Founder Pay During Fundraising: Avoid This Common Mistake

Bottom Line

Cutting your own pay to stretch company runway can quietly move the real deadline from the business to your household. Before a raise, founders need a personal liquidity plan, not just a company one, so a fundraising delay does not force a decision under financial duress. The rule: know how long your own finances can absorb reduced pay*before you need it*.

The frame

Many founders treat their own pay as an investor-optics lever. According toKruze Consulting's Startup Founder Salary Report, many founders believe that cutting their salary will make their company appear more disciplined to potential investors. However, this approach often transfers the runway problem from the company's balance sheet to their own, without a personal financial plan to support it.
The stakes are real:CB Insights' research on why startups failconsistently finds that running out of cash is one of the leading causes, which is exactly why a personal liquidity plan deserves the same rigor as the company's runway model.

The list

How long can your household absorb a pay cut or delay?

Before deciding to reduce your salary, assess how long your household can sustain itself without your usual income. This involves examining your savings, expenses, and any other income streams.

What happens to your plan if the raise takes longer than expected?

Consider the possibility that the fundraising process might take longer than anticipated. Have a contingency plan in place to manage your personal finances during this period.

Where is the line between 'lean' and 'personally over-extended'?

It's crucial to distinguish between being financially lean and being over-extended. Ensure that your financial decisions do not jeopardize your personal stability.

What nobody puts in the board deck: a*personal liquidity plan*

While board decks often focus on company metrics, a personal liquidity plan is equally important. This plan should outline how you will manage your finances during the fundraising period.

The story

Consider a composite example of a founder five months into a runway who decides to cut their own salary to stretch the company's cash. Without first checking whether their own household could absorb six more months of reduced income, they find themselves in a difficult position when the raise takes longer than expected. This scenario highlights the importance of having a personal financial plan in place.

The fix

• Assess your household's financial resilience before reducing your pay.
• Create a contingency plan for extended fundraising timelines.
• Define the boundary between being financially lean and over-extended.
• Develop a personal liquidity plan alongside your company's financial strategy.

The point

Founders often overlook their personal financial stability when focusing on company runway. By creating a personal liquidity plan, they can*negotiate from a position of strength, not desperation*.

Frequently Asked Questions

Should a founder stop taking a salary during a fundraise?Founders should carefully evaluate their personal financial situation before deciding to stop taking a salary during a fundraise.How much personal financial runway should a founder have before starting a raise?Founders should aim to have*3-6 months*of personal financial runway before starting a raise.Does a founder's salary affect how investors view a startup?A founder's salary can influence investor perceptions, but it should be balanced with personal financial stability.How should a founder budget personal expenses during a long fundraising process?Founders should create a detailed budget that accounts for personal expenses and potential income fluctuations during fundraising.What happens to a founder's personal finances if a raise falls through or takes longer than planned?If a raise falls through or takes longer, founders need a personal financial plan to manage their expenses and maintain stability.

Work with Pinnacle Wealth Advisory

If any of this applies to your business, it might be worth a conversation:Work with Pinnacle Wealth Advisory.
This blog post is for informational purposes only and does not constitute legal, tax, or financial advice. Past performance does not guarantee future results. Consult with qualified professionals for guidance tailored to your specific situation. Doug may provide services and conduct business as Pinnacle Wealth Advisory with advisory services offered through SB Advisory, LLC, an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Results vary based on individual circumstances. Specific figures are illustrative, not guarantees of outcomes. Doug Greenberg is an investment adviser representative of SB Advisory LLC, a registered investment adviser.