Good morning, fellow founder! 👋

Welcome to another edition of FounderForge. Your Europe-focused startup digest - just because we do things a little differently here! 🇺🇸 👀

If you missed our last issue, you can still read it at the link below! 👇

Today's topics are all about the money:

• What founders (should) pay themselves across Europe 🤑

• How to determine how much you can realistically fundraise 💸

📊 Data Dive: Founder Compensation

Launching a startup? Brace yourself for a financial rollercoaster! 🎢

Being a founder often means living on the edge in the early days.

Fortunately, that changes once funding comes in and founders can start paying themselves.

Finally, the days of instant ramen 🍜 are over!

The big question now is: How much should you pay yourself?

At FounderForge, we believe the first salary should be just enough to let you breathe and laser-focus on your startup.

Sifted and Figures went a step further and gathered some data for us.

They surveyed around 400 founders from the UK, France and Germany - three countries that are home to over 50% of all European startups.

The data is based on medians rather than averages, giving a more accurate picture of the current landscape.

Factor 1: Your Startup's Phase

As your startup scales, so should your paycheck.

Factor 2: Your Startup's Geography

Surprisingly for us, founders in Germany take the lead in terms of median salaries, outpacing those in France and the UK.

To be completely honest, the median salary really surprised us - we, Valentin (Brickwise) and Alex (Coinpanion), always paid ourselves a lot less than that (more in the direction of €50k).

Do you pay yourself more or less than the median? Let us know by replying to this email (don't worry - we won't share it with anyone else).

The Founder Salary Calculator

Figures and Point Nine have gone one step further and created a handy founder compensation calculator.

It's based on additional data from 950 founders across Europe.

Just enter your company's stage, location and parental status to get a data-driven fair salary range! 👇

🛠 Founder's Toolkit: Determine Your Ability to Raise

If you ask someone how much you should raise, they will probably say something along the lines of "just enough money to reach your next milestone”.

While this may be true, it does not reflect how much you can realistically raise.

We believe it makes much more sense to get a sense of how much you can get and then adjust your "needs" accordingly rather than going in with a blind number that you may never get.

More often than not, the money we "need" can be adjusted up and down anyway (more or fewer hires, longer or shorter runway, etc.).

The General Dilution Rule

Before we get into how much you can raise, let's talk about how much you will need to give away (and by extension, what your company's valuation will be).

Simply put, each round will come with 15% to 25% dilution - let's say 20% as an average.

This means that your valuation for raising €1M will be around €4M (pre-money).

€1M / (€4M+€1M) = 20%

Straightforward, right? Now let's get to the interesting stuff. 👇

The Pre-Seed Method

Our favorite guide to determining how much you can realistically raise at pre-seed comes from Alan Poensgen at Antler, who created this handy cheat sheet below. 👇

In the end, there are only two dimensions that truly matter ➡️ Founder Pedigree and Traction.

👉 The less traction you have, the more founder pedigree matters.

(European) Investors are generally risk averse (We know - sounds counterintuitive, but it is the truth).

If there are no numbers to evaluate the business, they look closer at the founders to assess whether they will make it... or not.

So the "Been There, Done That" advantage that second-time founders or experienced operators enjoy counts for a LOT.

👉 If you don't have a lot of founder pedigree, you may want to get some notable traction first.

There are a few factors that change the game. Simply put, it's FOMO and its opposite.

For example, building something with an AI twist today probably has the same added appeal as crypto in 2021.

If your startup fits the trend or has some FOMO signal (for example, Elon Musk is part of the round), you move a column to the right and can raise more easily.

However, the same goes the other way around.

While crypto was a trend in 2021, it is now quite the opposite and will get you one column to the left.

Our take: While you should try to play on signaling (go out and try to close a unicorn founder! 🦄), we wouldn't get crazy with trends - what was hot last year may be colder than ice this year. 🥶

The Anything-Beyond-Pre-Seed Method

Once you leave the pre-seed environment, there is another sheet that we find useful to get a general idea of the ability to raise.

This time, it is the SaaS Funding Napkin by Christoph Janz from Point Nine.

While it focuses on SaaS, we think it is a good guide for all types of software startups.

Officially, the 2023 version is not out yet, but there have been some leaks from this year's SaaStr event.

Below is a slightly modified version of it. 👇

The later the stage of the company, the more the ability to raise moves from art 🎨 to science 🔬.

While the napkin above is a good starting point, we recommend digging a little deeper by looking at peer companies (i.e., on Crunchbase) to get a more precise answer.

And hey, don't forget what you learned today.

With a slight modification of the General Diluton Rule, you can estimate the last valuation of any company.

Just multiply the investment amount by 5 to get the valuation.

For example, a €10M Series A implies a valuation of about €50M.

€10M * 5 = €50M = €10M / €50M = 20%.

Good luck out there! ✌️

🔗 Founder's Library: Curated Resources

A collection of random reads that the FounderForge team enjoyed.

• Will AI Accelerate Vertical SaaS Adoption? by Christoph Janz (as you can see, we are big fans of his)

• How to Build a Best-In-Class PLG Org by Ben Williams

• How to Hire Your First Growth Team by Lenny Rachitsky

• 4 Methods for Onboarding New Customers by Melissa Rosen

• The Performance Review Guide for Managers by Lenny Rachitsky (How can one guy create so much quality content?!)

• Mastering Product Feedback Emails by Rachna Sekhrajka

• What’s the Best Way to Advertise a Product? The Chet Holmes Buyers Pyramid by Fishhook Marketing

• At Some Point You Might Need to Fire Your Friends by JooBee Yeow (a problem we know too well...)

😂 Meme of the Fortnight

No matter how hard the journey has been, nothing beats the feeling of your first euro of revenue 🤤

That's all for now!

If you find this newsletter valuable, share it with a friend!

Anything you liked or disliked? Let me know by replying to this email.

Cheers,
The Founders Blacksmith 👋

Issue #2 | 21. September 2023