Startup investor Aditya Arora explains why a Bangalore founder drawing a meager Rs 50,000 monthly salary, despite the company having Rs 5 crore in the bank, is a foolish move. Arora argues that such financial stress is a red flag for investors, as it impairs a founder's decision-making, causes personal turmoil, and can lead to lower valuations.
Startup investor Aditya Arora explained in a recent LinkedIn post why a Bangalore founder drawing a salary of only Rs 50,000 per month was being foolish rather than financially disciplined.
Aditya Arora, CEO of Faad Capital, expressed his opinions on LinkedIn, saying that although business owners with extremely low incomes may seem disciplined, financial stress eventually impairs their capacity to manage a company successfully. "A founder I met last week who is making a Series A pitch earns Rs 50,000 a month." Arora stated, "His company has Rs 5 crore in the bank."
He believes that underpaying oneself is a sign of discipline. He said, "Investors interpreted it as a warning sign." In expensive locations like Bengaluru, where Rs 50,000 a month is less than many entry-level salaries, Arora claimed that entrepreneurs who underpay themselves end up harming both their personal well-being and their businesses.
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He stated, "The founder of a Series A startup cannot cover rent, EMIs, and family in any Tier 1 city on that. Rs 50,000 a month is below entry-level engineer pay in Bangalore."
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Arora went on to emphasise the "three things" that are impacted when entrepreneurs underpay themselves even when their businesses have substantial funding.
First, half of his bandwidth is consumed by personal worry. He stated, "He is resolving a bank issue at home, so customer calls are cancelled." The CEO of Faad Capital added that entrepreneurs who keep underpaying themselves frequently cause stress at home and run the risk of upsetting their wives.
“Second, his spouse stops believing in the company. The ‘I will pay you back when we exit’ line works for 6 months. By month 18 it is the only conversation at home.”
According to Arora, investors don't necessarily respect entrepreneurs who take low pay since it raises questions about long-term viability and judgement.
"Founders who pay themselves less than Rs 12 lakh raise Series A at lower valuations almost as often as founders pulling more than Rs 50 lakh across the 130+ companies in my book," he said.
Financial stability, according to Aditya Arora, enables entrepreneurs to perform better as long as they maintain financial discipline. Aditya Arora counselled the founders to pay themselves enough to cover their mortgage, home expenditures, and children's schooling.
“Pay yourself Rs 24 lakh a year,” he advised. “Cover your mortgage. Cover your kids' school. Cover the family.” Arora said the ideal founder salary should comfortably cover all necessities without making the entrepreneur feel excessively wealthy or disconnected from the business.
