

Ask HN: do founders get a salary after raising angel round? - sixQuarks

When you raise angel funding, do founders usually take a salary?  If so, what's acceptable?
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joshfraser
I worked 3 years at my last startup paying myself the absolute minimum
possible. When the startup failed, this meant I didn't have any savings and
immediately had to dive into consulting work. Part of the reason you take
investors is to share the risk of the startup. In retrospect, I wish I'd paid
myself more and hedged my bets a little better. Most startups fail leaving the
founders burned out and broke. Now, I agree you shouldn't be making a fortune,
but you don't want your personal finances to ever be a distraction from your
business. You should be figuring out how to make your business successful, not
worrying about finding money to eat or pay rent. You'll have plenty enough to
stress over at work.

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patio11
Norms are in a rapid state of flux on this. I was told by people I consider
extraordinarily credible that in the last two years their best companies,
whose angel rounds would have resembled Series A a few years back, offered
founders salaries roughly approximating market value of eqivalently skilled
engineers employed in the area. (i.e. $120k not $40k, in the Bay area.)

I will also report this observation: "You'll think this is crazy. I thought it
was crazy. But the last REDACTED deals I did included a partial cash-out for
the founders." (I.e. rather than selling 10% of the company for $800k
deposited in the corporate account the deal was $600k for the Corp and a $100k
check for each founder.)

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tricolon
You're right; I think that's crazy. Is this a recent trend?

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patio11
My understanding is that this was not an achievable option in the solution set
e.g. 2 years ago, but 2 years ago the solution set also didn't include "Waltz
into a six figure job as a fresh graduate", "Bill mid five figures a month
contracting for a funded startup", or "Get this deal offered by somebody on
the other side of the street if I don't play ball with you because your
startup will fill that round regardless and the only question is how much you
extract from us to make it happen."

I'm totally agnostic on whether this is bubblicious or this is just the market
finding a more accurate approximation of the true value of the time of anyone
capable of launching a product people like, by the way.

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DennisP
What do you have to do to bill a funded startup mid-five-figures a month?

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tptacek
Make them at least mid-five-figures a month, averaged out.

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revorad
Does that rule out almost all consumer market startups, because they aren't
making anything and don't seem terribly interested in doing so ("We're
focusing on growth")?

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tptacek
I don't know what to tell you about how to value labor in companies that don't
generate revenue. They all have some metric by which they justify spending
hundreds of thousands of dollars a quarter on salaries; presumably, the same
metric applies to contract work?

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eddy_chan
Really depends on how big your angel round is. If you've raised 200k and
you've got 3 founders who all require 60k salaries each you'll get a year of
runway which isn't very long and that's not even taking into account the
possibility or need for taking on more employees.

I recognised early on that 'end of runway' anxiety is very real for me, as it
creeps up it really affects your decision making on product direction and how
you spend your time.

I would prefer to work backwards and do whatever it takes to make the angel
round cash last at least 24 months without sizeable revenue with the salary
capped at somewhere between 60-70k if the angel round was big.

If that cuts your salary from 60k to 30k so be it, make the necessary
adjustments, it might even include taking a part-time gig
consulting/designing/selling or whatever it is your skillset allows you do. In
the same vein that the cash you spend now is 'expensive', any cash you earn on
the side is should be viewed as a necessary investment of time to help you
reap the returns later if your startup salary can't stretch to cover all your
costs.

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freshfey
Then, you simply raised too little. I always thought that raising an angel
round means "finally to be able to focus 100% on the start up". I'm not sure
whether your investor would like it, if you spend your time doing other stuff
than making this startup big (I sure wouldn't).

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benohear
However you might not be able to wish more funding into existence. In that
situation, the approach "we've got X money and we need Y runway so we're going
to adjust our salaries accordingly" seems sensible. As per my other comment,
totally agree that part time work is unlikely to be a good solution.

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suprasanna
I worked with a few venture firms last summer and got to meet a lot of the
entrepreneurs they've funded. Most of them were working out of a angel or seed
round and all were being paid.

The understanding is that you as the entrepreneur will put in 100% (more like
150%) of your effort & time into the company so, naturally, that eliminates
other direct work for a source of income. The venture firm was providing them
a salary but it was always explained as just enough to cover living expenses
(rent, food, car, etc). In terms of numbers, this will obviously vary greatly
depending on cost of living in your area but consider what would be just
enough for a modest life.

Taking as little money as possible from the round for a salary is actually in
the best interests of the entrepreneur as well. The money raised early on is
very "expensive" in terms of equity given up for it. If you truly believe in
your company and idea, you'll realize that the 40K or 60K salary you want now
actually costs you $400K if/when you exit or IPO. Of course, this is just an
sample, optimistic scenario but hopefully you see my point.

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anemitz
It's normal to take a livable salary. For the founders I've spoken to in the
Bay Area the range is somewhere between 40-60k/year. The variance depends on
your expense policy and how you've setup your work environment. For example if
you expense all meals, coffee, and you live and work out of an apartment, it's
easy to get by on less than 40k which can take care of things like car
payments, student loans, etc.

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dudeguy999
I would add that it depends on the size of the round. There's a big difference
between a $50k and a $1 million angel round.

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ericflo
Maybe this would be a good question for a poll. We pay ourselves each
40k/year.

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rdl
We pay ourselves $36k/yr. We wanted to do $24k, but our accountants said this
would be an issue. $3k turns into $2.2k after taxes, UI, etc.

I think I want to bump this pretty soon; I spend more than my $2k/mo take-home
on car payment + gas ($1k+), food ($500-$1k; I buy expensive/healthy
groceries), exercise ($200-500/mo), (free rent), minimal toy/entertainment
budget, etc. -- if I didn't have savings and credit, living on $2k/mo would be
a big distraction.

Founders making $120-150k+/yr early seems like a distraction too, but I don't
think $60-90k/yr is totally unreasonable in the Bay Area.

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prophetjohn
Exercising costs $500 per month? Get a bike an ride it down the street. Or
even a $50/month gym membership.

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rdl
I pay $42.50/mo for a 24h fitness membership, $80 per session 1-2 times per
week with a personal trainer (same person the CEO of reddit uses, heh). I
could probably do without the trainer but it has been a good investment so
far.

I would like to join a rock climbing gym, maybe do crossfit, and krav magazine
at some point, too.

I probably expend $250++ per month in ammunition, too, but I am drawing down a
stockpile so I don't have to move it.

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debacle
You can't live without a salary, and you can't be productive unless you're
alive. Putting money into a start up and expecting the founders to not take a
salary would be like putting money into a bakery and expecting the owners not
to buy flour.

As far as what is acceptable, it depends on your market, the idea, the
investors, and the founders. I've seen as low as 40k (approx 50% market value
for the founders if they were employees) and higher than 100k.

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therealarmen
If you can swing it, don't take a salary at all. You'll thank yourself later.

Otherwise, anything between $50k-$90k (Bay Area) is reasonable depending on
founders' personal situations. My current company has raised <$1m and there
hasn't been any pushback from investors so far.

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moge
I'm sorry, but this is terrible advice. Unless you have considerable savings
you should always take a salary.

When I was 27 I raised 1mil in an angel round. I was just out of college (I'm
a vet so my college was delayed while I served) and was flat broke. I was
'advised' to take a minimal salary and proceeded to bring on 12 employees all
who made most money that I.

2 years later when we ran out of money I had zero dollars in the bank (zero).
I had no savings, I had no safety net. I was F'd. I spent 6 months homeless
traveling with a circus to save enough money to move back to Chicago.

It is my personal advice that you take a minimum salary, rent, food, bills,
and have the company pay you $500/month into a savings account that vests when
you leave the company. Doing this one thing will give you some peace of mind
that when this wonderful ride comes to an end that you will at least have some
money in the bank to make your way again.

I am all for ramen-rich I think it is actually a good thing but I am here to
tell you that if you don't take care of yourself financially you are setting
yourself up for huge failure if/when the money goes away.

Personally, I would like ALL angels, VC's and incubators offer young
entrepreneurs these 'bronze parachutes'. You don't have to pay them much right
now but I do feel you need to make sure they, at the very least, don't crash
and burn if the second round of funding doesn't come through.

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diegogomes
Obviously, unless you're rich. Go for USD 500 more per month than you need to
live (food & rent).

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kkt262
If you live in a place like the SF Bay area (or anywhere with a state income
tax), take as little as possible for your salary. 60k max, and if possible
even less than that because whatever you take as salary you'll be losing
30%-40% of it immediately (which could better be used for your business).

You can expense your rent out of your company since you will likely work out
of a home office. Car and (maybe) meals as well.

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laurentoget
You probably can expense your rent, car and meals. However you also can get
caught and tax evasion is a federal felony.

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zahnster
You can expense PART of your rent and utilities, completely legitimately, if
you have a home office and use your home office solely for your business. You
just calculate how much % of your home is dedicated toward your work, and
deduct as appropriate.

You can expense your car if it is a business-only vehicle. You can also deduct
business-related meals.

All of those things are completely within the bounds of the law.

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alenlpeacock
There are some really good reasons to at least pay minimum wage to founders,
including that it's really hard to get them health insurance if you don't.
And, it's typically better to get enrolled in a health insurance plan early
(when there are only a couple of employees) than later.

And there are lots of reasons (already mentioned in other comments) to pay
them better than minimum wage.

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houseofmikko
Yes. I think worrying about how to pay your rent takes away from the value you
can be adding to the company. I also would add, that I have seen my friends
startup in which 1 founder took nothing, cause he was covered, another took
about 60k, and the third took abut more cause he had 2 kids.

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michaelochurch
They should, and if one chooses not to take a salary because he can afford it,
he should be getting equivalent equity.

I don't know why this "garage myth" gets so much romance. It works for rich
kids who can fall back on their parents, for students, extremely well-
established people who have lots of savings and connections to fall back on,
and for people who can time-travel back to the time when rents were reasonable
in Silicon Valley, Boston and New York. In practice, you cannot have long-
standing (over 6 months) financial pressure and keep up the level of job
performance that a startup demands. It does not work that way.

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timcederman
It varies. Depending on the size of the round though, at least a living wage
is acceptable, so this will differ by region.

