Investors will want to know how much the entrepreneur intends to be paid. Some investors prefer that the entrepreneur works for free to earn his equity in the company. Other investors prefer that the entrepreneur be paid enough to be comfortable, allowing him to make better decisions for the company and not based on personal needs.
Many first time entrepreneurs choose to exclude compensation when doing projections. They think that it will increase the chances of being funded, but this is not the case. It actually works against them as this is not realistic for most entrepreneurs. It shows that they are not thinking everything out and that worries sophisticated investors. Of course, that’s subject to having enough personal assets to use for living expenses while developing their company.
The right solution is to include a full salary for what it would take to get someone capable of taking the business to the next level, should they need to replace the entrepreneur. Basically, investors like to ask, “What happens if you get run over by a bus?”
That doesn’t mean the entrepreneur should be paid what it would cost to replace him/her. The entrepreneur should be willing to discount the amount they get paid enough so that investors feel that the entrepreneur is willing to make “sacrifices” as well.
Entrepreneurs who put in an incentivized program that would allow them to achieve full salary by beating expectations are often considered to be even more business savvy. Now you are beginning to look as though you have thought everything out.
Stay away from investors who don’t want you to pay yourself while you are growing your company. They are not savvy investors. They don’t have your best interest in mind and that’s not good business for the company.
- Put a full CEO salary in your projections
- Take less than a full CEO salary
- Incentivize your salary creating the opportunity to earn full CEO salary
- Carefully select investors focusing on those that are concerned about your well-being as leader of the company
This should resolve any compensation issues that you would have regardless of what your potential investor thinks.