When starting a new company, the reality of business often dictates the Founder will have to go a period of time without a regular salary until profits allow for it. If a new company is using a considerable portion of debt or Angel Investor funds to finance their salary without the company generating profits – this will be a red flag to Angel Investors.
When an Angel Investor will choose to invest in your investment proposal and will risk their money, they will expect the Entrepreneur/Founder(s) to also assume some level of risk in the business.
The rationale behind this is that an Entrepreneur/Founder may have mainly invested their time into the development and commercialisation of the company (‘sweat equity’) but may not have invested their own cash into the business. Most Angel Investors will readily agree that once the company starts to show positive signs of growth or if it is well financed, including cash or personally secured loans from the Entrepreneur or Founder, a reasonable salary would be expected. It is important for an Entrepreneur to make this clear in the ensuing negotiations from Day 1 that this is their expectation – if of course it is!
How much is too much?
Calculating an acceptable wage/salary to charge your company at early-stage, seed or concept stage is no mean feat. As a rule of thumb, it would be viewed positively by an Angel Investor to only take an initial salary of £0 – £15,000 per annum out of the company, and it should not impact their decision to invest in your company.
Bear in mind that demanding anything above £25,000 will most likely require additional consideration on your part.
There are a number of different services available to research and confirm proposed salaries. This is important when trying to justify to a potential investor where the salary figure came from.