Startups · Entrepreneurship

Would investors be ok with paying myself deferred payment post-financing?

Anonymous

October 4th, 2016

Imagine being without market salary for 2 years. Would it be ok if I were to pay myself the deferred payment I should have been entitled to or what that be a huge turn off for the investor?
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Kaustubh Prasad

October 4th, 2016

It is the same thing if the investor asks - Will you be okay if I invest at the valuation you would've had when you just started?

An investor wants to put money into the company, not into founders' pockets. Having said that, there is a balance between how much founders want to draw as salary and how much investors are comfortable with them drawing - it is best to be upfront to your potential investor about your personal situation.

Ian Shearer Executive Chairman at Parakeetplay

October 5th, 2016

In general Investors have a rule that they don't "back-fill" past liabilities, and that's what you are asking them to do here. However there are exceptions to every rule.
So I think trying to get your full salary fully back-filled would indeed be a huge turn off for any investor because of the message it would send. As others have stated, you are really trying to have your cake and eat it. On the other hand most investors don't want you so broke that your personal financial problems are impeding your ability to execute. So it would be reasonable to say "look after 2 years of no salary I am really struggling financially and a one off payment of $X would really help me focus on the business". Thats a much more acceptable message.
I don't know how much $X should be but its likely to be a lot less than 24 months salary!

Martin Aitchison Business Partner to SMEs in Southeast Asia

October 4th, 2016

Investors will not be impressed with their funds used to pay "market rate" salaries

It is sweat equity is the play




Martin Omansky Independent Venture Capital & Private Equity Professional

October 5th, 2016

It would turn us off of you paid yourself generously and out of investment funds. Pay yourself a below market rate until you make a substantial profit. Consider your equity share a part of your compensation. Sent from my iPhone

Robert Warren Founder and Managing Director, Mean Eyed Cat Venture Labs

October 5th, 2016

The investment is to grow the business. We expect you to earn something to stay in the business but this will be below market rates.   Think of your past work as a sunk cost.  You will recoup it in your equity but not from an investment.

Lane Campbell Lifelong Entrepreneur

October 4th, 2016

That's what your equity is for.  If you would rather have market rate salary and less stock go find a job with a company that has a good options plan and don't do a startup.

Rob G

October 5th, 2016

"should have been entitled to" is called a "job".  welcome to entrepreneurship.  You can pay yourself a below market salary going forward - i would make that clear upfront before you take the investment, but not to pay back 'wages'. 

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 6th, 2016

Of course, if you are playing a constructive role in the company. The executive salaries will be disclosed in the business plan and Private Placement Memo. However, as you received stock in the company, probably without any serious monetary payment, the salary, at least until the company is successful, should be modest.

Rupert Meghnot MBA CXO, Burnout Game Ventures, LLC

October 6th, 2016

Go with what you NEED, now. What's behind you is your level of risk and sweaty equity. Investors are the only ones who should benefit the most - until you pay them back. If the standard rate is $140k, and you only need $80 - take $80 & put the rest back into the business. There's plenty of time to make $millions, later.