Last week I was talking with an angel investor that was lamenting an investment gone bad. The investment, at the time, looked great: big market opportunity, strong (supposedly) sales pipeline, $3 million+ already invested with a pre-money valuation less than invested, and strong investor downside protection for the bridge round. Quickly, after making the investment, the wheels started coming off the pre-revenue company with the sales pipeline proving to be much too optimistic, the burn rate not getting any better, and management not making the hard decisions.
After he recounted the experience, I asked him how much the CEO made at time of investment: $175k. I asked about the CEO’s salary at the time of the major cuts post bridge round: $175k. At that point I mentioned the Peter Thiel opinion:
The lower the CEO salary, the more likely the startup is to succeed.
The angel investor said in retrospect that the CEO salary, especially after lack of progress and being pre-revenue, was a huge red flag. Moving forward he’s not going to make that same mistake twice.
What else? What do you think of CEO salary as the best indicator of startup success?