Everyone has different tolerances here.
In my first start-up, I signed a $750,000 full-recourse note when my net worth was probably $30,000. So that was a lot.
In my second start-up, I invested about 10% of my net worth at the time. Maybe more like 15% all-in. That was real money, and I felt it, but something I felt comfortable doing without a huge amount of stress. I didn’t want to lose it, but the world would not have ended if I did. I made about 8x on that particular investment, so it was worth it. But too much more would have created family stress.
My “rule” is investing > 20% of your personal net worth is too much — if it creates stress.
While I invest, I want the CEO stressed. But not over-stressed. Not worrying too much about money. After all, I am giving her money when I invest. One reason to do so is to remove certain stressors, to free the CEO’s mind to focus on growth.
So while having skin in the game is good, if it’s > 20% of their net worth (or even just if it is a lot), I ask. I ask if it’s too much. Because I don’t want them worried about this. And if they need to be paid back some as part of the financing, I just do write them a check (one way or another) to repay some of it as part of the bigger investment.
A bit more here: In The Early Days, Don’t Forget To Pay Yourself, Too | SaaStr
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