch development talent costs about 100k or more if a huge chunk of options are not offered to the person.<p>It seems like a no-brainer to keep your salary as low as possible while you keep most of the equity and your employees get the higher salary.<p>If I had to guess, I would say that this is not the case in most VC backed startups. If so, then why?
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sanj
I believe the goal should be NOT to be an outlier.

Get a good sense of how the market would value you, independent of being a
founder, and get paid that.

Getting paid too much is just asking to to be singled out to be removed as a
"cost saving measure."

Getting paid too little makes everyone value you less. And you're at risk of
being viewed as sucker.

I have some strong memories of how annoyed I was at how much money our "new,
post-series A management hires" were spending while I was still doubling up in
hotel rooms with the other founders.

At least we weren't still sharing beds...

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Flemlord
I ran into this situation about ten years ago. (With the _exact_ same amount
of seed funding and series A funding oddly.) I didn't want to do raises and my
co-founder wanted to do a huge raise that would have doubled his salary. We
compromised closer to my side and just did a slight raise.

We also sold some personal stock to the Series A investor. I banked it and
forgot about it. He went on a spending spree and his performance at work went
down and never recovered. He ended up quitting a year later, wrangling high-
dollar consulting contracts from a couple of our larger clients who later
regretted it. Asshole.

I suppose this is more of a lesson about picking the right founders than
whether to give yourselves raises. But I'd be a bit wary of anyone who wants
too large of a raise.

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RyanGWU82
I've been told that investors will generally veto any attempts by founders to
give themselves "large pay raises." Series A investors will likely allow small
raises so that you're not living off ramen anymore, but founders should still
expect to be paid below market rate.

My guess is that compensation would be a topic of board discussion --
especially executive compensation. In an early stage company, it would be
politically impossible to argue that you should be paid more simply so that
you don't jump ship. Threatening to quit does NOT go over well with investors.

It's pretty common that early employees and non-founder executives are paid
more than the founders. Obviously, the founders will own considerably more
stock.

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amohr
I've never been through this before, but I feel like getting through series A
is a milestone and should be treated as such. I think founders who have been
busting their asses to get this product up-and-running deserve some sort of
bonus, especially because they just presumably diluted their equity. Maybe
this could be solved with some sort of one-time bonus or at least a big effin'
party of some sort.

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brezina
You should include your pay raises in your budget you provide VCs before
closing your series A.

I would suggest paying yourself somewhere around or a bit above what you would
make at a big company if you were doing the 9-5 gig as an engineer or whatever
other position you'd hold.

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white
Be adequate with what you are asking for. You have the right to get paid fair
salary. What investors may worry more then a few grands of salary raise, is
how to keep your attention on the startup as much as it's only possible. If
you're underpaid and cutting your expenses, you can't be a good person to
develop a strategy on spending invested money. Know your value and you'll be
fine.

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Payton
In my opinion, getting a big injection of VC money doesn't make it alright to
turn up your burn rate a significant amount.

I have never been through a round of funding, but it would make sense to keep
your costs down wherever possible. A founder who just got a round of funding
should be thinking on ways to increase the value of the company instead of
their salary.

I would like to know what is the norm in VC backed startups. Are there
significant pay raises or bonuses after a round of funding? Do the founders
and the employees share the wealth? Or are things kept fairly similar to the
status quo.

