> Try this on for size: “I am raising $3 million right now, and once the financing closes, I will pay myself a salary of $130,000. Once we hit $300,000 ARR three months in a row, I will pay myself a $30,000 bonus and raise my salary to $150,000 per year. Once we hit $1 million ARR three months in a row, I will pay myself a $50,000 bonus and raise my salary to $250,000 per year.”
it does, but one of the recurring themes on HN is that most employees at a startup would've done better financially by getting a job at a BigCo (not even necessarily a fang) so it's also disingeneous to claim that _they're_ working for equity: they could've gotten much safer equity grants by joining an established company instead of yours.
IMO one of the challenges I've never personally seen solved well is how to truly share the fruits of success with all the people who were necessary for it to happen. In this example it's of course not clear how much of a team there is, but I'm sure any non-founder employees are also working below market and would love for their wages to increase as revenue grows and the product matures.
agree and that's what I was highlighting - the article was very founder-focused, as though the majority of people in most companies aren't also carrying the majority of the weight.
> it's also disingeneous to claim that _they're_ working for equity
What they're really doing is gambling. The odds are that the equity such employees earn will never pay off, but if it does pay off, it can pay off huge.
Personally, I gave up on working for equity a long time ago except in my own companies. The odds of it working out are just too low for my tastes.
> IMO one of the challenges I've never personally seen solved well is how to truly share the fruits of success with all the people who were necessary for it to happen.
I always thought a co-op would be an interesting model but I don’t really know how to synthesize that with raising venture capital
Most VCs are herd animals that gamble: they follow others and are afraid to lose out. But they never have the guts to bite first.
Conducting VC investment as a scientific/engineering discipline means thinking about systematically constructing 10x, 100x, 1000x wealth from the capital given, in a systematic way, and while minimizing risk. So your thoughts about rewarding everyone that is included in making a startup a success is a very good idea.
Co-cops sound leftist, but actually mean sharing risk and reward, so economically that makes sense. I had a related idea: imagine 10 entrepreneurs that trust each other, all involved in independent startups that do not compete with each other. They take a 5% stake in each other's business. Suddenly your assets as a founder include 10 stakes in 10 companies, which means you have an interest in the fact that not just you, but also your 9 trusted friends make it, and you will happily make your network available to them accordingly. Given that 9/10 startups fail (a cruel but true descriptive statistic), you will not even necessarily lose if your own startup does not make it.
If most would not give 5% of their own startup for another particular startup's 5% stake, this may also be a pretty good litmus test that the idea may be flawed.
Pooling risk is what insurances do as their business model. Startup entrepreneurs have not yet embraced this idea to self-organize in this way.
It’s a very tempting idea, but in your model, each founder now has 95% vested in other companies than their own, meaning that they will start spending much more time on other businesses than their own (the brain follows the incentive) which means that they basically give up on their startup. I think this model is flawed (but again, very tempting).
If a rational founder thinks they can gain more by working on their friends startup, it might be better for the collective to have more people working on the more promising project.
I don't think giving away 45% of your business for a 'network' is going to make sense in most cases, especially given the networking opportunities already available for e.g. YC companies, and it's going to be hard to explain to investors.
I've only worked for big-co and as a founder but never as a startup employee, and this probably a dumb question but couldn't employees just not work for below market compensation?
They're also encouraged to by most everyone they speak with.
Founders, investors, pretty much everyone "successful" in the industry wants to promote this so that they can get cheap labor for their next spin at the merry-go-round.
I think that's fair, but this seems to be changing. When I talked to our employees about receiving equity they valued it way below what prospective investors would.
The risk-calculus is diffferent. If an employee is going all in on a company, they need better risk compensation than a diversified VC that has an EV on their investments.
This argument started with me saying that employees aren't overvaluing equity like they used to. And you are seeming to make the argument that employees are overvaluing equity but also valuing it below what the founders could sell it for. I wouldn't call that overvaluing, I'd say employees are correctly and rationally undervaluing common stock due to their undiversified portfolio.
For sure. (Though in our case the investors only had preference and moderate anti dilution rights vut had less control than common) We raised over a year ago and have grown revenue 300% YoY, and only had .5 arr in preferred. And they didn't value it as highly as the investors a year before. They preferred cash.
I'm not saying you couldn't raise. The question is could you raise at the same terms? As I understand it, even if your valuation goes up, there's a lot more demand for more preferential treatment of the shares, etc.
A little over a year ago seems to be the recent peak of VC funding and valuations.
Employees want lottery tickets and employers want to sell lottery tickets. The people who buy lottery tickets want their money back once the numbers have been drawn.
The hard part is (a) valuing equity if EV is not clearly 0 (b) valuing the work (a 40hr/week job is different from a 60 hr/week job, commute, culture compatibility, educational value, charitable value, etc)
this is funny - you're saying you've never done it, and asking why everyone else doesn't do the same thing as you, but you've been a founder, right? So you probably hired people? Did you pay them market comp, or do you have a story about why it was justified not to? Was it their fault for accepting the offer you made them? Were they somehow signaling their own inferiority by applying and/or accepting your offer, implying that they couldn't get full market comp? Were they trading something intangible like "autonomy" and "impact" for comp-dollars?
The exact opposite. Im not asking why someone doesn't do the same as me. Being a founder is terrible choice financially, worse than being a startup employee. I'm asking why someone does something different than I did which is take below market rate to work for a startup.
We posted a job for a certain compensation, they applied to and accepted the job at that compensation. If they could make more money elsewhere I don't know if it's their fault for accepting our offer, but it was their choice.
I don't think they were signalling their inferiority. Some we paid above market to, some we paid below market to. People we paid below market to we try to increase their salary to match market.
We never sold any intangibles, and the only intangible we offer but don't advertise is we're very flexible with hours and it's low pressure environment.
At the end of the day these are not children but adults who need to do what's best for them. If our offer and job isn't what's best for them then they shouldn't have applied and accepted the offer.
Yes. The market is liquid enough for jobs that both employers and employees can find themselves at the place they want. Where you choose your position on the comp curve wrt equity vs cash (including liquid RSUs) is up to you.
Crypto startup compensation competes with FAANG because the additional non-cash compensation is liquid. Initial TC can be the same $300k - $1.2mm as FAANGs. The cash portion being more comparable to startups.
and most importantly, its granted at a huuuuge discount to prices you ever see online. 90% below initial public prices. many employees are still not experiencing losses even with the steep decline in the crypto market. for tokens, a lot of that decline is a death spiral from employees vesting and selling.
Do you delay your own financials in order to hire an additional guy or do you pay yourself what you're worth and ever so slightly increase the chance of running the company into the ground by doing so?
This happened to me, exactly as the article predicts. By the time we started paying ourselves (I was the CTO) a reasonable salary, I was so burned out that I left not long after.
I'm surprised that 13 years later this is still a topic. It seems braindead obvious. I know that I would never take money under those kinds of circumstances again.
We started paying ourselves essentially rent+ramen..
The advice I was given when I raised my first round was to pay myself a salary that meant I could focus on growing the business without worrying about personal financial stuff. It was spot on. All your energy should be going on the business.
Anyone trying to minimize their spend to the point they can't eat properly, or paying themselves a salary high enough to have a serious impact on runway, would be a major red flag.
I would never work full time (and especially not double time like startups require for their C-suite) for $130k, I'd far prefer to bootstrap my own business instead if that's the rate
130k is a very reasonable compensation for early-mid career folks in many places. Assuming your a dev, what sector+region are you in?
I'm always fascinated by compensation conversations on HN, because they seem to come from a place of... very high expectations. Don't know how to say that without sounding snarky, that's not my intent.
Why shouldn’t very smart people who have also spent years / decades developing technical skills in an industry that is eating the world and is the most profitable thing ever… get paid less than you need to buy a house?
If they don’t make high six/low seven figures, who will? Bankers? Lawyers!?
130k is not a good software engineering salary. Period.
Region doesn't matter to me, the floor of cost of living never truly goes that low.
Sector? I build and deploy web or mobile apps, and I do as many parts of that as my team doesn't.
Experience is 10 years, including with Senior and Engineering Manager titles.
Besides the fact that I can make more than $130k by walking in the door across the market, I also believe I could generate a MRR that would return after-expenses revenue higher than that with a new business within 1 year. So I also don't see why I would take a moonshot on a poor salary, when I can aim lower, still have big upside, and avoid VCs stepping all over me
I once worked for a 5-man business that brought in $750k annually, and the two owners were smart guys but no better than me and certainly not as professionally trained.
Now, mind you, I'm not saying it would only be the product, I would also be willing to be a consultant (trading the singular VC for multiple, not-quite-fungible-but-closer-to customers), but making only $130k for your soul and a lotto ticket does not sound like an appealing deal.
Without giving exact information I make more than double that as a senior engineer in NJ working remotely for a non-faang but still big public tech co with approx 10 years professional xp, but I have been writing code for much longer, just shy of 20 years. My area is data engineering and internal tools and devops too depending on the role.
> because they seem to come from a place of... very high expectations
You can see housing prices for whatever areas people are talking about and how much the monthly mortgage comes out to be to get baseline on cost of living.
> I'd far prefer to bootstrap my own business instead
We're talking about founders who opt to take VC money. You can talk about the benefits of bootstrapping vs. VC, but these are already people who decided to work at below market rate to retain the equity upside.
As someone who bootstrapped 8 years ago (and has taken nothing but rent+ramen since then), working _only_ double time sounds like a dream.
Side-note: $130k being competitive obviously depends on your area/market, but that's far above average rate for senior devs, let alone C-suite, in many areas of the US (and especially outside of the US), so I can see why it might be a baseline for others. Seems like you should adjust this number for you. :)
Sure, I agree. But this is equally true for VC companies.
However, in a bootstrapped case, I can just work as a consultant if I need some extra revenue. In a VC case, I don't have extra hours available in my life.
I'm also not rich and don't have an appetite for extreme wealth, I'll make a couple milly and call it a career, so that should color your perception of my statements
> If you were bootstrapping, would you take out > $130k per year for living expenses?
Why would you ask this question?
> I believe the $130k is meant to be in addition to whatever equity the founder is retaining.
Obviously. But I would control 100% of my bootstrapped business, and not be eligible to being outplayed by the VC who controls all the strings and always makes all the money in the end.
That doesn't really make sense. If you're a founder you're working for equity. Or, to be more precise, you're working to make the equity you have more valuable.
The waters get muddied because of how VCs operate. VCs want to take 50 shots, or whatever, and make their money on the 1 that hits. That works for them but doesn't exactly work for founders since founders don't get 50 bites at the apple. In that scenario it makes sense for founders to take some money off the table so that if things go bad it's not a total loss.
Understandably VCs don't really want to do that. They want you to take their money to grow the business.
Working for equity means putting absolutely all your eggs on the same basket. And going the VC route means putting that basket in a juggling contest to see what is the last one to fall.
Yes, you should pay yourself. How much? Working out a pay structure is quite tricky, and reviewing it constantly so you can raise it gradually is a good way to lose focus.
The approach in the article is one way, but I don't like the lumpiness of it and the big bonuses won't work if you're bootstrapped.
A better approach is to pay yourself a fixed percentage of MRR. Some VCs may add salary caps but this works until you reach that point. I’ve found that 2% works well.
Also, the whole "ramen-profitable" concept needs to die. Artificially reducing expenses beyond reasonable fools people into thinking they've developed a business model that's sustainable.
Hell yes. This is akin to offering an 'internship' without paying. Internships should be paid. They should pay Social Security tax as well.
Not paying founders is just a tactic to burn them out and push them out. It doesn't have to be market rate, but it has to be more than half of market rate.
BTW, while we're on this, if you're interviewing someone and it's going to last 3 hours, feed them lunch.
I once worked for a startup that convinced me to both invest money into the company and work for free. I thought I was positioning “the company” for success, when I was just being taken advantage of.
Run far, far away from any investors who are obsessed with “their side” of the deal so much they don’t care how many lives they have to destroy to get what they want.
True, for legal reasons. Although I have never sought or accepted VC investment in my ventures, I have always paid myself (minimum wage). I started doing this on the advice of both my lawyer and tax accountant -- it's easier to not only stay on the good side of the IRS, but to prove you're on the good side, if you completely disconnect the business finances from your personal finances. The easiest way to do that is to draw a salary.
My accountant said that the wage must be "reasonable" for the work you're doing, not necessarily minimum wage, in order to convince the IRS, since they don't necessarily want people paying less through capital gains tax than income tax.
Ironically, in Canada the same "must be reasonable" applies but for the opposite reason: The government doesn't want business owners "hiring" family members and overpaying them, since typically employees pay less tax than business owners.
I'm not an accountant or lawyer, but I still share the advice I got is to pay myself whatever salary I would need to pay someone if I hired them to do my job.
For context, I'm a one-man shop that sometimes hires contractors to do pieces of work for me.
This should NOT be interpreted as me giving anyone else advice.
In my case it looks more like this: I won a contract to develop some Java code for ABC Corp. Who would I hire to complete this task and what would I pay them?
I might hire a Junior developer to do the coding, a salesperson to land the gig, etc. If you're not bringing in enough revenue to fund those "positions" + profit then you are not billing enough for your work.
Those people get paid and so should I for performing those duties.
That... doesn't seem to check out. It can't be the going rate if it's infeasible. By definition the going rate is the rate that would allow you to afford doing the startup. Maybe you're comparing to the going rate of running a much better funded startup? But that's not the going rate for a startup of your funding size.
By "going rate", I mean what a person doing the same job(s) would earn at an established company in the same industry and location. In other words, what I would pay someone else if I hired them to do the job.
Oh, I do a very heavy analysis before each venture. My family and I have done very well with them, thank you. When I'm doing a startup, I'm living on savings, not a minimum-wage salary.
My businesses can't pay me my going wage at the start because I try to avoid debt when starting a business to the greatest degree possible. There are much more crucial expenses that money needs to go to (such as paying others).
Thread 1 is whether or not the behavior you describe is a crime
Thread 2 is whether or not anyone will ever enforce it and what might the penalties be (if any)
My guess is that it's technically a (minor) crime but will never be enforced unless you become a political problem or something and they just need to find any old crime to get you.
None of the above should be considered legal or financial advice. It is solely my personal opinion and I am not an accountant or lawyer.
I am quite certain that I'm not engaging in anything that violates the law. I'm not even engaging in anything slightly dubious. There's no tax avoidance or evasion going on here at all (this practice in no way reduces my tax bill).
This is a California thing. Only in California (and maybe NY) are founders able to raise millions of dollars at the early stage, so everywhere else VC’s are going to expect very frugal use of cash or it’s just not going to work.
And it won’t be long before millions at the early stage is a rarity in California, as well.
That would be $7000/mo minus taxes of course. Possibly more than half the money would be spent on rent. But the amount shouldn't be completely sufficient, for the same reason many haven't been paying themselves at all.
But even so, living in SF on 97K before taxes is questionable experience.
It also seems that with 30K a year or 2.5K a month we are essentially nickel-and-diming.
As a CEO you have to sometimes look presentable, you may need to travel, you also need to eat, exercise and rest. Sure you can do ramen style for couple years in your 20s, but how much money will you realistically save your startup if you pay yourself 97 vs 130k
> The actual value of the coins was $379.54. The mean value (x̅) of the 602 guesses submitted was $596.12, about 57 percent too high. What's more, a massive (by crowd-wisdom standards) 40 percent of the individual guesses were closer to the actual value than that of the crowd.
Here "57% too high" you can arrive at the original number by dividing by 1.57.
Also, if you run a bootstrapped company with no VC, pay yourself!
The bootstrapping mentality becomes counterproductive after you pass a certain stage (e.g. if you can afford 20 employees and are bootstrapped, you can probably afford to pay yourself the median salary of a C-level exec). It will make your life more comfortable and will make acquisition offers less appealing if you're already drawing a good salary.
You're meant to move as fast as possible and as long as your salary doesn't excessively drain the budget, it should be on the higher end of what is the payscale of the company. If you as the person with the most duties in the company can't afford a _comfortable_ life (and I take it for granted that pre-incorporation/raise that was anyway the case), you're probably working under your usual efficiency. If any investor says otherwise, just don't take that money. It makes no sense.
As someone who has just bootstrapped (or tried to) a lot of different ideas over the years, this sounds so ridiculous. If I have savings then I will use them and not give anything to investors. If investors want something then I should not have to continue being broke.
My very powerful GPT-4 based startup progress is currently kind of one hold all day today while I wait for someone to answer me in Slack about his $1k contract which he completely blew up the scope on this weekend and I am counting on to pay rent.
I'm not sure why, but techcrunch articles never fully load for me on any of my systems anymore. It's not even paywalled, it's just broken. Even archive.is only gets 30% of the article and then it fails. Seems like a broken app-redirect interstitial, so probably a good sign to just never click links to this site again.
These VCs can't be common. My friends raised and one is on a H-1B so they had to pay him like $200k+ to make it work, and he's got half the company (ex. investors) otherwise
> Try this on for size: “I am raising $3 million right now, and once the financing closes, I will pay myself a salary of $130,000. Once we hit $300,000 ARR three months in a row, I will pay myself a $30,000 bonus and raise my salary to $150,000 per year. Once we hit $1 million ARR three months in a row, I will pay myself a $50,000 bonus and raise my salary to $250,000 per year.”