Overall, I see a pattern that could be explained by slightly different perspectives. A VC-backed founder likely sees themselves working for someone else - "My work will benefit the investors, so I will get paid for that work." Whereas the bootstrapper is very obviously working for themself - "I'll take what I've earned or need and no more".
That's also where you get into that bump at the end. If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free.
edit: accidentally swapped the headers on first post
Simpler explanation – salaries of VC-backed founders have to be approved by the board, which consists of these same VCs. Bootstrapped founders can pay themselves whatever they want.
> If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free.
Wouldn’t you prefer to take minimum salary and the rest as dividends? Seems like that would be the more tax advantaged approach and fully within your ability to do as majority owner.
Once your company is earning $10M/year, you should probably be using debt instruments instead, and paying yourself enough salary to cover the interest. That gives you a real tax rate on your cash earnings under 10% (and capped at the LTCG rate) if you can get a decent valuation.
You can use anything as collateral for a loan, even business equity. It’s how wealthy people get liquidity without selling assets.
A HELOC loan would be a pedestrian example of this. You put house equity up as collateral to get money without selling the house. Fail to pay, bank sells house. When using your business as collateral, bank sells business.
How would this translate to salary? Are you saying you'd get a loan on your portion of the equity at full value and the company would only pay you the interest required to cover that loan?
Something like that yes. Mind you some jurisdictions have laws around “reasonable salary” so always important to check these things with a professional first.
For a more fun take: Watch WeCrash and notice how the protagonist magics 100mil for personal use after raising the huge Softbank round … and what happens to that liquidity when an IPO doesn’t materialize.
Alas I’ve never been wealthy enough to see how this works in practice. At my level (can borrow about 4 months worth of living cost) you do have to pay it off eventually, you just get quite favorable interest rates in the meantime.
Also, HELOCs have very high interest rates due to the illiquidity of the underlying asset. If you have a large private company that has some interest from private equity investors, you can get a much lower rate. ELOCs on huge blocks of the S&P 500 (essentially large margin loans) can have rates that are almost at the fed funds rate.
I would imagine with the very high failure rate of startups, loans based on company equity, especially for small, non-public non-liquid companies must have sky-high rates.
You probably can't get an ELOC against common stock in a series A startup. You can definitely get an ELOC at a pretty decent rate against preferred stock in a startup that is at series D and has 100 employees.
The question isn't what the company is worth or how likely it is to fail, the question is what demand there is for the shares. If an asset is in high demand, and is relatively easy to sell (like company shares), you can get an ELOC against it at a great rate.
They won't give you 100% of the valuation of the company in the form of an ELOC (you may only be able to pull out 10-20c/$1 of startup equity you have), but they will give you a good rate.
That's also where you get into that bump at the end. If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free.
edit: accidentally swapped the headers on first post