Why Entrepreneurs-in-Residence are Paid a Monthly Stipend

In the world of venture capital (VC), the role of an Entrepreneur-in-Residence (EIR) is crucial for portfolio companies and the VC firm itself. An EIR's primary responsibility is to provide valuable insights and advice to startups, help source and evaluate new deals, and bring in high-quality investment opportunities. However, questions arise regarding the compensation structure for EIRs, particularly when some firms choose to pay them a small monthly stipend rather than a full salary.

Traditional Compensation for EIRs

Traditionally, EIRs in portfolio companies receive a salary for their contributions. This model is based on the belief that EIRs bring substantial value to portfolio companies, and their compensation should reflect the significant role they play. Entrepreneurs-in-Residence often have a deep understanding of the startup ecosystem, making them valuable collaborators and advisors for emerging businesses. They can help bring in the right talent, advise on product development, and provide strategic guidance.

Tri5 Ventures' Approach to Compensation

At Tri5 Ventures, our approach to EIR compensation is distinct. Rather than offering a full salary, we provide a small monthly stipend to acknowledge the contributions of our EIRs. This arrangement is designed to support entrepreneurs during a crucial period in their careers, when they are transitioning from their current venture to their next one. Our EIRs contribute by providing pro-bono startup advisory services, reviewing deal flow, and taking on ad hoc projects. They are given a token sum to express appreciation for their time and effort.

Reasons for Paying a Monthly Stipend

1. Balancing Multiple Responsibilities

Many EIRs are simultaneously working on their next venture idea, which means they are juggling multiple responsibilities. They are not just helping startups but also contributing to the VC firm's growth. The value EIRs bring is substantial but not without cost. Paying a small monthly stipend helps to balance their financial needs while they are transitionally working towards their next venture.

2. The Value of a Proven Entrepreneur

An EIR with a proven entrepreneurial background might not have significant financial wealth. To such individuals, an additional $200,000 per year might not be essential, but it certainly is not negligible. This token sum serves as a recognition of their past achievements and the ongoing value they bring, even if the amount is not substantial compared to the firm's overall budget.

3. Cost-Effectiveness for VC Firms

From the perspective of a VC firm, paying EIRs a small monthly stipend is cost-effective. The sum is relatively minor compared to the overall value an EIR can provide. This approach allows the firm to attract top talent without deepening financial commitments that could be more impactful in other areas of the business. Additionally, it ensures that the EIRs' contributions are directly tied to their advisory work and deal flow evaluation, maintaining alignment of interests.

Conclusion

The payment structures for Entrepreneurs-in-Residence vary among different VC firms. At Tri5 Ventures, we believe in stewardship and value. By providing a small monthly stipend, we acknowledge the individual and collective value that EIRs bring, while also ensuring that their contributions remain closely aligned with our firm's goals. This approach reflects a pragmatic and collaborative mindset, benefiting not just the EIRs but the entire ecosystem they impact.