
Why Deferred Salaries Don’t Work for Startup Founders - mariorz
http://blog.jparkhill.com/2008/09/04/why-deferred-salaries-dont-work-for-startup-founders/
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tptacek
(1) Plenty of founders do get deferred comp. Like all other compensation
issues, it's all about sales ability. You either sell your investors on
getting money, or they sell you on keeping it.

(2) "There's never spare money" is a great argument for paying the CEO a
sustenance wage. That never happens; the CEO walks in the door at 175-225k
with a severance package and a founder's share of equity.

(3) "There's never enough revenue" is a great argument for running your
business to break even or profit. If you can do that, you don't need VC. The
question isn't _whether_ to lose money, it's _where_ to lose it.

(4) Get your accounting advice from an accountant, not a blog post.

I'm not advocating in favor of deferred comp, I'm just saying, anecdotally, I
know the story not to be as simple as this post represents it. I don't think
you should take VC at all.

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mattmaroon
(1) Really? I'd never heard of this. (2) No startup CEOs I know get that. (4)
True, but what he says is mainly just common sense.

Maybe it's because I went through the good end of Silicon Valley that I didn't
know these sorts of things happen.

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tptacek
Maybe we're talking about startups at different stages. I'm sure an angel-
funded startup doesn't pay anyone 175k. But post- major-label A round? Yeah,
I'm going to stand by my assertion. The VP/Sales may get that too, pre-
varcomp.

I wish I could give you specific examples of founders I know got deferred
comp; I can't, because it's none of my business to name names. The legend of
deferred comp was not just pulled out of someone's ass. It's being blogged
about because people ask for it, and people ask for it because some people
have gotten it.

Again: don't take VC at all. Then this stuff doesn't matter.

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quasimojo
_Maybe we're talking about startups at different stages. I'm sure an angel-
funded startup doesn't pay anyone 175k_

wrong!

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tptacek
Example?

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jwilliams
This raises another question - how do you ensure fairness between co-founders.
Particularly if one comes into the game later, or takes an extended break, or
simply can't contribute as much as the others (e.g. has family commitments).

Is this usually settled in the division of equity? If so, how hard is this to
change over time? I'm sure once you're rolling this wouldn't be overly simple.

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westside1506
I've always thought that deferred comp was a long shot at amounting to
anything. It rarely pans out.

I've gone for the "founders never earn more than anyone else" approach through
several startups and I've found that it works well. Sometimes, at the start,
it means the founders earn $0 or need to infuse cash to pay others. But the
benefits for the team are great. Of course, this assumes the founders can
afford to do it.

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swombat
How about raising some seed funding and paying yourself a modest salary out of
that, rather than seeing no cash for years? Seems to work well enough for
many.

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olefoo
How many and under what conditions?

This is a topic that should be researched, if it turns out that there is a
relationship between founders compensation and the success of the company,
that would be useful to know.

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swombat
I obviously shouldn't discuss the funding details of my company, however, I
think there's a definite relationship between how much time the founders can
afford to spend on the company, and how well it does. Certainly my business
would not be anywhere near as far as it currently is if I could only devote 1
day a week to it.

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olefoo
I'm sure there is a relationship between founders salary, founders equity,
funding arrangements and profitability of the firm.

Unfortunately there are too many other variables to be able to pluck much
signal out of the noise.

I do think it it's possible to pay someone too much, to the point where they
either think that they are already successful before having achieved the goal,
or to the point where their interests begin to diverge from the investors.

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mattmaroon
Do founders actually do this? I'd never even heard of such a thing.

I imagine the investor is getting extra equity to make up for this (since the
investment is less desirable due to it) so the deferred salary probably be
less than the founder would get in a liquidity event if he had just hung on to
the extra equity. And it there's no liquidity event, he's not getting it
anyway.

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quasimojo
why would you defer compensation? getting vc funding is the time to pay
yourself your fantasy salary. most very-early people i know at startups now
are paying themselves minimum $150k AND UP. you can get the funding to do that
if you have a non-bullshit idea. if your funders put you on poverty wages, its
time to read the tea-leaves...they are assuming you will fail

