OTC CEO’s: Want Respect? Then Pay Yourselves. [Guest Post]
There are two sides to the position of OTC (microcap) CEO pay. Either you should have the privilege to work for free for shareholders and investors, or you can be a real professional and pay yourselves a reasonable salary. If you want to raise real money, pay yourself.
I can’t begin to tell you how may hundreds of “investment” meetings I’ve attended, both on behalf of companies I founded, as well as companies I represent, where the first words out of the mouths of the money people were, “are you taking a salary?”. WTF is THAT? That, is a big red warning sign that you may be in front of the wrong people.
There are really only 2 types of funders for microcap companies, and their position on CEO compensation is a strong indicator on where your company may be in 6 to 12 months. One kind of funder wants YOU out of the way, and the other wants you to be successful, because if you are successful, then chances are great, so will your company. The wrong kind of funder expects you to work for free, to build the company at your cost, or at least publicly move the company in order to move the stock so they can benefit in the near future. The good kind of funder is a professional investment fund that knows that if the CEO is happy, he has greater incentive to do a better job and everyone will be happy. This goes back to the philosophy of you get what you pay for. If the wrong investor puts money into your company (through a variety of ways almost always designed to be able to liquidate stock sooner than later), they simply don’t want to pay you to do your job. They are not true “investors” in the sense of the word. They are short-term lenders that take absolutely no risk in your business. Their theory is that you work for free until they get their money back.
How does that make you feel? You spent your own money, family money, borrowed from savings, opened an office, signed leases, and you went through a number of painstaking steps to bring your company public – for what – to enrich other people at your own personal cost?
Here is a scenario I just went through with a CEO whom attended two very different meetings. Meeting 1 – we walk into the room, exchange business cards, we are told they know all about our business and then they ask “Do you take a salary? – The CEO answers this way. “I have an employment contract where I accrue salary, and have been accruing for almost 6 months”. The very next words are, “how much are you owed, and if we give you money, we expect it to go into the business for operations and growth”. This group spent literally 20 minutes bragging about deals they have done and how much money they have made, all in between constant interruptions from quit an attractive female broker, providing this group with stock price updates on their investments while they barked back sell orders. This is the wrong type of funder to be in front of. They are basically saying, we don’t care what you are owed, and what you have done, we are only interested in our money making us even more money, at your cost, not ours. Dejected, the CEO and I left for the next meeting cross-town. In the cab, he told me that he put in over $150,000 of his own funds, borrowed from his savings and family and that the company owes him $75,000.00 in back salary. I knew where we were going and I told him to relax and let’s see how the next meeting goes. We get to the offices, they actually looked similar to the last office we just left, and sat down and waited a few minutes for the team to arrive. After the exchange of business cards, this group said we blocked an hour to meet and to learn about your company. The CEO spent about 20 minutes on a powerpoint presentation that he spent 2 weeks putting together and then answered some very good business questions regarding the company’s IP, product roadmap, distribution and what the CEO believes his financing needs are for the next 2 years. The CEO had their full attention. Towards the end of the conversation, one of the bankers leaned over and asked the CEO how much money has he put into the company, and if the company owes him any money. This allowed for a 5-minute personal conversation for the bankers to determine the nature of the character of the CEO and to understand some of the hardships he has experienced in trying to build his company. That banker looked at the other bankers and flat out said, we respect that. We can’t invest into a company if the CEO doesn’t show respect for himself, or for the hard work he has already done.
This is the difference between a bad funder and a good funder. Most brokers that lead investment groups are of the first mind. They have been trained and programmed to cut out the competition in the market, and to try to control every part of the process of the optics of cash flow, so they can sell your stock knowing they have done everything the could to reduce their risk. Problem is, while in some circles that would be considered smart investing, in others, it seems foolish. The good funders take the time to know and understand the CEO and your management team. Because they DO take a risk investing in your company, that want t know that 1) you have a plan, 2) you won’t take short cuts, 3) you have skin in the game and, 4) that you have self worth and won’t sell yourself short to take dirty money.
More and more CEO’s go for the dirty money (convertible notes, equity lines of credit, etc…..) because they are either desperate or its quick, instead of using whatever resources they have to get in front of quality funders. At the end of the day, you lead your company and the buck stops with you. Make sure you have the correct amount of self worth and self respect, and that will translate into the right messaging for the right investment group.
About Mark R. Basile, Esq.
Mark R. Basile, Esq. is a nationally known corporate restructuring and workout attorney and is a member of The Basile Law Firm, P.C.. The Firm represents numerous OTC and Pink Sheet companies in both litigation and corporate restructurings. www.thebasilelawfirm.com
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