A venture wants to hire me with founder status- the catch no salary or benefits for two years. How?

Mike Krim Digital Media Production Engineering & Broadcast Operations

May 10th, 2016

A venture wants to hire me with founder status- the catch no salary or benefits for two years. How does one survive?

May 10th, 2016

There is a super simple answer to this. Companies don't hire founders. They hire employees. Employees get paid. They can't afford to pay you at all. Therefore they can't afford to hire you (or anybody else). Stock is nice, but most likely worthless, so unless there is cash compensation in the job offer, show yourself the door. While there is a < 0.1% chance you are missing the next Google, there is a 99.9% chance you'll be sparing yourself a lot of hardship for nothing by

Bobbie Carlton Founder, Innovation Nights, Innovation Women & Carlton PR & Marketing

May 10th, 2016

Agree with the answer above, "hire" is not the right word here - you don't hire a founder. Typically, you hear people talk about "bringing in" a founder. But that's not the question. The question is, how do startup founders survive when the startup is pre-revenue or all the money is going back into the company. There are many answers:

Be independently wealthy to begin with. You made your fortune previously.
Live off savings, your retirement fund or max out those credit cards.
Have a non-entrepreneurial spouse or partner who covers your expenses
Work a second (and sometimes a third) job. You wouldn't be the first startup founder driving for Uber. I know a lot of startup founders who do consulting jobs while building their startups
Get funding fast - find a VC to drop bags of money at your feet and give yourself a salary. Or Angel or Friends and Family funding.
Find a customer to fund the company and pay for you to build out your product
Cut your expenses to almost nothing. I know a startup CEO who secretly slept under his desk at the startup incubator he was participating in. He lived on the snack food at the coworking space (and frequented the many events.) His expenses were very very low.
Sell the vacation house, lakefront property, race horse, family silver -- or even take out a second mortgage or line of credit on your house.

Now you know why startups are seen as a rich person's game...few people who need a weekly paycheck can afford to not get one daily.

Matthew Stroul IT Business Analyst & Support Engineer helping people, processes and tools be more awesome versions of themselves.

May 10th, 2016

Mike,

It is GREAT you are wanted. I am wanted too. Ask anyone over 30 on this site how many times they were courted with "You are brilliant! You do 100% of the work and I will split it with you 50/50!"

Not everything is about money until it is about money so I will focus on the BIG questions to help steer you.

First - is this something you are SO passionate about that money - even the smallest amount is trivial?

Second - does the team you are forming have enough mastery of their roles with proven foundations of success to accomplish the goal?

Third - timing of two years until capitalization is a MASSIVE red flag. MASSIVE. Like Godzilla showing up at Chili's for Taco Tuesday red flag. Seed capital is EVERYWHERE for the right solutions, a fully vetted Bplan and mockup/working demo. If you are a even a medium level disruptor active angels will pounce with enough to pay core team for a year.

Fourth - if the title does not help you in the future then ignore it so focus on the core business functions and how much time you need to facilitate them.

Fifth - time - I have been on 3 founder boards at once AND had a day job that had me in and out of shop after shop evaluating business or product market readiness. It is not about time management but about time investment.

Here is a formula I use to determine yay or nay:

Will the investment TIME [Application of Wisdom + Effort] = REWARD [a small basket of gold coins + preferred stock (actual stock NOT options) + personal brand/career advancement]?

EVERY problem has a solution my friend, but are these requestors of your excellence capable of suspending ego to obtain the solution? Are you willing to risk their words as down payments on your future without them risking capital?

Good luck, and stay awesome!

Mateo

Michael Feder Founder and CEO at PrayerSpark; Finalist: Global Business & Interfaith Peace Award

May 10th, 2016

To answer the question, "how does one survive?": (1) you take small side projects-- your cofounders will understand, since there is no money in the company for you yet; (2) you take a line of credit on your house- now, before you have no income to show the bank--- you do this as a founder, not as an employee, because you believe in the business enough to ask others to invest their money in it; (3) you sell off your valuable things on ebay- you do this as a founder, not as an employee, because you believe in the business enough to ask others to invest their money in it. Obviously, you are only becoming a founder because you bleed the business- you'd be willing to ask your friends and family for money, knowing they could lose it, and you'd have to face them after the loss. Founders put themselves on the line- including the prospect of having to sell their home, rent, and start again. Otherwise, becoming a founder, and asking others for money, is unwise.

Anonymous

May 10th, 2016

If one can't survive without a salary, one ought to decline the offer and stick with the day job.

Sarah Stefaniuk Localist and Founder LOCALMOTIV

December 30th, 2016

Hi there,

Wow, you are all really making me feel like participating in a start up is a terrible decision. Some very disheartening responses indeed!

I was was reading this string because I am a brand spanking new founder and I was looking for insight on how to find critical team members/co-founders. No doubt, I am naive but by reading most of these answers it seems start ups will go nowhere, founders have unrealistic expectations, and you will suffer through the development of the company and product. Not to mention that it is almost never worth becoming a cofounder...

Should I even pursue my idea? Well, the good news is that I will start my search for our third cofounder soon. But we are nowhere near getting funding yet. We need our Tech Cofounder first. For me it seems like a catch 22 - you can't get funding til you have the right people in place to bring the plan to life but... You can't get the good people til you can pay top dollar.

Here is how I am going to approach it:

- Mindset that the Tech Cofounder is key to the success and has valuable insight, expertise to make it a great success

- It is a mission driven idea and all have to believe in the mission and have a mindset that for profit does not have to be destructive profit

- We will all collaborate to map out each phase of the project and when we will be able to reach out to get funding

- We will determine our roles and responsibilities for each Founder and how much time it will take to get each task done

- We will determine if/when we need to be full-time on the project. Maybe one founder has to devote full time during one stage v the others... How can we compensate in those scenarios?

- Using the above to determine equity stakes

- We will all determine how far we can get without outside funding - so as to keep control over the company

- We will work through scenarios if one founder needs pay and how it impacts equity...

- Keep the conversation going and anticipate changes/new scenarios

If if after that plan does not work... Then onto plan B but my belief is getting the right cofounder up front is critical. Get the business of the ground with the right people in place.

But I would never ask anyone to forego salary for 2 years... That seems crazy to me.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

May 12th, 2016

This question and many of the answers illustrate the many myths and beliefs about entrepreneurialism, founding companies, and startups.

Let's start with a few basic truths:

Most people need some money to live. The variable is where that money will come from. Some have vast wealth, some can liquidate family heirlooms, some will work side jobs, some have income producing (and incredibly understanding) life partners. Where the money comes from is less important than understanding the impact of producing that money will have on your life and your ability to contribute to the startup.
You probably need less money than you are spending now. Co-founding often (usually?) comes with a significant lifestyle change. Odds are you will be working without compensation in your cofounder role for longer than you think. Have you determined the lowest "personal burn rate" you are willing to live at? How long are you willing to live at that level?
Some have suggested comparing the offer at hand to a job offer. Let me save you some time. The job offer will be better. You don't co-found a startup because of the potential (and as others have pointed out unlikely) rewards. You co-found because you are a cofounder. You see opportunity where others see risk - and you understand that your ultimate reward may not include monetary compensation - but you are compelled to be involved anyway.
It is critical to have clear understandings among cofounders about who is willing to do how much for how long. Things will take longer and cost more than any of you anticipate. Are all of you willing to stick it out? Do you have an agreed-upon means for determining when it's time to move on? We encourage cofounders to engage in the "while we're still friends conversation" while they are still friends.

Hope that helps! Reach out if you need more.

Guilherme Bastos Alvarenga CEO at Behive. Entrepreneur and Angel Investor

February 8th, 2017

Founder is exactly this. Everybody will love the possibility to be a founder and receive a salary from the beginning. You are luck you don't have to invest your money as well. Normally, founders spend their time and their money. I see your situation as: You have the possibility to start a business with some investor backing you up. That's great. Welcome to the founders club! That's why you should only get in if you believe so much, in such a way you are happy to put your soul in that initiative.

Rodger Cravens

May 10th, 2016

Does a Founder not also get to choose how they spend their time? Maybe engaging during off hours (nights and weekends) to make a living to bridge the gap is the intent?

Mike Moyer

February 9th, 2017

This is an old question (May 2016), but I'm going to chime in because someone mentioned the Slicing Pie model (thanks Chicke!) and I want to elaborate.

First, to answer your question. You survive by draining your savings, reducing your living expenses by living on your friend's couch and eating Ramen Noodles, and taking on freelance work. Many people (including me) have lived this way on the path to success and it sucks, but it gives you a good origin story and a little grit. If you believe in the company go for it.

Now, to elaborate on your situation. You need to make sure you are getting your fair share of the equity in exchange for your commitment. There is only one way to do this and it's called "Slicing Pie." It's a formula for determining a perfectly fair equity split and it is the only formula on the planet that exists (if there was another formula it would have to yield the same result because there is only one right answer).

The founders are making a classic start-up mistake--trying to predict the future. No salary and benefits for two years? Says who? If you raise money tomorrow will you get salary? What if it takes three years? Nobody has any idea what's going to happen in two years--not even an entrepreneur! Because the future is unknowable, any possible equity split decisions the team makes at this point will always be wrong.

This happens all the time, but it's always wrong. Always.

Think about it this way: when someone contributes to a startup and is not paid they are, in effect, "betting" on the future profits or sale of the company. The value of the bet is equal to the fair market value of their contribution.

People contribute all sorts of things including time, money, ideas, relationships, supplies, equipment and facilities. Everything has a fair market value.

What's clear is that you are going to forgo salary for some, unknown period of time. You may even incur some business expenses for which you will not be reimbursed. This is your bet.

Betting continues until breakeven or series A. In other words, you will only know the amount of your total bet when you no longer have to bet because you are getting compensated.

Your % share of the equity should be based on your % share of the bets.

The same goes for anyone else who made bets, including the founders.

This is the essence of the Slicing Pie model.

If you use this model you will get what you deserve to get no matter how long you go without salary.

If they don't use Slicing Pie, do not join this company. They will take advantage of you!

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