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

• timcederman 15y ago
  It varies. Depending on the size of the round though, at least a living wage is acceptable, so this will differ by region.
• suprasanna 15y ago
  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.
• anemitz 15y ago
  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.
  • dudeguy999 15y ago
    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.
• houseofmikko 15y ago
  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.
• diegogomes 15y ago
  Obviously, unless you're rich. Go for USD 500 more per month than you need to live (food & rent).
• kkt262 15y ago
  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.
  • laurentoget 15y ago
    You probably can expense your rent, car and meals. However you also can get caught and tax evasion is a federal felony.
    • zahnster 15y ago
      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.
  • mattlong 15y ago
    I would not recommend expensing rent. The best you can legally* do in the eyes of the IRS is get a smallish deduction/credit (I forget which) for however many square feet of your home are used solely as a workspace. *I am not a lawyer
  • kkt262 15y ago
    Check out this article for more information on the legality of expensing your apartment/car/etc. http://mywifequitherjob.com/business-expenses-what-you-can-deduct/ http://mywifequitherjob.com/business-expenses-what-you-can-d...
• therealarmen 15y ago
  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.
  • moge 15y ago
    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.
  • herval 15y ago
    Why?
• patio11 15y ago
  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.)
  • danmaz74 15y ago
    You mean a cash-out plus a market salary?
  • tricolon 15y ago
    You're right; I think that's crazy. Is this a recent trend?
    • patio11 15y ago
      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.
      • DennisP 15y ago
        What do you have to do to bill a funded startup mid-five-figures a month?
• joshfraser 15y ago
  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.
• eddy_chan 15y ago
  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.
  • freshfey 15y ago
    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).
    • benohear 15y ago
      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.
  • benohear 15y ago
    Doubling your runway with part-time work only helps if it doesn't reduce your velocity by two or more, which it carries a high risk of doing. That being the case, you're better off with the shorter runway in almost every respect (salary, time to market, quicker failure if it's going to tank anyway, less stress of juggling two jobs).
• ericflo 15y ago
  Maybe this would be a good question for a poll. We pay ourselves each 40k/year.
  • PStamatiou 15y ago
    Same here at picplum. Enough to not have to worry so much about personal finances that it distracts you from building a company. My cofounder once said (half-jokingly), if you are a founder paying yourself enough that you can save money each month, you're doing it wrong. I'll have my out-of-state student loans forever.. As an other extreme - for my first startup, I raised $15k and only used up $13k over a year and a half. Though at that time my blog was a small stream of passive income.
    • kappaknight 15y ago
      Do you guys pay rent out of the business? (As in, an expense like leasing office space, etc.) One thing I do try to do is expense everything that is reasonable.
  • rdl 15y ago
    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.
    • rdl 15y ago
      We were also told that paying any developer less than 82k/yr (who is not a founder) puts you at risk of him being considered a non exempt employee, and thus needing to pay overtime, etc.
      • 15y ago
• alenlpeacock 15y ago
  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.
• michaelochurch 15y ago
  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.
• debacle 15y ago
  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.