Deferred Compensation Rule of Thumb

Nov 04

adminLegal, Startup, Venture Capital compensation, equity, investor, ROT, Rule of Thumb, vesting No Comments

A good rule of thumb for a startup environment is to avoid “deferred” compensation. Any type of investor (bank, angel, friends and family, and especially venture capitalists) will view deferred compensation as a significant deterrant. Since deferred compensation has seniority over all other stakeholders, it adds a level of risk to their investment. A better way to compensate yourself is through paying yourself in equity through an earnout or vesting schedule.

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There have been many instances in my personal and professional life that a rule of thumb was simply all I needed, but couldn’t find any. I have begun to contribute all of the rules of thumb that I have used in my career, thus the content is dominated by business topics in general and venture capital and valuation rules of thumb in particular. Therefore, I hope you will help me build this collection of Rules of Thumbs from which everyone can benefit.

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