Our philosophy behind salary is the same as for equity: That Prototyze is co-creating a venture with the key leadership. And all of us must sacrifice as the first step to be entitled to rewards proportionate to our contribution.
The salary that a venture leader draws is broadly determined by (A) The funding of the company; (B) Consequently, the monthly total expenses it can afford; and (C) The number of other CXO co-founders.
The goal? To have a cost-structure such that we have a runway between 18 to 36+ months after every progressive round of capital. Exception? Only the very first, kick-start stage, where it can be as low as 12 months.
This means that as in every start-up, leaders are expected to have their primary commitment to the venture’s priorities. And adjust their personal situation around it.
Often we have prospective leaders telling us something like “My salary in my current job is Rs 1.0 Crore, but instead of asking for more, I’m willing to lead a venture on a salary of only Rs 75 lakh. But that is the minimum I need to meet my EMIs”
Sorry. We appreciate the ‘sacrifice’, but every start-up can pay as salary what it makes sense for it to pay. A seed-funded company without strong revenue streams cannot pay anyone Rs 75 lakh a year. And if your life-stage does not allow you that, then we understand it. But a venture cannot enable what we need. We have to enable what a venture needs.
This is roughly how it plays out for a venture in the first 12-18 months of inception. It may spend Rs 30 lakh in the first quarter (Rs 10 lakh a month) going up to Rs 45 lakh in the second quarter (Rs 15 lakh a month) and then approximately Rs 60 lakh in the subsequent two quarters (Rs 20 lakh a month). This means a total expense of Rs 2 Crore in the first year, or approximately Rs 3-3.5 Crore for 18 months. This is roughly $500K, which is the typical seed round.
Therefore, based on the number of co-founders (minimum usually 3, maximum usually 5) their age, experience, skills and previous salary each could have a monthly salary of anywhere between Rs 1 lakh per month to Rs 2.5 lakh per month for the first year.
Will this major gap between your potential market-salary and what you earn here remain? Hopefully not. We expect that as the venture grows in financial strength (through business revenue, not just funding) everyone’s financial rewards also rise enough to reduce that gap.
Salary levels can rise based on business performance and therefore funding. For example, after a Series A of Rs 30 Crore ($4 million) a venture’s monthly spend may go up from say Rs 20 lakh to as much as Rs 1 Crore a month. With a runway of 24+ months, it is conceivable that a venture leader could draw a salary of Rs 2.5 to Rs 4 lakh a month (from the earlier Rs 1 to Rs 2.5 lakh). This could further rise after a Series B funding.
The corollary is that if performance metrics are not being achieved, then salaries can be voluntarily cut to preserve runway. Or frozen because the macro scenario is adverse for funding. But such situations may result in a corresponding increase in the equity allocation for the venture co-founders also.
Of course, if the venture fails, it would be shut. But whatever it is, a venture leader will not be waiting infinitely. Either a venture grows from stage-to-stage in roughly 12-24-36 months or it fails and shuts down.
Basically, decisions about equity or salary at a venture in Prototyze are made in exactly the same way as how they would be made at an independent venture led by conscientious, committed, pragmatic leaders.