Two sisters quarreled over an orange. After they agreed to divide the orange in half, the first sister took her half, ate the fruit, and threw away the peel, while the other threw away the fruit and used the peel from her half in baking a cake.
Understand needs before cutting deals.
Bethink the orange.
What should your salary be once funded by investors? Market rates. You must be paid what you are worth in start up with funding above $1m.
Why?
If you get hit by a bus tomorrow, that is the cost to replace your skill base. They invested in you. Your investors will need to replace you. The business will be a going concern with or without you. It will cost market rates. If the business can’t sustain your market value, you haven’t got a business.
An Angel Investor or VC doesn’t want their key men wondering around penniless. They need you to have comfort and focus. In the early and delicate stages paying your wage will greatly impact cash flow. To alleviate this, the payments can be deferred, or arranged through other financial vehicles until cash flow positive.
Also, remember to get Key Man Insurance. It is not very costly. Similar to the cost of a general home insurance. If that rogue bus knocks down a founding member or partner, an equity buy out will be required. Then investors can’t lock you out of the game.
Here’s the trick. All the VC’s we have met have told us to put up our wages in the financials – to market rates. But they don’t want to see it in your plans in the first instance. It’s an insider’s trick to test motives.
Get your money as and when you need it. Not one big fat cheque for $X million dollars for the first 3 years. The less you take, the more you hold onto. I am talking about your equity stake. If you’re not trying to maximize your equity stake you might as well go and get a job with Larry Cubicle. Most VC’s worth their cheque books will understand money in tranches and encourage it. You should only draw down on what you need for two reasons.
You can’t get a return on what you are not using
Think of it this way:
At T2 investors often come looking for you!
You need to break down your requirements of funds into chunks. Where is the cash going and when?
If you get it all up front, it’s a simple misallocation of capital. It means you and your VC don’t know what you’re doing. There is also the waste risk, you won’t be tight enough.
I got asked the other day by and Investor what the ‘Cost Of Failure’ was. I didn’t know the answer at the meeting let alone it’s true meaning. I do now.
Cost of failure isn’t – amount of capital required
Cost of failure doesn’t – include overheads
Cost of failure can – save you severe financial loses
Cost of failure is – the best way to improve your plans
The costs of failure is the amount of money required to do a bare bones minimum, bootstrap style launch, to prove your concept. It should only include simple costs of making your service or widget. Maybe your widget only needs to be 80% of your desired end product? It doesn’t need to be perfect, it needs to represent your concept in order to prove it. Then fully fund, then launch. Or… have the wisdom to move on.
The first version of Microsoft Windows is worlds apart from Windows
Vista. Think 2.0
Unsure of how keen investors are in your business? 
Answer this question:
How quick do they return your phone calls?
You can learn a lot from your teenage years. The girl or guy who didn’t return your calls… well the same principals apply. They’re not interested. Move on. Time is limited.
It’s the same situation for customers, suppliers and VC’s. Sure it makes sense to chase people early on, but not perpetually with little reaction. You’ll know if you’re a priority. And for those who share your dream you will be. Focus on finding them.
There is no greater compliment than imitation. In marketing circles it’s known as the “me too”. But for a start up, it could mean a competitive spiral of lost revenue and price discounting before you’re profitable.
If your potential competitors have deep pockets you better make sure you have something they can’t copy. Simply being first to market, is rarely enough. Your challenge is cash flow. Even if you still lead the market, they will drain your revenue pool. Intellectual property, channel strategy, customer interface…. something must protect you.
The best way is to have a different system or value chain. Any ‘P’ will do, so long as it isn’t the price ‘P’. The art of war is not to engage, not to compete, to seem too niche for them to consider.
You need to be ensconced in your market by the time you seem threatening.
If you don’t have somewhere to hide strategically, you’ll get whacked by gorillas with deep pockets. Or worse – dismissed by investors before you’re born.
Investors only enter a marriage with divorce in mind, and there is always a prenuptial agreement! 
What is a realistic exit strategy?
IPO?
Private sale to industry incumbent?
Bank refinancing?
2nd stage equity financing to VC’s?
Investors will want options for the final payout and at least a rough timing on the divorce.