
Ask HN: How much do founders pay themselves? - mrbird
This is something I've always wondered about...  When you take a VC round, how do you (as a founder) get your salary determined?  Is it purely up to the board and investors?  Is it up to you?  How does it compare -- is it the bare minimum to live on, so that everything can go into the company?  Is it comparable to an executive you'd hire?  Somewhere in between?<p>I'm very curious about the calculus.  I imagine it varies quite a bit by the type of investment made (e.g. angel vs. VC vs. institutional), but that's just a guess.
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jasonmcalacanis
In general VCs and investors are looking for folks who want to take the
minimum salary necessary to live off of, while pumping every dime into the
product.

Of course most VCs are making $250-$1M in _salary_ per year. That doesn't
count their carry... that's just their base salary.

here is what VCs generally do:

1\. Pre-launch/Pre-revenue, 20-something founders: $50-100k

2\. 30 something with two kids in private school: $100-250k

3\. Profitable company having just completed a C round of $15-30m: $200k with
a $200k bonus on hitting a huge milestone.

Also, the secondary market for stock has helped this... i.e. reports are the
founders of Wordpress, groupon, facebook and digg got to selling a couple of
million dollars in stock.

best jason

~~~
pjy04
I think #1 is going to experience the most amount of scrutiny. I'll be more
conservative if the pre-launch/pre-revenue amount is under 1m. It'll probably
be closer to 40-60k

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gettingthere
Here is my experience: first 1.5 years, nothing. Then $60K for the next year.
Then as profits went up, it reached $120K. Stayed there for several years.
Then profits went up more, $200K. Now at $275K.

~~~
sinamdar
This is the first response giving hard numbers. Thanks for the candor.

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kleinsch
You pay yourself a reasonable living salary, based on location and living
expenses. It usually has to be approved by the board, but so long as it's
reasonable, you should be OK. The idea is that you're not getting rich off
your salary, you should be focusing on growing the company to get rich off
your ownership stake. At the same time, you shouldn't be starving, because
that will cause you to spend more time focusing on your personal finances than
working on the company.

~~~
bherms
You make a good point in your "You shouldn't be starving[...]" sentence -- One
of the biggest productivity killers in my life is dealing with, or even
worrying about personal finances. As a founder, if you decide you want to go
get a few beers with friends and grab dinner, you shouldn't then have to worry
about how you're going to recover the $30 you spent outside your budget. The
key here, I think, is to pay yourself "enough to live in a manner that allows
you to focus solely on your business and productivity."

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tptacek
We pay ourselves market salary for our field, but we're not VC funded.

When my other friends and I started Sonicity, we all threw money in to start
the company, and then when we got funded we took better-than-market salaries
out. In reality, unless you're being stupid, founder salaries aren't on paper
going to make much of a difference.

(There's a whole separate argument to be made about the tone you set in your
company with salaries, but that's between you and your deity).

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portman
A lot of people seem to be saying "market". But for us, it was based entirely
on need.

After talking to our families, each of us came up with the minimum salary
required to maintain our current lifestyle. The idea is that a founder should
not be _saving_ any money, but they also shouldn't be forced to move into a
smaller home or stop eating out.

What's interesting is that this produced 3 very different salaries, even
though our "market" rates are roughly equal.

Our VCs were completely supportive of those numbers and did not push back at
all.

~~~
_delirium
Interesting--- salary based on need, while contributions presumably are based
on strengths of each founder. I've heard that compensation strategy somewhere
else... ;-)

([http://en.wikipedia.org/wiki/From_each_according_to_his_abil...](http://en.wikipedia.org/wiki/From_each_according_to_his_ability,_to_each_according_to_his_need))

~~~
redorb
I bet the above company does plan on some time in the future; having more
"normal" and "market based" salaries; otherwise they could have worked
anywhere for below market wages. They have to have a plan for making more
money down the road that won't depend on their needs; but value.

~~~
portman
Of course. If revenues begin to cover our own salaries, then we'll increase to
market rates. But until then, we're all committed to making our seed round
last as long as humanly possible.

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vaksel
$400K...you are the CEO...you gotta get paid like one.

In reality it's how much you can afford. If you don't need money..pay yourself
$1. If you need $15K to live on...pay yourself $15K.

At least until the company is profitable.

Once it's significantly profitable, you can afford to pay yourself more.

~~~
blacksmythe
CEOs of small companies don't make $400k.

CEOs that have run a successful business before might make $250k-$300k in
Silicon Valley (a high salary area, to be sure).

$250k would probably be the high end for a CEO of a 30 person company, if the
CEO had not had a major success before.

~~~
philwelch
This isn't the first time I've said this, but "CEO" sounds like a pretentious
title for the head of a <= 30 person company.

~~~
mikeklaas
Sure, but what would you suggest we call the guy who is in charge of a
30-person company, then?

~~~
DrJokepu
Here in England, it's called a Director.

~~~
staunch
In the US a "director" is anyone on the board of _directors_.

~~~
pmjordan
That's true for UK companies too - there can be (and often are) multiple
directors. In fact, unless there were a lot of founders, I'd expect all of
them to be directors, at least initially.

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cemerick
Off-topic from the OP's question, but if you're incorporating as an S (for
example, although other pass-through entities are similar), you need to pay
yourself a "reasonable and appropriate" amount as salary. That is, you can't
just pay yourself $1/year in salary and take $500K off in K-1 distributions
(thereby avoiding FICA and other payroll-only withholdings). The IRS will tag
you for that in a heartbeat.

~~~
jonpaul
I would also like to point out that most Angel Investors/VCs won't invest in
LLCs/S-Corps. I think this is because of preferred options... I'm sure someone
else with actual experience could chime in.

~~~
cemerick
Heh, and most LLCs/S-Corps won't bother looking for Angel/VC investment. ;-)

That said, AFAIK converts (which seem to be getting popular these days, at
least among sensible angels) are perfectly compatible with typical S corp
structure.

~~~
jhugg
My company just converted from an LLC to a C-Corp. The result was delicious
sausage, but the making of said sausage is not something we'd repeat if given
a choice.

------
Construct
When I was in the VC world, the founder's salary vs. equity demands were
usually used to gauge how invested they were into the company's vision and
concept. If the founders spent a lot of time penciling in $200K+ salaries,
elaborate bonus and commission packages, and exorbitant perks (a $5K/month
'car allowance' was my personal favorite) for themselves, then it was a
definite red flag. If instead they were willing to take modest salaries but
fought hard for equity, you knew that they truly believed in their idea and
were fully invested in the concept.

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fnazeeri
Check out <http://www.compstudy.com/>

It's an annual survey of private "high potential" companies (about 2/3 VC
backed) executive compensation. You can find detailed data on base salary,
target/actual bonus, equity and more for various stage companies.

It's the "Kelley Bluebook" of startup executive compensation.

~~~
cullenking
Would be cool if it wasn't, you know, $999

~~~
jmatt
Ya that's a lot of money. It makes sense that if you are concerned with VC
backed executive salaries $999 is probably a minor expensive. Google had a
link to an older one on scribd:

[http://www.scribd.com/doc/13743949/2008-Compstudy-Report-
in-...](http://www.scribd.com/doc/13743949/2008-Compstudy-Report-in-
Technology-Abridged)

NOTE: In the description it states this is an abridged version. It looks like
the detailed version(s) are what cost so much money.

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cullenking
I know you mentioned VC funded startups in the original post, however it seems
this is becoming a digest for all interested parties to share/get info on
startup salaries, so I'll chime in with numbers from our bootstrapped company,
<http://ridewithgps.com>

I am pulling $1k a month from our business, which is a bit under what we bring
in right now. It allows me to focus less on outside money and more on the
business, and, as soon as we get more, I will be able to take $2k. This is
bare minimum for me to live off of, and I'll maintain it here until my
cofounder is able to come on at $2k and make his bare minimum to quit his
dayjob.

After that, salaries can increase as revenue increases, up to "industry
standard" wages. We are currently an S-corp, so we have to figure this out,
which is turning out to be kinda tricky. According to the IRS, is a founder
considered a CEO if the business has no CEO? Does that mean if we don't take
$150k a year in salary we are going to get the hammer from the IRS? Trial by
fire!

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jasonjei
Usually less than everyone else as long as they are able to do a little more
than subsist. They are taking equity. When other people who are hired on board
find out founders are paid less than everyone else, it usually quells any
negative attitude towards management

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dstein
You should think of it as equity, not money. Do you want to extract your
equity (convert it to cash) now and buy stuff, or do you want to reinvest it
in your business?

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thinkcomp
I pay myself $33K gross annually. I'm the lowest-paid salary employee in the
company.

~~~
kno
$33K is pretty low in most places in the US, How do you manage to stay focus
on runing the business?

~~~
trustfundbaby
When you're running your own business you'll be surprised at how few expenses
you have, especially if you don't have an office.

I know for me, I absolutely must have $2000 to survive $2500-$3000 a month to
be comfortable... anything over that is nice to have.

~~~
mortenjorck
> When you're running your own business you'll be surprised at how few
> expenses you have

That certainly sounds counterintuitive to me. What did you think would be a
cash sink that wasn't? I'm guessing there were more things you thought you'd
have to pay someone to do that you found weren't so painful to take care of
yourself?

~~~
trustfundbaby
yeah ... people think they need to get an office, a phone, fax machine,
virtual assistant, whatever ...

When its just you, or you and one other person, you can work from home, use
skype (+rebtel if you do international remote work), direct calls to your
phone ... get a cospace if you _really_ have to have an office. Apart from
taxes, there isn't that much overhead if you play it right.

------
seldo
My co-founder doesn't have a salary (though he does get our health benefits).
I'm on an H-1B so my salary legally required to be "market rate", as set by
the US government for my job title and location (a fact apparently not very
widely known).

~~~
michaelhalligan
I've known several DBAs on H-1B's who were paid severely under market rate for
what they were doing. How is "market rate" defined?

~~~
dotBen
You're either trolling or _(may I politely point out)_ you risk coming across
as one.

That's a whole different conversation, totally OT to the OP. I'd suggest you
spin up another thread to debate that, or search the archives on hn.

~~~
michaelhalligan
I'm really curious. Imagine you were at a party, and engrossed in a
conversation about food. Honey comes up, so somebody asks a question about bee
raising. Would you tell that person,

"You're either trolling this party, or (may I politely point out) you risk
coming across as a troll in this party"?

Clearly I missed the part of the social contract which states, "Discussions
may never, ever branch".

~~~
dotBen
I'm curious what's wrong with someone suggesting that you _might_ be coming
across as trolling.

~~~
michaelhalligan
Might I recommend reading [http://www.amazon.com/How-Win-Friends-Influence-
People/dp/06...](http://www.amazon.com/How-Win-Friends-Influence-
People/dp/0671723650)

It's helped me immensely in getting over my geekdom, and learning how to
relate to people easier. Your mileage may vary.

------
stevefarnworth
You can't have money worries when trying to build your business. It's
distracting and could well cost the VCs more in the long run if you have other
worries/can't focus 100% on the job in hand.

If your expenses are $4000pcm, then take $5500/$6000. You're running a company
after all, and that precious down time you have has to be maximised (generally
costing money).

If you're financially happy you'll have no _need_ to work, but you'll _want_
to.

------
joshbuckley
Jason Calacanis had an interesting segment on this on his show. They say
$50-100k. <http://www.youtube.com/watch?v=kloJQ0EjgTE>

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BenS
I don't think founders should take giant salaries. At the same time, if you
have funding, I think you should pay yourself enough to be comfortable.

People do short-sighted things when they are desperate. I think super low
salaries increase the risk of burning out, giving up, or taking a more
attractive offer. I think quitting for one reason or another is the biggest
risk to a startup's success.

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seanMeverett
It's directly correlated to your bottom-line net income and return on invested
capital. If you can scrape by on nothing and invest everything possible back
into the business (assuming you have a high ROIC).

It also assumes you have enough profit to pay yourself. Thus, the 33k is prob
best if you're not living on ramen and tuna (go grab a beer as one commenter
suggested). Because, if you're investing back into the biz then your future
salary is exponentially higher.

For example, my interactive marketing company is experiencing triple digits
ROIC so we have yet to take a dollar out of the company and continue to invest
not only profits buy our own outside cash (and it's been well over a year) but
we're getting to the point where we need to pay some bills and feed ourselves.
Thus, we're going to keep our salaries as low as possible to cover our
personal expenses like rent and food. We're doing this because we know a year
from now we're going to much, much more profit to work with. So you want a
hard number? Less than $30k per year. Pow.

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billclerico
at wepay the founders are the lowest paid employees in the company

~~~
kno
How much?

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newmediaclay
We didn't pay ourselves until the company was profitable. This was somewhat
easier since we started the company while in college and had pretty much no
standard of living to maintain.

We didn't take any funding, so it really wasn't possible to pay ourselves
before becoming profitable unless we took on other debt. We decided we'd
rather be individually poor with a company than individually wealthy with no
company.

Once the company was profitable, the partners agreed on a goal-oriented pay
structure. The base was under market value compared to other opportunities,
but was still more than enough to easily live on. Then, by hitting reasonable
revenue targets, salary would increase quickly.

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ahi
The advice I have been given is that the founder salary should be market rate
for skills/experience, but the actual check should be for bare living
expenses. Ramen profitable is when you have the cash flow to sustainably sign
the checks; profitable is when you can pay your own salary with backpay. This
way you spell out your commitment/opportunity costs for potential investors
and yourself while keeping cash requirements limited.

As I understand it, there are also some tax/legal issues regarding setting
salaries since corporate profits and wages are taxed differently. This is what
an accountant is for.

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hairball
Generalization: Entrepreneurs, as a group, come out worse than VC's, as a
group, on these types of negotiations. The CEO/Founder is taking a much larger
risk, and is much more committed (deeply invested), than the VC's that fund
them because the VC's spread their risk across multiple companies. It's a
shame that an argument as thin as "taking less salary shows commitment" when
the investors are not similarly committed (their salaries remain fat as ever,
regardless of their performance). People can get more money, but they can't
get more time. And the CEO/Founder generally devotes 3 to 7 years of previous
time. The equity upside is not a valid justification for below market wages
because investors get that without sacrificing theirs. There needs to be some
symmetry in the commitment between CEO's and investors.

$180K/yr for a first-round company ratcheting up with each subsequent round.
If you're not raising enough to afford that, then you're not raising enough.
Consider delaying the round to create more value if VC's are taking too big a
piece of the pie.

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iuguy
In the UK there are two main sources of income for company directors and
shareholders: Pay As You Earn (PAYE) and Dividends.

You have different tax thresholds so most self-owned directors I know tend to
take an amount that leaves a minimum in terms of tax liabilities combined with
a healthy fund for tax deductable expenses and so on. The company itself also
pays tax, so in some cases it may be preferable to go PAYE as it moves the
director's renumeration from profit to operating cost.

Most of the directors I know take between £41k (although I think the combined
income/dividend efficient limits are higher this year) and around £60k, and
spend anywhere from another 10 to 50k through the company.

Directors I know who are brought in to run companies they don't own tend to
get paid over £100k with a bonus.

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robertg
I've been in business for 5 months and I pay myself $0.

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cloudsafe
There is no fixed sum.

But if you are a skilled professional you should calculate "opportunity
costs":

If you could get a job with 250k payment and you pay yourself only 50k - you
are theoretically loosing 200k a year.

If the same startup generates 200k of profit for the first year and you own
50% if it you are still loosing 100k.

Then again if this startup could be sold right now for 500k - your up 150k.

Next step would be probabilities:

If you have no offer on the table but there is a 80% chance your startup could
be sold for 1m, calculate with 800k. And stop adding this extra value if your
exit probability is low.

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gyardley
Varies from founder to founder depending on their psychology and their
personal situation. While the board approves it, you make the proposal.

There's a lot of benefit to being able to say 'this is a great opportunity,
but we're being careful with our cash right now - I'm the lowest-paid person
at the company' when recruiting. That said, you don't have to be a martyr and
drain away your savings after you've raised. Your board may vary, but after a
Series A you can likely justify a low six-figure salary.

------
SteveMorin
I am a big fan of bootstrapping so I do what I think is a common mantra on HN
is pay your self as little as possible to survive. Once the company is
profitable you can start increasing your salary to market rates.

After all your a founder you here to make something successful not pull a
fantastic salary. Your a owner!

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dennyferra
If you have a wife and kids... enough to cover expenses + some breathing room.

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seanharper
I think 30% discount to what you would take in the open market.

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niccolop
I think it should generally be inline with what other funded startup founders
pay themselves. I've been led to believe in the past this was between:
$50-70k.

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jlees
in the UK various funding bodies (eg. SMART) approve a founder salary of up to
£40k, approx $60k, in line with other posts here.

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aneth
A related issue that I don't see addressed in the comments is the trade off
between salary, opportunity cost, and equity. If there are two founders, one
who could earn $150k, and the other who could earn $50k, should the former
always get three times the latter in compensation, given equal commitment? If
there is no salary in a bootstrapped startup should one get three times the
equity (or at least some portion of allocation)? If both have the same market
salary, but one has greater need, should the one be paid more? Should they in
consequence get less equity?

All difficult questions I don't have an answer for.

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mkramlich
i have a bias against outside investment so i can maximize simplicitity and
control, minimize risk of somebody fucking me over, and so i can choose my own
pay.

