Salary-based funding makes a startup investment and pays back the investor at the rate of compensation the founders take.

This aligns the investor and founder on the same goal, to create a business that can sustain itself and pay the team.

The investors receive an agreed-upon percentage of any salary or profit the business takes in.

In salary-based funding, the investors receive payback until they reach a predetermined payback amount.

This is different from revenue-based funding which is a debt instrument that pays out based on a percentage of top-line revenue.

This keeps early-stage investors off the cap table so it’s clean for future investors.

The investor can choose to take their payback in cash or they could convert to equity.

This is a good way to run an initial raise when it’s not clear if additional funding will be required.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.