Nobody likes to talk about how much money they make.
It’s awkward. I get it.
In fact, if you don’t ask outright during pitch meetings, startup founders might just skip past that particular subject entirely.
Personally, I always ask the founders how much they plan to pay themselves. And here’s why:
Whatever salary they make is, more or less, going to come out of my investment.
That means there’s less capital to put towards critical areas, like marketing, product development, testing, making key hires, paying for the office building, taking care of legal matters, product distribution, and much, much more.
So, not only do I ask founders what salary they plan to take…
I’ll actually refuse an investment entirely if the number I get back seems too rich.
It’s not just the fact that a large salary diverts cash away from other projects.
What really bothers me is the dirty little secret it reveals: that the founders may only be in it for the money.
As a rule, a startup can only succeed when its founders are unflinchingly committed to the mission (more on that here).
I’m not suggesting that any entrepreneur should slave away for years on a zero-dollar paycheck (though some angels do prefer it that way!).
I actually think that a modest salary is a good thing – after all, it’s hard to focus on growing your business when you’re stressed out about things like paying rent and buying groceries.
But startup founders should never be making a high enough salary to start spending frivolously.
I like the founders I support to have some skin in the game.
The way I see it, everyone involved should make their money at the same time: when the business makes it to an exit.
Then, and only then, will I be pleased to see the CEO buy that mega-yacht.
I’ll probably be on it, too – toasting to the success we all achieved, together, as a team.
Until next time,
One response to “Don’t Invest in Founders Who Want Big Salaries”
April 23 2019