Here are our my thoughts on salary.
You are correct--Paul and I are both currently drawing a salary of 175K per year. As the other commenter mentioned, that's not a particularly high salary in Silicon Valley, but I believe this is an important discussion nonetheless. As a startup with limited resources, cash is king.
That said, I think you are looking at the salaries the wrong way. As an owner of a company, the question you should be asking isn't "how much am I paying" but "what am I getting for my money?", and "what gives the company the greatest chance of success?".
Imagine you own an NFL team, and you are looking for a quarterback. The current market price for a MVP caliber quarterback is $25 Million per season. Is that an exorbitant salary for a guy who throws balls for a living? Yes. Can you find somebody cheaper? Sure. But would you sign the MVP? Probably. Because as a business owner you recognize that the quarterback is the most important position on the team, and if you want to reach the Super Bowl, he's probably your best shot.
Now, what if you had the chance to get that EXACT same player for HALF of his market price. $12.5 is still a high price, but it's an amazing value, and most team owners would trade in their mothers to get that deal.
I use that analogy because both Paul and I are probably making 50% or less than we'd be making if we went elsewhere. In fact, Paul left a job that had over $500K of comp per year to start Legion M. He also worked for nearly a year for free. Both of these are documented facts--you can see the first in MobiTV's S1 filing a few years ago, and the second in Legion M's Reg A filing.
So with Paul, you've got somebody that WOULD have made close to $1MM over the first two years of Legion M, but instead earned $175K. This show a few things:.
1) As an owner of the company, you bought $1MM worth of value for $175K, which seems like a pretty good deal.
2) You've got a founder who is investing SIGNIFICANT value into this startup. One could argue that Paul's invested $825K into Legion M.
3) If you average his salary of 175K over two years, he's actually been paid 87.5K per year. So technically you don't have a problem with both founders--you only have a problem with me. :)
I understand that there is a lot of conventional wisdom from VC's re: founders salaries. However, you've got to realize a couple things.
First, the VAST majority of startups are led by 20-somethings right out of college rather than experienced, middle aged guys like Paul and I. For those people--a 100K salary is reasonable, and enough to pay the bills. For guys like Paul and I with mortgages and families living Silicon Valley, they are not. We would both LOVE to be able to work for $1 per year, but unfortunately that's not a possibility. (TBH, the only way I've been able to afford working for $175K per year is by cashing in college funds I had set aside for my children). A seasoned VC recognizes that the general guidelines they use for graduates of Y Combinator don't apply to every company. And while conserving money is very important in the early days of a startup, it's not nearly as important as having the right people in the right positions.
To give you an example, my salary in the early days of MobiTV (which was a VC funded company) was $120K (keep in mind, this was over 15 years ago). I was also 28 years old, and can tell you with certainty that that I brought a tiny fraction of the value I bring today. If you could go back in time, you might be able to get 28 year old Jeff and Paul to run Legion M at a salary you'd feel comfortable with. But I can tell you that you'd stand a MUCH, MUCH lower chance of success. As with anything, it's not simply a matter of how much you are paying for something--what matters is the value you are getting for your money.
Secondly, one of the primary reasons VC's push so hard for low CEO salaries is because the entire company's salary is often pegged to the CEO. I.e. if you you have a highly paid CEO, you'll end up paying more for your VP engineering, which means you'll have higher paid Engineering Managers managing higher paid engineers. This logic is true, but not particularly relevant to Legion M.
That's because MOST startups are built to dramatically scale their organization. I..e, If you are a tech startup, you need to hire engineers. At MobiTV, we started with 3 cofounders, but eventually grew to over 400 people--mostly in engineering. In these organizations, the costs of internal staff represent the vast majority of the monthly costs that need to be covered, and so ANYTHING you can do to reduce those salaries has a HUGE lever on the long term success of the company.
Legion M is different--the vast majority of our expenses will be the investments we make into projects, and ultimately the cost of our team should be diminutive. In that regard, we're more like a VC firm than a tech startup. If you look at the that model, you'll see while VCs push very strongly for tech CEOs to keep salaries low, VC's themselves are EXTREMELY well compensated. That's because smart investors recognize that when you have a very small group making very important decisions, you want the RIGHT people, not the CHEAPEST people.
Finally, I'd like to suggest rather than focusing on the salaries of individuals, you look at the overall burn of the company. With Legion M, we intentionally have an extremely small (but senior) staff. We do almost everything ourselves, which is an extremely powerful way to keep burn low. I.e. Paul and I built the website, Terri does most of our legal, -- our combined 40+ years in startups allows us to do almost everything ourselves instead of hiring other people to do it for us. This means that overhead costs--rent, furniture, HR, middle management, IT, etc--are almost zero. When 28 year old Paul and Jeff started MobiTV, our first 4 hires were a tech guy (to build our website), a receptionist, an office manager, and a documentation writer. Those hires, coupled with rent, were probably more than half of our burn in the early days. At Legion M, 45 year old Paul and Jeff have NONE of those expenses. We're smarter, more capable, and have taken our lumps and learned from our mistakes. Not to say that we won't make new ones, of course, but at least we got some of the big ones out of the way... :)
Finally, I'll reiterate the point that NOBODY in this company is watching our cash closer than Paul and I. If Legion M runs out of money, most of our investors will lose a couple hundred bucks. Paul and I will lose our jobs, and have serious damage done to our careers and reputations. If you don't believe we're the type of people that care about that sort of thing, then I'd HIGHLY recommend you don't invest. You should never go into business with people you don't trust.
Hope this helps! Happy to answer any followup.
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