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Agreed. As an occasional starter of things, if I really believe in my company, then all things considered, I'd rather have a surplus dollar in the company, as t

Agreed. As an occasional starter of things, if I really believe in my company, then all things considered, I'd rather have a surplus dollar in the company, as that's where I think my highest long-term ROI is. Early on, founders taking lots of cash out would be a negative sign for me. The $100k because-I-can fee strikes me as repulsively WeWork-esque. On the other hand, I've been reading lately about the vast acceleration in the pace of investor money since last I did a venture-backed startup. [1] To me this looks somewhat like the diet of a pâté goose: more to the benefit of the feeders than the goose itself. If my investors are in it for a quick flip, I would have to question how much I should be long-term focused. [1] Scroll down to "fast is in fashion" here: https://pivotal.substack.com/p/minsky-moments-in-venture-capital https://pivotal.substack.com/p/minsky-moments-in-venture-cap...

PragmaticPulp 5y ago
The "proper" way to take money off the table is for the founders to sell some of their own equity in a secondary sale. This way it's all above board, done in plain view of the investors (who might buy the equity themselves), and most importantly isn't extracting cash out of the startup. Investors invest in companies to give them runway and for hiring. If the founder is extracting that money back out of the company to line their own pockets (beyond a reasonable salary) then it doesn't help the company at all. Founders should be selling their equity, not withdrawing from the company's bank accounts.
- tomrod 5y ago
  Reasonability of salary is my approach. For S-Corps, median of market passes the sniff test IMO.
- wpietri 5y ago
  Oh, sure. I don't disagree. That's how I'd do it. But my point is that even when I last took venture money, more than a decade ago, I had some questions about how much the goal of investors was to "help the company". With the way funding trends have changed, that's an even bigger question. Which would then force me to ask: how much sense does it make for me to be more invested in the long-term future of the company than the investors are? Personally, my behavior wouldn't change. But the more investors are in it for their short-term interests, the more they should expect to attract founders who feel the same way.

PragmaticPulp 5y ago

The "proper" way to take money off the table is for the founders to sell some of their own equity in a secondary sale. This way it's all above board, done in plain view of the investors (who might buy the equity themselves), and most importantly isn't extracting cash out of the startup. Investors invest in companies to give them runway and for hiring. If the founder is extracting that money back out of the company to line their own pockets (beyond a reasonable salary) then it doesn't help the company at all. Founders should be selling their equity, not withdrawing from the company's bank accounts.

tomrod 5y ago
Reasonability of salary is my approach. For S-Corps, median of market passes the sniff test IMO.
wpietri 5y ago
Oh, sure. I don't disagree. That's how I'd do it. But my point is that even when I last took venture money, more than a decade ago, I had some questions about how much the goal of investors was to "help the company". With the way funding trends have changed, that's an even bigger question. Which would then force me to ask: how much sense does it make for me to be more invested in the long-term future of the company than the investors are? Personally, my behavior wouldn't change. But the more investors are in it for their short-term interests, the more they should expect to attract founders who feel the same way.