Ask HN: Giving raises after a series A round

[mpc]

Do co-founders usually give themselves large pay raises after closing their first big round of VC money?

For example, a startup that has lasted for 1year on 200k of seed and angel money closes a 3 million dollar series A round. The company has 3 cofounders and 2 additional hackers and everyone is taking just a little more than their monthly expenses.

Do you avoid the temptation in order to save as much as possible? Here in Cambridge, hiring top notch development talent costs about 100k or more if a huge chunk of options are not offered to the person.

It seems like a no-brainer to keep your salary as low as possible while you keep most of the equity and your employees get the higher salary.

If I had to guess, I would say that this is not the case in most VC backed startups. If so, then why?

[sanj]

I believe the goal should be NOT to be an outlier.

Get a good sense of how the market would value you, independent of being a founder, and get paid that.

Getting paid too much is just asking to to be singled out to be removed as a "cost saving measure."

Getting paid too little makes everyone value you less. And you're at risk of being viewed as sucker.

I have some strong memories of how annoyed I was at how much money our "new, post-series A management hires" were spending while I was still doubling up in hotel rooms with the other founders.

At least we weren't still sharing beds...

[Flemlord]

I ran into this situation about ten years ago. (With the exact same amount of seed funding and series A funding oddly.) I didn't want to do raises and my co-founder wanted to do a huge raise that would have doubled his salary. We compromised closer to my side and just did a slight raise.

We also sold some personal stock to the Series A investor. I banked it and forgot about it. He went on a spending spree and his performance at work went down and never recovered. He ended up quitting a year later, wrangling high-dollar consulting contracts from a couple of our larger clients who later regretted it. Asshole.

I suppose this is more of a lesson about picking the right founders than whether to give yourselves raises. But I'd be a bit wary of anyone who wants too large of a raise.

[amohr]

I've never been through this before, but I feel like getting through series A is a milestone and should be treated as such. I think founders who have been busting their asses to get this product up-and-running deserve some sort of bonus, especially because they just presumably diluted their equity. Maybe this could be solved with some sort of one-time bonus or at least a big effin' party of some sort.

[RyanGWU82]

I've been told that investors will generally veto any attempts by founders to give themselves "large pay raises." Series A investors will likely allow small raises so that you're not living off ramen anymore, but founders should still expect to be paid below market rate.

My guess is that compensation would be a topic of board discussion -- especially executive compensation. In an early stage company, it would be politically impossible to argue that you should be paid more simply so that you don't jump ship. Threatening to quit does NOT go over well with investors.

It's pretty common that early employees and non-founder executives are paid more than the founders. Obviously, the founders will own considerably more stock.

[brezina]

You should include your pay raises in your budget you provide VCs before closing your series A.

I would suggest paying yourself somewhere around or a bit above what you would make at a big company if you were doing the 9-5 gig as an engineer or whatever other position you'd hold.

[white]

Be adequate with what you are asking for. You have the right to get paid fair salary. What investors may worry more then a few grands of salary raise, is how to keep your attention on the startup as much as it's only possible. If you're underpaid and cutting your expenses, you can't be a good person to develop a strategy on spending invested money. Know your value and you'll be fine.

[Payton]

In my opinion, getting a big injection of VC money doesn't make it alright to turn up your burn rate a significant amount.

I have never been through a round of funding, but it would make sense to keep your costs down wherever possible. A founder who just got a round of funding should be thinking on ways to increase the value of the company instead of their salary.

I would like to know what is the norm in VC backed startups. Are there significant pay raises or bonuses after a round of funding? Do the founders and the employees share the wealth? Or are things kept fairly similar to the status quo.