can I justify a (modest) salary for myself?
The situation is as follows. There are 3 investors:
- Me, founder & MD 75% of shares, invested 500k
- Relative 1, 15% of shares, invested 630K
- Relative 2, 10% of shares, invested 500k (as a loan to the company)
I started this company 1 year ago and both other investors joined 6 months after start up.
For the past year I have been working full time (and then some) for this start up. Other investors don't play an active part.
I don’t have any customers yet. Right now I’m in the ‘everything is almost done’ phase. I will be ready for my first customer pitch within 2 months and I expect to have my first customer within the next 6 months.
Can I justify a (modest) salary for myself?
4 Answers
Yes, of course.
As an investor, the only test in my mind is whether it will make the company more likely to succeed or not. If the key founder needs a small salary, and it's not impacting much of the rest of the business, then I'll sign for it.
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Thank you Alain – Menno 13 years ago
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+1: If you genuinely need a salary, an investor would be crazy to deny it to you. The alternative would be for you to have to stop working for the startup - at least some of the time - and do something else to make a living. That would delay the launch, or even kill the company and lose all the investment. – Bob Murphy 13 years ago
Research on motivation shows that people are motivated by three things:
- an opportunity to master skills,
- being able to be autonomous and
- feeling like they are contributing to a greater cause.
The research shows that money is not a motivator, but you do need to be getting paid enough to take it off the table as an issue.
Being an entrepreneur in a startup, you are probably motivated by those three things already. But yes, you should be getting paid something to take worry about money off the table. Most investors should have no problem with this.
(If you want to know more, there is a fantastic short video about Motivation from the RSA.)
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Thanks, interesting video. – Menno 13 years ago
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"but you do need to be getting paid enough to take it off the table as an issue. " This is a fantastic insight. – Alan 12 years ago
Alain makes an excellent point about taking a small salary.
For me, the whole reason you raise investment is so that you can pay people to work for you. I know that not exactly the web 2.0 bootstrap model but some of your investment should be used to pay people. After all, you got to eat and as an investor, I want you to focus on the product or business and not worry about paying the rent.
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Thank you Jarie – Menno 13 years ago
It's all situational. There are numerous examples where start-up founders are paying themselves near market salaries; however, a true "bootstrapper way" is to wait until you get revenue first and then pay yourself. Wouldn't that be more motivational for you than to beg for change from your investors.
