Ask HN: Should I take a salary for my pre-revenue startup?

3 points by bbertucc 5 years ago | 6 comments

A friend said "no salary" startups succeed less than startups where founders take salary. I can't find any info to confirm / deny this.

My case: My company has no revenue yet. I have enough savings to live comfortably for several years. Raising money takes time from developing the product and also means I give away equity. A salary would probably focus my attention more on the company, but "focus" seems ineffable.

What else should I consider about taking a salary during a pre-revenue stage?

dnh44 5 years ago |

I would take the decision based on tax law in your country.

If you live in the UK the answer to this is almost always yes. Even if that means making a personal loan to the company so it can pay your salary (at least up to the roughly £10k tax free allowance).

Additionally the UK does R&D tax rebates and since almost all of your salary can be attributed to R&D in the early days you can get cash back from HMRC even if you are pre-revenue. But if you don't pay yourself a salary you can't claim this back as R&D.

https://www.gov.uk/guidance/corporation-tax-research-and-dev...

Anyway no matter where you live the answer to your question is probably best answered by an accountant.

muzani 5 years ago |

Hold up. Should it be a startup if you're not making money? What stage is it in now? Where does the money come from?

If you're transferring money to a company account then paying yourself with it, that makes no sense. If it's too early, then VCs/angels/crowdfunding won't give you money. If someone does give you money to pay your salary, take it! The purpose of early stage investment is for you to focus instead of thinking about other work, like consulting. Early stage investors rarely take over 10%. Your odds of landing a seed investment are much higher once you have revenue/validation, though, so this should be delayed until you do.

However, salaries are often taxed and startups are almost never taxed. So it's better to use company money for expenses. Training, a monitor, a chair, domain names.

bbertucc 5 years ago | |

We're pre-revenue. Our salaries would be covered by a few interested investors. Current thinking: Unless we get a strategic benefit from taking money from the investor, we shouldn't.

I'm really just curious if some data exists that shows startups that paid salaries survive longer than startups that don't.

muzani 5 years ago | | |

Any data would be heavily skewed. I had about 5 projects designed to be commercial, only one of which was registered as a "startup", and that was long after making revenue. Our salary was about $40/month up until acquisition, but does that really count as paid salaries? However we took out a lot more from the bank for personal use, including flights and equipment.

We eventually sold it because we were getting into debt and the half-assed consulting we were doing to pay the bills just didn't allow us to focus on it. It would have gone much further if we could live off the salaries.

maxk42 5 years ago |

> I have enough savings to live comfortably for several years.

Then the answer is 'no'. The only reason you should take a salary pre-revenue is to extend your personal runway. If you can afford not to then your company will be able to utilize that money to be more likely to succeed.

nivertech 5 years ago |

* In some countries there is a minimal wage salary mandated by law.

* If you'll pay yourself a large salary - the large chunk of it will go to the payroll taxes and social benefits.

* Sometimes you need a steady salary hitting your bank account to have a credit line / credit cards / good credit score / etc.

* For angle/VC-funded startups it's usually OK to pay a salary for founders with families/kids, but even then you need to take at least 25% cut from your previous job's salary. I know where founders went from high-end consulting to being a salaried employee in a startup, and they had to take huge cuts comparing to their previous jobs.