Comment by menaerus
5 months ago
Interesting story but what I don't get is this
> Founders might get a wage to avoid personal financial stress
How do you make a living as a founder if you don't get a wage? Is that really a norm?
> but then also need skin in the game, typically by investing personally
And also this. Does it assume that you will invest your savings or what exactly?
> Does it assume that you will invest your savings or what exactly?
The majority of successful founders are already wealthy. Those who aren't, have a pretty high chance of going personally bankrupt in the process
When you make the leap, you're basically living of off your savings.
Until the startup has investors that agree to pay the founders a wage (to reduce personal financial stress so they can concentrate on the company) - or the startup is profitable - it's vital that your savings don't run out...
Are there investors who wouldn't agree to pay the founders a wage?
I understand the part where you invest your time and money to build the PoC but I can't imagine running a startup with VC-backed investment without paying out myself a wage. That seems crazy to me if true.
Equity is compensation, just illiquid, risky compensation. If you're wanting to get a wage (liquid, low-risk compensation) as well, expect to trade it against equity (which will naturally happen: if you're a founder being paid a wage, you're being paid it with the VC money which you have gotten by giving them some of your equity for some small fraction of what you expect the equity to be worth if you succeed). If you believe in the company (or at least rate the chances of success as more than the VCs do), it's rational to minimise the amount you trade away in equity for short-term needs or risk-reduction.
Very few VCs would not agree to a wage if the founder needed it. It probably wouldn't be as high as market rate though.
If you've got an independently weathly founder then both parties typically prefer equity only.
Traditional seed investors may not agree anything beyond minimum wage. It depends though.
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This is not the norm in the US.
In markets where capital is more scarce, people may want to avoid giving up more equity.