

Ask HN: Startup CEO Salary - noinput

I'm excited to say that for the first time I have a start up that may get a very decent round of funding ($250k+). The team is myself as a developer, a partner who has helped craft the product from the very beginning and the gentleman that we found who can easily lead us as the CEO. In attempt to sound very nonbiased our CEO is asking for a salary of 180 K per year starting, the other original partner is asking for 40 K per year and I have a solid developer position with another company therefore I don't need to take a dime. I understand that the CEO's position can very easily command a large salary however am I wrong to question his intent for asking that much as well as some level of founder stock?<p>Nothing formal has been signed so I'm looking for honest opinions from the HN community.
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dsr_
In a startup, you do not put money towards salaries any bigger than absolutely
necessary. You offer ownership and a salary that just pays the bills.

The CEO has to make tough financial calls.

If you think he's worth 180K to your company, then offer him 40K plus 140K
deferred to the first year that the company makes 150K in profits -- and not
payable if the company never gets there.

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noinput
re: deferred, great idea as an option. Thank you.

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jgilliam
Anyone who thinks they should get a salary like that when you've only raised
$250k should not be your CEO. Run away quickly. Don't even try to negotiate
him down.

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brlewis
Any potential CEO who asks for that kind of salary from a startup that _may_
raise $250k soon is politely saying "No, you can't afford me."

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noinput
Fantastic POV. Thank you

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paborden
No way, jose.

If he wants that much, he should quit for wall street. At the very least, he
shouldn't be working for a startup at your stage.

Frankly, if a potential startup CEO shot out that number ... at this stage in
your business ... I'd start seriously questioning his abilities and expertise.
That's crazy talk.

70K, max, I'd say, but be generous with options.

The bigger question is: why are you still working for another company?

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noinput
re: why working. I'm an engineer for a company which I truly love working for.
Until there's money in the bank of my own business which should not go to dev
dollars, legal, etc., I have no problem working hard to keep it in there.
That's the first reason. Second, is my position at my current job lends an
open opportunity to possibly use the tech I built with my personal startup.
Can't disclose yet but it's a great fit and I've been showing it to key people
at the day job. So far it's looking good. In any case, I have a family of 3
with a new baby on the way, and burning a bridge is not in my agenda.

re: 70K, we've been trying to come up with numbers that seem fair, thanks for
your recommendation and thoughts paborden.

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bmelton
Regarding licensing your tech to your existing company, do be very careful
about that.

It's just as possible that the wrong person gets wind that one of their
employees is trying to sell them code that might already belong to them and
depending on your employment contracts, they may simply exert control over its
ownership.

You should definitely speak to a lawyer about this, and possibly be willing to
forego your current employer as your first sale.

~~~
noinput
Thanks for the tip. One thing we plan on doing with the round is getting all
our legal in order, this is obviously something I'm not trying to abuse.

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mswen
1\. Are you cash flow positive? 2\. Growing very rapidly? 3\. Needing to hire
and manage staff to service fast growth?

Unless you can say yes to these questions I don't think you need a CEO. You
may need a business development person if you are selling to enterprises or
you may need a great digital marketer if it is a consumer play. Or you may
need 1 or 2 customer support people but it is highly unlikely that at this
stage, taking in $250K in funding, that your start-up needs a CEO.

I assume that you and the other product partner are the ones who have the
vision and made the early sacrifices. If you bring someone in at this stage as
CEO with that kind of salary it sounds like you are abdicating the visionary
founder role.

Why not use some of that money to bring yourself on full-time so your focus is
not split between your day job and this start-up?

One possible caveat to my advice. If this prospective CEO is willing and able
to take on the front-line sales, service and support roles and actually do the
work personally for awhile at a salary similar to the 40K that the product
partner is willing to take then it might be a great addition to the team. Give
a little larger equity slice but conserve your cash.

~~~
noinput
Thanks mswen, I value everything you just said more than you know. Very much
appreciative of your response and insights.

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varelse
If you had $2.5M and the CEO provided a clear runway to profitability and $25M
in funding on the way to acquisition/IPO at values 10-100x that, then he'd be
worth every penny.

In your current situation, what value does this CEO bring? What is the next
stage? It sounds like he just wants a paycheck and a pile of free lottery
tickets oops I mean stock options to me.

~~~
noinput
re: lottery, ha, I need to use that! He brings quite a few key contacts,
however of course they're just as risky for not pulling through as the next.
We feel that where we are today, we're not ready for hard sales anyhow.

Currently we have our POC for demos, pitch, etc. Enough to turn heads but not
open wallets. Next stage is immediate ramping up on dev to get MVP sorted and
do an official beta launch + be prepped for hosting, legal, IP and doing
things at the right time. My fear is we'll run out of cash before we can get
to that point. Thanks for the note varelse.

~~~
trevelyan
It sounds as if you're doing all the technical work and you're unsure of what
your partner is contributing but feel obliged to bring him along for the ride.
So you already have one person who is not working at capacity... why do you
need to hire another one? Bringing on a third non-technical employee is just
going to result in one more person telling you they can't land customer X
until feature Y is ready.

Tons of people are rightly pointing out that this guy should be optimizing for
equity rather than trying to strip-mine the business' savings account, so let
me add something else that sounds really fishy to me about this setup: anyone
with the experience or skill to serve as CEO in this sort of startup should
have major concerns about (1) your lack of full-time involvement, and (2) the
lack of clarity over what your co-founder is doing. The fact that these are
not the most important issues in your discussions with this guy suggests he
does not value his potential equity and will make an absolutely horrible CEO
due to a gross inability to recognize and hedge against what are fairly
obvious business risks.

Finally, if you believe he is potentially worth 180k for the customers he will
introduce, he is probably worth a lot more. One way to figure out whether he
thinks he can make sales is to offer him a much better package worth 250k, but
make all of his earnings contingent on hitting real milestones which generate
revenue for your company. This allows you to pay him out of growth instead of
savings and steers the conversation away from an abstract discussion of
"executive" salary levels and towards the more practical matter of (1) whether
he can drive revenues, and (2) what he feels the product needs to have before
he is comfortable leveraging his connections in service of the business.

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kstenerud
When you take a lowered salary as a founder of a startup, what you're really
doing is investing part of your true value (the salary you COULD command at a
regular job) into the company. For example, if you are worth 180 and you take
40, you are in effect investing 140 per year into the company.

This is important to keep in mind during the early years at a startup, when
cash is harder to come by. If the company dies after one year, you have lost
whatever part of your 140k (pre-tax) investment that couldn't be recovered in
the sale of the business. That is your risk. The reward comes if the company
hits it out of the park, and you own a piece of the action.

Once you do a series A (if you decide to do so) or become cash flow positive,
you can bring salaries up to normal levels. Until then, every founding member
is effectively an investor.

What this CEO is saying is "I don't believe in this company enough to invest
in it." Do you really want him at the helm?

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noinput
That's a fantastic perspective. Thank you kstenerud

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Spoom
Your CEO is asking for more than half the total amount of your seed funding in
the first year. Now, I haven't been a CEO, but just from common sense that
seems like way too much, way too soon. Does he really add that much value to
the company that you're willing to potentially cut your runway in half?

~~~
noinput
I have not either, but agree with you, we don't think (at this stage) really
anyone is worth taking that much of our bank account when it could (and
probably would) not give us enough resources to finish our sellable product.

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yoseph
$180k is an exorbitant figure. I would question his motives 100%.

A CEO at your stage should be someone who is deeply involved with building and
selling the product/business (at this stage, your business is your product).
What responsibilities do you envisage him having? Also, how much equity is he
looking for?

~~~
noinput
Thanks yoseph. We (myself and other co-founder) agree that the goal shouldn't
be taking money unless necessary. We envision him 1. leading the co as a
Fulltime figure, 2. being available to take all meetings/travel if necessary
where the others can't 3. utilize his rolodex to make as many connections as
possible and 4. sell what we build.

The biggest issue is we don't have a sellable product yet, that's what the
round is for. We want to take our POC and convert it to an MVP and possibly
more.

In terms of equity, we were all honestly fine with taking 1/3 to start,
however now this warrants a drastic re-visiting of that, which is why
everyones thoughts here are so valuable to me.

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lorewarden
Peter Thiel once said "The lower the CEO salary, the more likely it is to
succeed". Reference: [http://techcrunch.com/2008/09/08/peter-thiel-best-
predictor-...](http://techcrunch.com/2008/09/08/peter-thiel-best-predictor-of-
startup-success-is-low-ceo-pay/)

~~~
noinput
I saw that article as well when doing some homework on this. Thanks for the
reaffirmation.

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ColinWright
To quote The Big Bang Theory:

    
    
        Ex-Roommate: Run away dude! 
        Leonard    : What? 
        Ex-Roommate: Run fast, Run far! 
    
            -- Series 3 Episode 22:
               "The Staircase Implementation"
    

Between them they are asking for effectively all of the cash to be spent in a
year (or less - "incidentals" add up quickly) at the end of which they can
just walk away?

How much runway do you need? Much, much more than you think, and if you're
getting 250K+ then you certainly will need more than 12 months.

~~~
noinput
Good episode.

Correct on your math, my original co-founder who helped with the idea is only
taking enough to focus full time. I don't need anything while I can manage,
again to bank as much as possible. We're keeping costs to an absolute low to
have as much dev $ as possible. My fear is obviously at that rate we'll be out
of money before we can launch a product to sell. Thanks Colin!

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reubensutton
An amount that high would really cut down your runway.

How would investors in your company feel about spending almost 75% of the
investment on a single salary for your CEO?

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jhaniv
Get away from this kind of "Gold Digger"...you can't afford a 180k CEO even
when you raise 500k. Why is it so important to hire a CEO now? Just use your
current resources until you get to a point where hiring a CEO makes sense.

You also should be careful from holding your day job - many employment
contracts suggest that anything that you do while emplyeed can belong to your
employer. (especially when you use your employer's HW/SW to create your own
thing)

~~~
noinput
If we setup a an American Corp in the form our advisor recommended, we do need
a CEO on paper, but of course that's just on paper.

I do have a unique agreement with my current employer where it's in my
contract that they're fine with me working/venturing on the side as long as
I'm not competing. In fact as soon as the basic POC worked I emailed the
owners, legal, hr people as I fully disclose everything I do outside of the
day job. There was no objection. My goal is actually to see if my employer can
benefit from the tech, so far it may happen and I'm keeping a few fingers
crossed.

Thank you for the thoughts jhaniv.

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veyron
You aren't giving enough details to make a reasoned decision.

What are the equity stakes? Does the CEO improve your chances of success far
enough to compensate for the expense? If because of the CEO you can turn
around and raise $250M, then yes the salary is justified. If he brings
nothing, then its worthless.

~~~
noinput
I started vague as to not sound for/opposed to the question, so happy to reply
here.

Originally we agreed on 1/3 splits as we all brought a key piece to the
company. I was heading up dev, my other partner originally had the idea and
provided great insight to what I was developing, and our third (person in
question) got us face to face with our new advisor who is the one confident in
raising us a seed round. We may or may not have gotten this far without him to
date (in terms of the seed), however to be fair on all ends, we don't need a
large seed to have an MVP. If we do accept it, it's absolutely because the
seed players/funders will help us better position the company as well of
course fund development.

~~~
veyron
Do you actually need significant capital investment to put out an MVP? If not
it may make sense to get that out first and then discuss the seed.

~~~
noinput
We do not, which is also why this is a concern. However we're not undervaluing
the growth that could be a reality if this firm does invest in our success. We
don't need much yet we'd happy take it and bank it to ensure we're working
with the right people. Hence our concern about liquidating it for one salary.

~~~
veyron
It's easier to get more money on better terms if you have an MVP and can show
some traction.

I'm not suggesting to squeeze every penny, but you have leverage in
discussions when you can do it that way.

~~~
noinput
True. We're not dying for the large cash, we just need a bit more to get to
market. Thanks!

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Metatron
If he's got other sources of income, and/or financial security he should be
more than comfortable in taking a much lower wage and then 'topping up' with
share dividends/bonuses. This way you've got more capital early on and the
CEO's contribution will determine his pay.

~~~
noinput
That's the issue, he does not. He would start on this fulltime, but we fear he
doesn't understand that Hustling with Angel $ to get to MVP != Hustling to
close a Series B with positive cashflow. Case in point why we're unsure of
intent.

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Brajeshwar
From your post and description, this looks like a bad start. $180K CEO Salary
for a company that got $250K fund is a bad sign, assuming this is seed-fund,
your company have no revenue yet.

Coaxed him to stay around $100K and get another developer with the $80K.

~~~
noinput
Agree completely. Thanks Brajeshwar

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efsavage
Unless this person is amazing, I'd say quit your job and be the CEO, and pay
yourself what you need. You're dev productivity will suffer as you're
distracted by business activities, but it will likely be no worse than your
current plan of being part-time.

~~~
noinput
Interesting point. Personally I think the challenge would open my eyes to a
different way of doing things, however my other co-founder could easily lead
us until needed as well. What I don't want is to be distracted more than
needed to accomplish dev goals, as without a product to sell, we're not going
anywhere..

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mikeleeorg
Another way to look at this is: what kind of signal does this send to future
investors, assuming you want to raise future rounds?

Some, perhaps many investors will see this figure when they do their due
diligence on your company. They will most likely question it, as it is
uncommonly large for an early-stage pre-revenue startup. These investors will
judge your CEO's decision-making abilities based on this information and could
decide against an investment. I know a few angel investors who sure would walk
away from this deal if they saw this salary.

~~~
noinput
Thanks for the insight and thinking about future rounds.

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jfoster
Would you invest in a startup where the CEO salary was that much? It's not the
right thing to do by your current investors, and in my opinion it would
completely put off any potential future investors.

~~~
noinput
We feel the same. Our advisor (who is a very big player and believes in us, as
well knows the potential CEO personally) is not opposed to it, but honestly
agrees it's higher than he'd like. Ultimately it's up to the investors, you
are right. We don't want to send them our projections and get laughed at.

Honestly, this thread is only re-enforcing that the other two of us are not
crazy!

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tijs
Where is your company based, 180K is probably too much wherever you would be
but still; a startup in SF needs higher salaries than one in Austin (or
Europe).

~~~
noinput
Los Angeles. Almost equally as expensive, but we still feel it's too much.

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rsande19
Yes you are 100%t right to question that. Anyone who understands the life
style of a start-up should know that demanding a salary of that size is
unreasonable. Especially when he wants founder stock. You guys should maintain
the scrappy bootstrapping mentality. As Guy Kawasaki said "Focus instead, on
affordabilit. Having inexperienced young people with lots of raw talent and a
tone of energy."

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randall
In. Sane.

Make the CEO a generous founder w/ equity, and give him 40k like the
developer. Equality in the early stages is especially important.

~~~
noinput
Appreciate the simple point you made, we agree we're trying to think through
it with long-term in mind while not killing our goals for the short.

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noinput
OP here, thanks for all your thoughts. Will be replying to threads as I see
them come in.

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noinput
OP Here: For anyone who re-visits this thread, we kicked him to the curb.
Thanks so much for all of your thoughts and insights. More so, thanks for re-
assuring I'm not [completely] crazy.

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dman
What is his background? Will it help you land clients or traction?

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dotcoma
I'd do it for a third of that money (and stock) :)

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noinput
we might be hiring.

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dotcoma
Would be cool. But I'm in Europe (in Italy).

~~~
noinput
I miss Italy, been there twice. We do love to travel! :)

~~~
dotcoma
It's in many ways a country that it's better if you miss it, however. Visit
it, and live somewhere else :-/

~~~
noinput
unrelated to this thread, I would really love to hear more about your opinion
of living in your country. if you find the time shoot me an email (in
myprofile).

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jonathanjaeger
$50K sounds about right. This wreaks of trouble.

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raheemm
Why is he asking for $180K the first year?

