The 2015 edition of the pan-European startup contest Idea Challenge sees an increase in variety and internationality. The series of events re…
Photo: Alex E. Proimos http://www.flickr.com/photos/proimos/4199675334/
When we started SpeedInvest in 2011, we were a startup ourselves. A very well funded startup, but still, we were a team of people who had some experience in building companies and no experience in building a business angel fund. We are still learning an awful lot, because you can profit from other people’s wisdom, but there is no way around doing things yourself, making mistakes, trying again and again, learning from what you’ve seen so far. However, there are those rare events where we sit across the table in our office and are having a facepalm moment...
WTF #8 It must be the money
Running credit checks with no shame now
I feel the fame now come on
I can't complain no more
Shit, I'm the man now
(Nelly – Ride Wit Me)
So it happened. You closed that funding round you had been working on for the past six months. Contracts, term sheets or other pieces of paper are going back and forth. It is very unlikely that this will fall apart, although you have to pinch yourself from time to time to make sure that no deal is over the line until the ink has dried.
We have been at this point nearly twenty times since we started SpeedInvest in 2011 and finished off about half of those deals. You might believe that we have circumvented all the WTFs that I have described, because we have gotten so far. Still, it can happen that deals we consider done give us facepalm moments – and second thoughts.
A 100k salary?
One of those things that gives us the chills is when founders set their own salary at "market value", meaning they put a hefty 100k per person per year into the already mentioned Excel business model. Putting that into a spreadsheet is fine, but putting this into the contracts is strange. The list of justifications that follows in the discussion is long and we know most of the arguments already. We had them. We know they sound right. They are. Not.
It might be true that in your previous consulting job at [enter top 5 consulting firm] you earned double than that already. It might be true that [insert friend, former friend, colleague, university pal, random guy at the bar] earns that already and you are obviously much smarter than them. It might even be right that you found a list of startup salaries on the internet (quora I suppose) saying that a decent CEO of a startup can earn 200k dollars per year, plus stock options.
However, as said in the very first part of this series when it came to valuations: there is (still) a difference between Silicon Valley and Vienna. We operate on different levels. To give a specific example: If your business angel round in Vienna reached 500k euros in total volume, you probably raised more money from private investors than 90 percent of all other startups in Vienna already. If you get 1mio euros, you are among the one percent that managed to do so.
Now do the math. If your salary is 100k a year, you have two co-founders who aim at the same amount, you will have burned more than half the money of your 500k round after one year. Now adjust that to a 300k round, which was difficult enough. How will you manage to raise the next round within the next six months, when the last one already took half a year? How will you be able to focus on the product and the company, when the next funding round is necessary, just to keep that level of income?
I don't believe in Ramen profitable after a certain age, when family etc. comes into play. But I believe that entering the startup space is a very conscious decision, that affects your live in many ways, including the monthly balance on your bank account. If you are not ready to accept that, there is a gazillion of other jobs offering more money. You are just not that into it.
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