Here, our view is quite simple: A founder can’t become a liability for his company.
Obviously we want our founders to have skin in the game and to be fully committed to the company they are pitching us. At the startup of the company, this is key to give investors confidence. As the value of this company is minimal, we want to know that it is not a free option for the entrepreneur and, therefore, like to see all his assets into the company.
We ensure that the founder is not in distress because we don’t want him worrying about other things but we also don’t want him to have a too comfortable of a life before the company makes money. (MBAs and Consultants, don’t pitch me talking about your forgone salary. Your opportunity cost will be all equity and, yes, you will have to live a cheaper life for a while) You will be under a Minimal Viable Salary policy.
As the company matures, the founder should rip some of the benefits of the value he has created, therefore, we change the comp scheme from MVS to something more market based in order to give you a little bit of a breathing room and take out the pressure for a quick sale.
For that same reason, we understand that $50M might not be enough for a VC but great for a Founder. Therefore, we are willing to let you take a large part of you chips of the table, not all… but a large part. In doing so, we balance so that the amount of equity you retain on the company is still meaningful for your personal finances but not so large that it will make you risk averse and not swing for the fences with the company.
This is all very tricky math as different people have different needs, but that is the basic logic behind it.