Whenever I did a proforma for a company seeking investment or a bank loan, the principles salary was always an interesting stopping point. Some people did do the research or identified the value proposition but most treated it as they were entitled to the money regardless of performance. This was a recipe for failure: getting turned down for investment.
Investors do not need to hear how you, the entrepreneur, need $150,000 per year because you have four children in college. What the investor needs to hear is that you will create value that earns the $150,000. The best approach is to identify the basic salary you need to get by and focus on the business, and anything above that is based purely on performance. If you do not perform and show success, then you do not make that money.
On the other hand, investors should not expect you to starve your family. If any investor tells you that, then you should walk.
A challenge comes when the entrepreneur needs $150,000 base because of certain required needs but does not create the value to match that base (or have the track record). Unfortunately, most investors do not care and will insist that either the entrepreneur cuts back expenses, uses savings, or has their spouse work. Note, I did not write have a second job. The investor expects the entrepreneur to work in the invested company and not moonlight.
Finally, the investors know that you need a competitive salary for your job. When you research the position, do not pick the CEO’s salary that is in the millions when your last salary was $60,000. Instead, figure out what the typical lead supervisor gets paid, and then match that with a package of base and performance. Typically, if you earned a salary at your previous job and lived well enough off it, it is a good idea to start with that as a base. Anything over that can be paid on performance.
