Q: I and a couple of other 40-somethings have a great idea for a new Web 2.0 start-up. Our problem is that none of us can afford to give up our day jobs to bootstrap a start-up. In fact, our Web 2.0 idea would be a direct competitor to our current employers so we cannot, in good conscience, launch the service without first leaving our respective companies.
Are VC firms, given an outstanding business plan, willing to fund firms that are (a) run by middle-aged men and women and (b) have founders (three of them) that will require high salaries (150k – 170k) because they all have families to support and mortgages to pay?
I’ve been told that VCs are only interested in people who are willing to make large personal capital investments and/or will work for free for at least a year. Is that true? Is there any hope for us middle-aged folks?
A: (Jason). Despite much press about how only 20-somethings can be successful entrepreneurs in a start up environment, our experience shows us that age is irrelevant. We’ve had successes with most every age group and each can have their strengths and weaknesses, but a strong management team is a strong management team. We don’t know any good VCs that make investment decisions based on ages of the management teams.
What’s more intriguing about your question is your salary situation and your current employer.
VCs are normally reluctant to fund ventures where the management team is looking to replace their salaries that they had at larger companies. Cash is a scare resource in a startup. You might want to refer to our Compensation Series on what we think about early stage compensation. I don’t think that most VCs demand that you personally invest material amounts of cash into the business – your investment is the sweat equity and risk that you’ve taken leaving your more stable job. Furthermore, it’s also not reasonable to ask entrepreneurs to work for free. In any situation, you can expect to make some salary, albeit usually lower than what you are currently used to. Again, we’d refer you to our previous postings on the subject to see what ranges we think make sense.
Lastly, the fact that you’ve developed something competitive to your current employer potentially is an issue. Depending on your position at the current company, you may owe a duty to the employee to not develop or act in any way competitive to your employer. Furthermore, depending upon your contract, inventions that you create might be property of the company. This is really a fact-based situation and state law has a lot to do with the outcome as well. You should definitely consult an attorney before leaving to pursue this new opportunity.