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I take major issue with this: > By the way, it is vital to remember that the money you raise IS NOT your money. You have a fiduciary and ethical/moral duty to

I take major issue with this: > By the way, it is vital to remember that the money you raise IS NOT your money. You have a fiduciary and ethical/moral duty to spend the money only to improve the prospects of your company. I think this is unethical. YCombinator is taking advantage of a lot of founders by discouraging them from paying themselves a reasonable salary with the money they raise. There is a lot of confusion about this issue, mostly because YCombinator founders are young and naive, and they think because they own most of their company that they should be working for free the entire time, and can spend years trying to make their company work while eating through what little savings they have. That's not the case. Founders should be doing one of the following: 1) You should pay yourself a reasonable salary with the money you raise. 2) Otherwise you should be diluting the investors over time by the amount you are getting underpaid.

csomar 9y ago
I think you just need to be reasonable person. If you raised $250k and you pay yourself a salary of $150k, it is not acceptable. If you raised a $30million round, then it is.
- fragsworth 9y ago
  Well, if you could be earning $150k at any other company, and you are only paying yourself $50k at yours, then you should be earning an additional $100k/year worth of shares over time to dilute the investors. You are investing that missing $100k. And you're missing the main point that many of these founders simply aren't getting paid at all, because they think it is unethical to do so with someone else's money. The original article is exacerbating this problem.
  - rgrieselhuber 9y ago
    This is a bit naive. I can sympathize but it's just not how things work. Nobody is forcing you to start a company and the equity you're building and convinced investors buy into should be your main focus. That being said, I do believe in founders paying themselves a liveable salary.
mceoin 9y ago
Couldn't disagree more. You should pay yourself the absolute minimum you need to reduce burn and extend your runway. This doesn't mean free, it means living expenses but no more. Keep the burn low and extend your runway. If those terms are undesirable, that's fine. Better not to raise money then, or to raise from a different profile of investor who is looking for different kinds of returns (i.e. not 'death or unicorn').
- mceoin 9y ago
  Decent salaries come at later stages of funding.
- fragsworth 9y ago
  If you're not paying yourself your actual value in salary, then you should be diluting the investors because you are investing your missing salary into your company.
  - icebraining 9y ago
    Aren't the shares you already have supposed to be payment for that? The other investors had to put a lot of money to get them, often/usually(?) way more than the founders.
- briandear 9y ago
  So why doesn’t YV encourage companies to set up shop in Nevada or other low tax, low cost of living areas? How many YC companies are paying Bay Area office rents and paying California-level taxes? It’s not ok to not take a market rate salary, but it is ok to have an office in the most expensive zip codes in the country? Does physical proximity to SV make a single bit of difference to a company other than being close to investors? Unless a company is actually making in-person sales calls, why would the Bay Area be relevant? In terms of acquisitions, it matters not if the company is in Mozambique or Cupertino — the balance sheet is really all that matters. If the goal is to extend runway, why isn’t YC encouraging founders to set up shop in Texas or better yet be fully remote? When a house in SV costs 5 times more than a house in Texas, it’s pretty hard to expect founders to be able to survive on anything less than market rate.
clairity 9y ago
investors expect founders to pay themselves. they don't want founders to worry about day-to-day personal expenses so that the founders can concentrate on the business. that's part of the fiduciary and ethical/moral duty to making a startup successful. it's not contradictory. but investors also expect founders to be frugal and make wise monetary decisions. the more you pay yourself, the less you have for marketing for example (and marketing is crucial to every startup). it's in your best interest as a founder to take enough in salary to not worry, but no more. so the business has the best chance of being successful. if founders are taking more than that, then it's an indication that they don't believe in the business or at the very least are distracted by other matters.
jacquesm 9y ago
That all depends on the amount raised and the stage the company is in. But if after an 'A' round you are still paying yourself subsistence level wages then you are doing something wrong.
mwseibel 9y ago
Couple items here: we don’t encourage founders to work for free (that’s literally illegal) and the average age of YC Founders is 29 (I hope this is too old to qualify for young and naive). While I don’t think Founders should pay themselves market rate I do this they should pay themselves enough for their reasonable day to day living expenses to not be a distraction.
afpx 9y ago
I may be missing a lot of details on how YC works, but it seems pretty straightforward to me: you're still the CEO. YC invests $120k and an additional $30k, or so, of intangibles, but they don't take a board seat nor a controlling stake in your company. That is, as CEO, you could decide that the best thing to do to improve your company's prospects is to pay yourself $120k for 3 months of work. But, more realistically, you'd probably pay yourself a minimal amount to cover 3 months cost of living in SF (probably 10-15k) and then spend the other 75k (after taxes, etc) on things that give your company most bang-for-buck. So, on day 1, YC assumes that you (a relative unknown) and your initial idea (probably unproven) are worth about $2M (investment of ~150k for a 7% stake). Seems pretty good to me. And, of course, if you believe that you and your idea are worth more than that, you could always self-fund or seek other funding sources.

csomar 9y ago

I think you just need to be reasonable person. If you raised $250k and you pay yourself a salary of $150k, it is not acceptable. If you raised a $30million round, then it is.

fragsworth 9y ago
Well, if you could be earning $150k at any other company, and you are only paying yourself $50k at yours, then you should be earning an additional $100k/year worth of shares over time to dilute the investors. You are investing that missing $100k. And you're missing the main point that many of these founders simply aren't getting paid at all, because they think it is unethical to do so with someone else's money. The original article is exacerbating this problem.
- rgrieselhuber 9y ago
  This is a bit naive. I can sympathize but it's just not how things work. Nobody is forcing you to start a company and the equity you're building and convinced investors buy into should be your main focus. That being said, I do believe in founders paying themselves a liveable salary.

mceoin 9y ago

Couldn't disagree more. You should pay yourself the absolute minimum you need to reduce burn and extend your runway. This doesn't mean free, it means living expenses but no more. Keep the burn low and extend your runway. If those terms are undesirable, that's fine. Better not to raise money then, or to raise from a different profile of investor who is looking for different kinds of returns (i.e. not 'death or unicorn').

mceoin 9y ago
Decent salaries come at later stages of funding.
fragsworth 9y ago
If you're not paying yourself your actual value in salary, then you should be diluting the investors because you are investing your missing salary into your company.
- icebraining 9y ago
  Aren't the shares you already have supposed to be payment for that? The other investors had to put a lot of money to get them, often/usually(?) way more than the founders.
briandear 9y ago
So why doesn’t YV encourage companies to set up shop in Nevada or other low tax, low cost of living areas? How many YC companies are paying Bay Area office rents and paying California-level taxes? It’s not ok to not take a market rate salary, but it is ok to have an office in the most expensive zip codes in the country? Does physical proximity to SV make a single bit of difference to a company other than being close to investors? Unless a company is actually making in-person sales calls, why would the Bay Area be relevant? In terms of acquisitions, it matters not if the company is in Mozambique or Cupertino — the balance sheet is really all that matters. If the goal is to extend runway, why isn’t YC encouraging founders to set up shop in Texas or better yet be fully remote? When a house in SV costs 5 times more than a house in Texas, it’s pretty hard to expect founders to be able to survive on anything less than market rate.

clairity 9y ago

investors expect founders to pay themselves. they don't want founders to worry about day-to-day personal expenses so that the founders can concentrate on the business. that's part of the fiduciary and ethical/moral duty to making a startup successful. it's not contradictory. but investors also expect founders to be frugal and make wise monetary decisions. the more you pay yourself, the less you have for marketing for example (and marketing is crucial to every startup). it's in your best interest as a founder to take enough in salary to not worry, but no more. so the business has the best chance of being successful. if founders are taking more than that, then it's an indication that they don't believe in the business or at the very least are distracted by other matters.

jacquesm 9y ago

That all depends on the amount raised and the stage the company is in. But if after an 'A' round you are still paying yourself subsistence level wages then you are doing something wrong.

mwseibel 9y ago

Couple items here: we don’t encourage founders to work for free (that’s literally illegal) and the average age of YC Founders is 29 (I hope this is too old to qualify for young and naive). While I don’t think Founders should pay themselves market rate I do this they should pay themselves enough for their reasonable day to day living expenses to not be a distraction.

afpx 9y ago

I may be missing a lot of details on how YC works, but it seems pretty straightforward to me: you're still the CEO. YC invests $120k and an additional $30k, or so, of intangibles, but they don't take a board seat nor a controlling stake in your company. That is, as CEO, you could decide that the best thing to do to improve your company's prospects is to pay yourself $120k for 3 months of work. But, more realistically, you'd probably pay yourself a minimal amount to cover 3 months cost of living in SF (probably 10-15k) and then spend the other 75k (after taxes, etc) on things that give your company most bang-for-buck. So, on day 1, YC assumes that you (a relative unknown) and your initial idea (probably unproven) are worth about $2M (investment of ~150k for a 7% stake). Seems pretty good to me. And, of course, if you believe that you and your idea are worth more than that, you could always self-fund or seek other funding sources.