Categories
investor management startup

How to manage your investors

If you’re running a fast-growing startup it’s very likely that you’re funded with external money and therefore have investors you need to report to. This article should give you an overview on how to manage your investors successfully.

Your relationship already starts before you say yes

You should be very careful with the selection of your investor and not just say yes to the first best offer. Having investors on board is very similar to being married – you go through the good, the bad and the ugly and only get rid of each other if a) you get fired or b) your company goes bankrupt. Both scenarios are probably not what you’re looking for.

But where and how do you find good investors? There are two aspects: first of all, make sure that, besides the money, they also bring additional benefits to the table. For example: you are running a b2b startup that sells to enterprise customers. In that case, you’re looking for investors that also have a broad network of enterprise executives in your area and ideally also b2b sales experience. A good investor can not only open doors but also provide you with the right feedback on how to sell better and faster. Ask the person that can a) support you with the most value and b) has the time to join your board.

Now you might ask: but where do I find these investors that add value to my business? Do your homework and search LinkedIn up and down. Reach out cold to the potential investors, and ask them for their input and expertise. Eventually they will be interested in investing in your company or support you with their network and open doors for you. Doing cold outreach is uncomfortable but it will benefit you in so many ways – so just do it!

Especially in Switzerland, seed investors usually ask for too many shares and offer too little money. In a healthy seed round, you offer 20-25% of your shares, not more than that. An additional tip: Make sure to do your reference checks and ask previous or active founders the investors have invested in for their feedback. This is a must-do due diligence check.

Spice up your monthly reporting with a specific ask

I suggest that you send your investors a monthly reporting. Not only because this will discipline you and your team and will establish a certain level of professionalism, but also because every reporting is a chance to put your investors to work for you.

At the beginning of each reporting put a specific ask: e.g. you’re looking for a new chief marketing officer and need some intros or recommendations. Put it there and ask your investors to support you on this. You will be surprised by how much their network can actually help you.

To manage the monthly reporting you can either create a powerpoint and excel sheet or use cloud tools like Visible (https://visible.vc/). Always deliver the reporting on time, ideally even 1-2 days earlier than planned but never late. Don’t forget to proof-read it several times or let someone from your team do this if you’re not good at spotting the little details (I am terrible at this).

Investor relations 2.0

Your monthly reporting is not enough to establish a good founder//investor relationship. Something I haven’t paid enough attention to is the regular in-person exchange with all investors. Host a dinner or go for some drinks every 4-6 months and invite all of your investors (they might even pay for their own drinks) to facilitate this personal exchange and strengthen your relationship.

This, combined with the regular specific asks, are crucial parts of building trust and having an honest and open exchange. This way, you will not only set yourself apart from 90% of other startups, but you will also leverage your investors’ networks and know-how the best way you can. In return, this will push you and your company to new heights of success.

How do you manage your investors? Do you have any additional recommendations? Feel free to let me know in the comments.

Categories
investor management salary startup

How much founders should get paid

A trade off between founders and investors interests

Recently we hosted a startup founders dinner in Zurich and asked how the different company CEOs and CTOs were handling the delicate topic of salaries for their own founding team. A topic that is a very crucial part of being an entrepreneur and usually causes lots of discussions between founders and investors. This article should give you an overview of the different perspectives and a clear guide on how to set the salaries for your founding team.

The unicorn approach

Earlier this year I interviewed unicorn investor Daniel Gutenberg (13 unicorn investments in his portfolio) for the Swisspreneur show and when asked about founders’ salaries he had a very clear take: If you’re convinced that you’re building the next unicorn, the only rational thing to do is invest all your money into your startup company because you will basically earn much much more if your plan works out.

That basically means you should analyze your living expenses and pay yourself exactly that amount on a monthly basis. Everything else you have saved or can remain in the company should be invested in your startup to push it to unicorn level and generate your big pay day with an IPO or M&A deal based on your billion dollar company valuation. 

Of course this is also a very risky approach; as we know, 9 out of 10 startups usually fail and therefore while the reward is indeed very appealing, the risk should not be taken lightly. However, for unicorn investor Gutenberg it’s critical that founders have a large amount of “skin in the game” and are personally invested in their startups’ success. So if you’re goal is to build a unicorn and you want to win Daniel as an investor you know what’s required.

What founders say

That you don’t have to invest your last cent in your company shows the general practice of Swiss startup founders. Usually they also focus on their living expenses which generally tend to be lower the younger the founders are. If there is more than one founder, most of the companies take the highest living expenses of their team as a base salary and pay everyone the same. I think in general it’s smart to pay the founders the same salary to avoid distracting discussions and fully focus on building a successful company. This of course only works, if all of them are working full-time for your company (which they definitely should be).

Some founders get paid a regular market salary while most said that they don’t pay themselves a high salary on purpose. This is because of the potential upside through their company shares which is part of the payout and compensates them for the lower salary. I think here it really depends on how you earn your shares: If you have to invest a significant amount of money yourself and basically buy the shares of the company, a salary closer to the market standard seems appropriate.

However, if you, like most first and/or early stage founders, get your shares basically free of charge and sell some equity to investors, a regular market salary wouldn’t make sense and significantly reduces your run-rate. So you basically have less time to hit your next milestones. Therefore, depending on your living expenses, a salary between 3-5k seems appropriate and is also the way most founders in Switzerland handle it. There are some outliers that only pay themselves 1k a month and others that get paid 8-10k CHF but they are the exception rather than the rule.

Grow your salary with your company

I would personally suggest to go for 4-5k during your early phase and then steadily increase the salaries as you progress and approach a potential Series A+ financing round. Right before you start fundraising for your Series A you should pay yourself a market salary because VCs will want to know how much money you make or usually burn based on fair market terms. If you pay yourself a lower market salary you are basically cheating on this. From what I have learned from talking to VCs, this is usually a bad sign in their perspective and a potential red flag for an investment. 

So basically your salary policy is similar to finding product market fit: first you try to reduce everything to the minimum until you find something that’s actually working. In this phase you pay yourself close to your living expenses to survive, but only live a very basic lifestyle, so 3-5k CHF per month should do the trick in Switzerland. As soon as you find something that’s working and entering scaling mode, where you also need to attract senior talent and pay them appropriately, you should pay yourself close to market standards and with that also send a strong signal to potential investors so they take you seriously. 

What do you think about this topic? And how much do you pay yourself as a startup founder? Leave your thoughts in the comments or send me an email.