We may not see an entrepreneur quite like Elon Musk in our lifetimes again. He’s had a great exit (PayPal) and runs three massive companies in SolarCity, Tesla Motors, and SpaceX, each of which aren’t just successful companies, they’re changing the world.
He puts it all on the line: an article in Thursday’s WSJ entitled Elon Musk’s Empire Gets Unusual Help noted that “he has taken out $475 million in personal credit lines, buying shares of SolarCity and Tesla when they needed capital. The credit lines are secured with $2.51 billion of Mr. Musk’s shares.” The article goes on to quote Elon directly, “if I ask investors to put money in, then I feel morally I should put money in as well.”
Elon’s comp is all based on the performance of his businesses and he takes very little cash. According to the article “at Tesla, Mr. Musk takes no salary. His total compensation last year was valued at $37,584 reflecting minimum wage requirements in California, but he has never accepted the money.” At SolarCity, his $1.2mm in compensation was all in the form of stock options and his comp at SpaceX, which is $2.4mm includes only $38k in salary. Aside from the fact that he doesn’t take a salary, he started SolarCity, Tesla, and SpaceX with the $165mm he earned as part of the sale of PayPal back in 2002.
The article is phenomenal and highlights over and over again the times that Elon has done whatever it takes to support his companies. Any VC would be thrilled to invest in a CEO like Elon and he’s someone I’ve admired for a long time. That said, don’t be like Elon. Here’s why:
-Putting it all on the line is extremely imprudent. Personally guaranteeing loans, taking a 2nd mortgage on your house, maxing out credit cards, or doing other things which put you or your family at risk are ill advised. It doesn’t impress VC but rather calls into question your judgement, especially if you have kids or a family to support. There’s a reason the investors on Shark Tank make loud groaning sounds whenever they hear an entrepreneur has risked it all to keep the business afloat, so don’t do it.
-Running more than one company is hard. Elon can do it because he’s superhuman. As an entrepreneur, you need to focus on your current business and only your current business. Don’t sit on boards, work on side businesses, or attempt to found another business. It’s an immediate turn off to most VC, unless of course you’re Elon Musk.
-Take a modest salary. Elon doesn’t need a salary because his net worth is an order of magnitude larger than any loan he’s backstopping. I don’t know what his personal balance sheet looks like, but I can promise you there is plenty of cash on it such that taking $38k from Tesla or SpaceX wouldn’t move the needle. That said, assuming you’re not independently wealthy, it’s perfectly normal for founders at the Series A level to take cash salaries that are $75k+, so don’t feel bad about making the appropriate line item. Of course, don’t abuse it either.
Elon Musk is someone any entrepreneur can and should look up to, but there’s only one Elon Musk and you’re not him. Don’t try to be Elon, but rather make prudent decisions as it relates to your personal finances and the business you’re running.