If you've raised venture capital, you must pay yourself.

Forgive me, but this post will likely be a bit of a rant.

I had a call with a founder I’m advising this morning. He is out there raising money, and he received a term sheet from an investor (yay!), but the investor suggested that the founder and his co-founder shouldn’t be taking a salary. The investor argued that the founders were “working for equity,” and that his investment shouldn’t go to the founding team.

That, ladies and gentlemen, is absolute hogwash. Now, if this were an isolated incident, I might write it off as a clueless investor. As the fundraising climate is shifting, however, I’m hearing more investors suggesting things like “to extend your runway, you should raise from us, but not pay yourself.”

That’s literally why you are raising money

The goal of acquiring capital is to go forward more quickly and gradually lower your company's risk. There is a great deal of danger at the pre-seed stage because there are many unknowns: Will the item function? Can you locate clients? Will they purchase the item? so forth.

Another risk to the business exists, though: As a young firm, the founders cannot afford to lose their concentration. On my desk, there ought to be a large red button that when pressed, summons the voice of God to yell "FOCUS!" at the company founders I counsel. The main obstacle for the majority of companies is this.

It makes sense since there are opportunities everywhere and businesspeople are, well, businesspeople. It makes reasonable that they would feel pressure to hold onto their alternatives for as long as possible.

But what's one of the major sources of diversion? being unable to pay for your mortgage, rent, car payment, or upcoming Huel cargo. It is your responsibility as a founder to concentrate on developing the startup so that it becomes successful as rapidly as feasible.

Your responsibility as an investor in these firms is to expeditiously assist them in reaching that goal. It is amazingly unhelpful on so many levels to advise founders not to accept a wage.

                                    You must fully comprehend how venture capital operates if you are the founder of a startup.

But, this does not imply that founders should overpay themselves. Having said that, it is also unhelpful if you are a seasoned developer and Facebook recruiters call you with an offer of a $250,000 salary. It's simple to say no on a good day, but guess what? There will be many difficult days in the life of an entrepreneur. On some of those days, throwing in the towel and taking the paycheck can seem mighty tempting.

You should be able to easily say, "Oh, I could be making more at Facebook, but I'm working on something I believe in here," if you pay yourself what you need. In other words, if your market rate is $250,000 per year and you can make ends meet by paying yourself $150,000, do so. In addition, set certain goals that will allow you to increase your pay to your market rate in the future. It would be ideal if those milestones were linked to revenue or other financial objectives.

Consider this: "I'm currently raising $3 million, and after the funding is complete, I'll give myself a salary of $130,000. I'll give myself a $30,000 incentive and increase my income to $150,000 annually once we generate $300,000 ARR three months in a row. I'll give myself a $50,000 incentive and increase my income to $250,000 once we generate $1 million ARR three months in a row.

           You are giving up equity, not working for it.

Investors are being a little nasty if they try to tell you that you are working for equity.

Sure, you do profit from vesting shares in the company as a founder. Nevertheless, by definition, you and your co-founders owned 100% when you started the company. When your business develops, that ownership proportion often moves only in one direction. You issue more shares and diluted yourself when you raise capital.