Forums: Discussions for entrepreneurs and small business.

Hi all!

I'm currently in the very beginning stages of starting my own company.  All the money I saved went into the programming and development of the app my business revolves around.

So basically, in a month or so I will have a very rough version that can be tested, but obviously I have to start building the business around it.

As with most people, I will require some type of funding from VC or an angel investor of sorts, but my question is, as I write my business plan...how do investors feel about funding payroll?

For example, say I have three employees (myself and two other founders)...obviously we have to have monetary means to survive during the start-up phase... so how do I address this?  Do I build this into my plan as a needed amount that needs to be funded?

Even at very low compensation (enought to survive and pay my monthly student loan) in addtion to the two other people, the cost I'm looking at is greater than any of the other resources will be.  Is this normal?

Or is it assumd that you will just have to "figure it out" as far as supporting yourself and all investment dollars will go into the actual tangible resources of the start-up...

Any help would be greatly appreciated.

Generally, the savvy and reputable professional investors understand that people need to eat. They should also recognize that the burden of "figuring it  out' on your own can detract from your focus on the main effort - increasing the value of their investment. On the other hand, most don't want you to be getting "top dollar" either.

Show how the people resources will be used to meet the milestones, build the business and increase the value of the company. If they are against the idea of paying anything to the founders and employees - then I'd move on.

BTW, had you asked, I would have suggested creating an initial business plan before you invested all your funds an a "rough app".

If you want to discuss your specific situation, feel free to send me a PM or contact me directly.

Thanks for the response Robert.  And I agree I may have jumped the gun a bit on the application, however, I should have clarified that it is a bit more than a rough version... it is a workable version that will be released to the public and still work great, however it just doesn't have all of the features that I originally wanted, yet can be added in the future.

Thank you again!

My experience is that investors will fund payroll as long as it leads directly to the growth of the business. Sales, R&D, Engineering, possbily even admin. However they are not too keen on paying you; their theory is that you need to get the business to cash flow and that should be used to pay your salary. If there is cash flow, growth, and a reasonable salary for you that will not be a problem.

However, you describe a situation in which you are, at current, not generating revenue, and you would like to start getting a paycheck (which i appreciate). My experience is that investors will not agree with that.

Okay here is a more detailed situation, lets say I'm looking for two additional partners (that could also be considered employees).  One would be an engineer and one would be admin and data management, these are certainly important positions, and in my opinion are certainly necessary and lead to growth of the business.

Total funding needed (minus what I have already put into it) is about $165,000.  But I was trying to think of a fair salary that would entice quality talent to work with me (in addition to a share of equity) and came up with $30,000.  Therefore total payroll would be $90,000 of the $165,000 needed... is that ridiculous to ask for?  I myself could probably get by with less, but as for other people/situations I do not know...

That seems reasonable to me. I would think investors would not have a problem either, so long as you can demonstrate how these people will add value to the business and increase returns on their investment. You may also consider lower salary in exchange for some ownership interest in the business. This gives them and incentive to increase the value of the company.

jtrinity,

As to your more detailed situation - I offer the following comments:

1. The amounts you specify for salary are certainly reasonable> perhaps even a bit low.

2. If your overall financial projections are strong and your plan describes how you will use the funds ($165K) to move forward and increase the company value - then investors should be OK with the payroll amounts. If on the other hand you "focus" on it - you may find yourself in an unpleasant negotiation.

3. I would be careful about the concept of bringing on "partners" who are going to be employees. Certainly they will be KEY employees and their input will/ should influence some decisions - but if they want to be "partners" - they should bring more to the table.