If you’ve been following my blog on “The Secrets of Investing”, you’ll be aware of my dilemma on providing startup funding to pay founders salaries.
Today I had an epiphany and I’d like to share it with you.
If I am investing an amount of money in exchange for a percentage of the company, then the founders have to do the same. This can either be in the form of capital or relinquished salary.
In other words if the founders match my investment with their own money then they should be permitted to draw a salary as would any other member of staff. If however they expect to own a percentage of their startup without investing any of their capital, then they should not be allowed to draw down salary until the company if profitable. As their percentage ownership is earned through their hard work.
Or to put it another way, your idea has zero value, what has value is the work you do to turn that idea into a product. That is your contribution to the company and entitles you to a shareholding.