Dear SaaStr: As the CEO of a startup, what should I tell my employees who keep asking for raises after they realized we just raised a new round of funding?
Two meta-thoughts:
- First, you have to decide if you are going to “hold the line on burn” after a fundraising. If you plan to — tell everyone. They may not be 100% happy, but they will get it. Is your goal to hire 100 reps next week and 10x the marketing plan? That’s one approach. But if you don’t communicate a burn budget, everyone will expect all budgets to grow overnight. Another approach is to use the capital as a “buffer” so “we have plenty of runway”. If you communicate you are doing the second approach, most folks won’t expect so many out-of-turn raises. They’ll get the goal is to de-risk the company, not to grow the burn rate.
- Two, sometimes — many times — at least some people do deserve a raise after you close a round. Are folks taking under-market salaries? If so, marking some up closer to market after each round can make sense. My rough rule is after you raise $2m, the founders shouldn’t work for < 50% of market. And after you raise $20m, most employees will begin to expect to make full market salaries. Between those phases, a discount to market may (or may not) still fly. But the % will need to come down over time.
A related post here:
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Jason Lemkin, Khareem Sudlow
