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How Much Should a Startup Founder Pay Herself?

Posted by Dan Eyman | September 10th, 2015 | No responses

Founders sometimes ask what to pay themselves once they have raised money or at least be able to tell a prospective investor what they plan on paying them selves post-investment. Obviously in the very early stages this is a non issues as founders are often bootstrapping and/or working while trying to get to an MVP.

Back in 2008, Peter Thiel did an interview at TechCrunch50 in which he said one of the most important things he looks at before investing is how much the CEO is getting paid.

The lower the CEO salary, the more likely it is to succeed.

The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money. It [a low salary] aligns interest with the equity holders. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks.

In practice we have found that if you only ask one question, ask that.

What’s the average salary for CEOs from funded startups? Thiel was hesitant to answer, but eventually said $100-125k. I think this an interesting perspective and speaks to a larger point of the relatively high cost of capital in the early stages. The more a founder pays themselves the less runway they have to hit milestones. Lower founders salaries suggests an alignment with investor interest and a belief that the startup will be successful in the future.

A recent survey of salary data from 11,000+ startups found that 75% of the founders in Silicon Valley pay themselves less than $75,000 a year and 66% pay themselves less than $50,000 a year.

 

Some General Rules:

  1. A founder with no mortgage, kids, etc will have different cash needs than a founder that has a minimum cash hurdle. Additionally, founders come at varying experience levels in their given verticals which in my opinion should also be accounted for.
  2. The size of the seed round affects the size of your salary. The size of seed rounds has shifted in recent years but overall for those raising larger seed rounds ($1.5M+) will tend to have higher CEO salaries.
  3. How long the company has bootstrapped prior to the seed round and how much were the founders getting paid during this time? A qualitative measure for sure but always something to consider.
  4. Once your startup raises a Series A you can expect salaries to trend upward.
  5. As a company matures, its typical that a compensation committee is formed by non-management board members. In fact, the VCs will insist on this. The role of the compensation committee can vary, from making recommendations to the board on executive salaries, bonuses (and option grants) to having authority to set executive salaries

So there is no “right” answer but I would say that founder salaries range from $50K-$150K depending on many variables. What has been your experience?

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