How Should You Compensate Your Employees After Your Funding Closes?
“It is sacrosanct,” one of our investors said to me. I told him that we would perform a layoff in preparation for the next round of funding.
There really was no way around performing a layoff. We were only going to close $10M, and we needed the money to last at least 18 months, so really good people were going to be let go through no fault of their own.
Your decision to give your team raises is determined by multiple things.
In our case with our current salaries and forecasted burn rate, we needed to make some painful cuts. It was the only rational choice we had. There would be no raises, but fortunately the remaining employees were being paid fairly.
However, you could be a seed stage company that raised a Series A. You probably aren’t paying your team market salaries, so now would be a good time to bump people up to as close as market rate as possible.
You want your money to last at least 18 months, but you should plan for at least 24 months of runway because everything (especially profitability) takes longer than it should. All you need to do is build up a simple financial plan to determine what your cash position will be in 18 to 24 months.
