
A Founder Salary Calculator - chrija
http://christophjanz.blogspot.com/2017/11/unsure-how-much-you-should-pay-yourself.html
======
onion2k
A founder's salary should strike a balance between maximising their ability to
work on their startup and minimising the startup's burn rate. Distractions
like spending time finding somewhere cheaper to live, trying to decide whether
you can afford something, or having arguments about money with a spouse reduce
the likelihood of the startup succeeding so the founder needs enough for those
problems to just go away. That means paying yourself enough for them not to be
an issue any more. Equally though, paying yourself so much that the startup's
capital will only last 6 months is stupid if you're a year from getting to
market. You have to be sensible.

What you could earn elsewhere, what you earn compared to your co-founders, etc
are just unnecessary distractions. The startup and the future value you're
building are the only things that matter at this early stage.

~~~
bkovacev
Exactly this.

I get chills reading that some founders were eating ramen for a year. Imagine
how much extra work could have a fed brain complete.

Some may say I am not understanding the startup life, however without
founder's health and sanity startups rarely succeed, because just like you
said they're distracted with things they should not be worrying about like
living frugally.

On the other hand I would never jeopardize my health, family and property for
a startup. Maybe that will cost me 10 million in startup funds from a "get
rich die trying" mentality loving VC, but at the end of the day, too many
startups have failed because they scaled too soon and because someone made a
decision when they lacked glucose. I'd much rather have my physical and mental
health and future success, than a short term money to spend and an uncertain
life ahead. Now, I am not saying that I would not work extra, but there has to
be a balance otherwise you'll burn out.

~~~
karmelapple
I attribute some of my own startup’s success to the attitude of my cofounders
and I to live a sensible schedule which gave time for loved ones and friends.

This was helped by two of my cofounders having a spouse, and one cofounder
having children. Priorities and behavior are different for a single person
than someone in a relationship.

Being in a relationship or having kids is not the only route to having that
sensibility in life. I was single even when my cofounders were not, yet I had
a pretty sensible life, in spite of dating and trying to find a partner for
life while also starting to build a company. I think the influence of my other
cofounders, who had dreams and aspirations outside of just the company, was a
strong tempering force to me or anyone else in the company getting an
unhealthy tunnel vision.

~~~
justinjlynn
This certainly exposes a moral hazard for their investors who have an
incentive to maximise output for as long as an exit takes. After that, I doubt
they care that much aside from having a "successful serial entrepreneur" with
a reputation to further exploit.

~~~
sambe
They have an incentive to maximise the expected value of an exit. The parents
are suggesting that maximising output reduces probability of an any exit, I
believe.

------
doublerebel
I have to say, I usually love Janz's writing, but I think this model is too
simplistic and does not provide enough evidence.

As a technical founder with a successful track record, I could be working with
any number of businesspeople or all sorts of opportunities, and _I 'm good at
math_. Why should I forgo a market rate salary to take a 1 in 100 chance at a
lottery ticket, where my likelihood of success is largely determined by the
people who also choose my salary? Major conflict of interest. The math does
not add up.

I would think my team should be motivated to pay enough to keep each other
from leaving for attractive opportunities in this lucrative market. It's one
thing to voluntarily give up salary to help the company. It's another to force
it by means of a questionably sustainable business model.

Evidence: try to hire yourself a technical co-founder from their job at
FaceGoogAmaSoft (or pay equivalent) and find out that money talks.

~~~
ryanSrich
> try to hire yourself a technical co-founder from their job at
> FaceGoogAmaSoft (or pay equivalent) and find out that money talks

What an incredibly simplistic view of the world. Even as someone living on the
west coast I still find it insane that people think the best engineers only
work at FaceGoogAmaSoft or somewhere else paying exorbitant salaries.

There are thousands of engineers that work for far less. They're more
interested in making a difference and solving difficult problems than
collecting $300k per year as a cog in the machine.

Not having to work for FaceGoogAmaSoft is likely worth hundreds of thousands
of dollars to some people (I know it is for me).

~~~
notyourday
Nope, your parent is absolutely correct ( most likely because he is successful
technical co-founder with a track record, which would put him into his mid
thirties or more). People get wiser with age and realize that while money may
not buy one happiness, it certainly removes barriers to achieving happiness.

> They're more interested in making a difference and solving difficult
> problems than collecting $300k per year as a cog in the machine.

That means their take home is roughly $150k/year after taxes, which is
$12.5K/mo, which is _not an great take home_. Most likely the take home for
his partner would be about $4-$5k/mo. Lets make it $5k. So the total take home
is $17k/mo. For someone in his thirties the apartment would be about $5k/mo.
Wife's personal trainer + ClassPass ( you are accounting for things like that,
right? You realize that 'I like the way you look' costs real money?) is
$1k/mo. Food + incidentals is another $1k mo. Utilities + misc recurring is
another $1k mo.

So we are down to $9k/mo not going to anything before:

1\. Going out

2\. Clothes

3\. Trips

4\. Parties to host or go to

5\. Emergency funds

By the time this is all accounted for $300k/year income is perfectly fine but
not extravagant in any of the areas where one gets $300k/year for his co-
founder worthy skills.

~~~
UncleMeat
You think 1000 a month on food for two people is normal?

~~~
notyourday
Yes, a month is 30 days. 1000/30 is slightly more than $33 per day for two
people. Your lunch coffee at starbucks habit is $5 per person per day. So with
that or with "i grabbed an apple" or "I got a granola bar" habit that you or
your wife has you are at $26 per person per day for breakfast/lunch/dinner for
two people, which is $13 per person per day for breakfast, lunch and dinner.

I seem to remember people arguing with me that $10 per person per _dinner_ is
the lowest that they pay per person ( see Blue Apron/Home Chef/Plated/etc
business models) So based on their math it is $20 for two people per dinner.
Now I _personally_ think it is too much because I automatically only shop
sales but I'm weird.

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jacquesm
Strong disagree on letting the founders personal situation count for the
salary to be taken off the table. Having kids or not is a personal decision,
if your co-founder has kids and you don't or vv then your salaries should be -
all other things being equal too - equal.

Paying one founder more than another is a good way to start a founder conflict
and those you need like you need a toothache.

~~~
Geekette
_Strong disagree on letting the founders personal situation count for the
salary to be taken off the table. Having kids or not is a personal decision_

Having kids is a factual part of many people's lives, _not_ an arbitrary
personal decision that can be erased at startup time. A person with kids
simply has higher living expenses. Of course, if you feel that strongly about
it, you can choose to only found companies with single people but that
needlessly reduces your pool of potential founders who are talented,
experienced, disciplined, of great character and compatible personalities.

Otherwise, the issue of varied expenses can be balanced via 2 approaches:

a) All cofounders take salary equal to the amount required by the one with
highest expenses and agree on the resulting consequences (smaller operating
budget, higher urgency towards independence via profitability/ funding, etc).

b) Equal salary nominally assigned but the founders with less expenses agree
to loan the startup the "excess" portion of their salaries. This can be
structured and recorded as deferred compensation/loan agreement payable upon
achieving X financial milestone, e.g. when revenue hits a certain level or
target amount of funding is received.

~~~
k__
I didn't choose "to not have kids" so I could pay more for the kids of other
people, if I wanted to pay for kids, I would have got some myself. :D

~~~
Spooky23
If you’re committed to ignoring the needs and wants of a business partner, why
do you want to be their business partner?

It seems like a dickhead attitude that bodes poorly for the future of a
business enterprise.

~~~
Retra
The need for an equitable salary is just as legitimate as the need to care for
children. I have a family to care for even if they are not listed as
dependencies. I also have a future family to prepare for that I might want to
get a leg up on. Or maybe I want to forego children because I'd rather save up
to start something more meaningful to me later.

Just because you have an immediate need that is evidenced by children doesn't
mean others don't have equally legitimate needs.

~~~
Spooky23
I didn’t say that children trump all. It’s a negotiation point. Getting what
you need/want may cost you.

My point is that if your “partner” is going to take an extreme, aggressive
stance on such a thing, that’s a red flag.

------
ricardobeat
Considering the cost of living in these cities, what this tells me when 66%+
of founders in SV pay themselves less than 50k/year is that the majority of
them are already well-off, and have savings to spare for things like.. paying
rent and eating food. It is completely unrealistic to expect the average
college dropout to live comfortably on the same salary. Do these numbers match
reality?

~~~
kevinnk
I live in Palo Alto making about $55k and live fairly comfortably; my actual
living expenses are probably closer to $25k. It would be hard to have a
family, but I get by just fine having roommates.

~~~
ricardobeat
Zillow tells me average house price in Palo Alto is $2.6m, average rent $5k.
Do you own/share a house? I'm in Europe, so basing myself on public stats.

~~~
kevinnk
I rent in a house and split 4 ways. My share of the rent is a little over 1k.

~~~
ricardobeat
Thanks for answering! So the data is not far off. I should add "or is single
and has no children" to my comment. Nothing bad about that, on the contrary,
it does mean older founders with family or other obligations will need to
bring/sacrifice their own nest egg.

~~~
kevinnk
I think a total household income of ~150-200k is right around the cutoff for 4
people to live in Palo Alto together. You can split that up however you want
though. In my case, that's 4 people earning ~50k rooming together. In the case
of a family, one person earning 120k and the other doing a startup earning 50k
(plus 2 non working kids) works too.

You're right that someone trying to support a family on a single income at 50k
would have a tough time, but I think the range of people who can make it work
is a lot broader than you're making it seem.

~~~
tqi
To be fair two non working kids have a lot more costs than a frugal 20
something. Childcare alone in the bay area is probably in the 10s of thousands
a year range.

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bksenior
This martyr narrative is tired.

The truth is that most companies once they get to series A fold for much more
binary reasons that are almost never saving a few $1000 a month on the
founders salaries. Additionally there are easy ways to turn your salary into a
draw that ebbs and flows in times of cash flow crunches if thats a concern.

Ultimately a founder should just pay themselves what they want. The companies
rise happens on the backs of the their judgement so I dont know why we are
using some irrelevant framework for this particular decision. Like everything
from raising money to hiring, create a narrative and then use it to optimize
your target outcome.

It's also important to note the founder isnt entitled to struggle as a
species. In fact you can build an incredible company and ask to maintain a
quality of life.

If you can afford it pay yourself market or more and you think it will make
you happier or more effective, do it!

In the end tolerance for pain isn't the skill that defines a great founder its
the progress. Pay yourself whatever the hell you want as long as you keep
doing good work.

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nopinsight
Does/should a founder’s skills and market-rate salary affect their salary in
the startup?

For example, if a highly sought-after AI expert founds a startup with a
talented but somewhat junior businessperson, their market-rate salaries could
be 2-5 times different and a case could be made that the one with higher
market-rate salary makes a larger sacrifice/take on more risks and thus should
be compensated more?

~~~
Geekette
No, it shouldn't. If both senior and junior are starting the company at zero
and working fulltime/equally pouring sweat equity in and assuming similar
living expense profiles, then they should be compensated similarly. If you
can't see your cofounder as equal, then partner with someone else. Or if the
salary differential is that important to you, then remain on the corporate
path.

~~~
nopinsight
What if the junior partner is the best person available with history of good
working relationships with the senior cofounder? Not considering him/her
because of salary differential might be suboptimal for the startup.

At the same time, the senior cofounder could have a much larger need for
salary because of mortgage and family to take care of, so receiving too little
salary would cause hardship and adversely affect the startup, while the junior
person has less financial obligations.

------
nautilus12
Why is it when I read this it feels like the VC essentially "hazing" the
founder saying that "you will get your payout later so suck it up." Thats not
true for every company because not every company has the goal of doubling
every year and then getting sold to Google. They don't all have to follow the
Silicon Valley model. The irony of this is that the VC has the operating funds
to wait till later to get their payout, its like they are making the founder
suffer with them. Simultaneously they are taking as much equity as possible
essentially minimizing the founder's payout. The difference is that this is
probably not the VC's first venture so they have plenty of cash to rest upon
whereas a first time founder is literally scraping by, possibly with a family,
mortgage, etc.

~~~
nautilus12
Really the more I think about it, this more sounds like one VC's attempt to
weed out people thinking about starting a company by scaring them. There is
nothing set in stone that says founders should get paid a certain amount.
Every company has different cash flows and situations.

~~~
chrija
I'm not sure if you've read my post. If you read it, you'll see that I wrote:

<< The numbers in the model reflect what I think is market and fair based on
the data points that we have and some industry benchmarks that we were able to
get. However, our data set is quite limited and the numbers produced by the
calculator should by no means be taken as the ultimate truth. If you disagree
with my assumptions or have seen different numbers in the market I’d love to
hear from you! >>

No need to assume bad intentions.

------
dahart
> I saw a study according to which founder salaries are much lower. According
> to this data source, 75% of Silicon Valley based founders pay themselves
> less than $75,000, with 66% paying themselves less than $50,000. Based on
> these numbers, even for companies that have raised more than $10M the
> average salary is only $81,700. This looked odd to me, and maybe the
> difference is due to the fact that the study is three years old. I ignored
> this data source for now, but again, suggestions and input are very much
> appreciated.

I totally appreciate a VC saying it's okay to take a decent salary, but this
point seems strange to me. Why on earth ignore the data?? I doubt three years
makes any difference at all. I would speculate this is more likely a
philosophical difference between the US and Germany.

A founder's entire existence is spent trying to figure out how to get a
company to survive its first few years. Companies that raised $10M are dying
all the time. $10M really isn't that much, it buys a startup with 30-50 people
maybe a year of runway. In a company that size, one or two more engineers can
make a real difference, and if four founders forego $50k/year they can then
hire one or two more people using the difference. They basically spend every
second trying to figure out how to stretch every dollar they have, it's not
surprising to me that many live their early startup years exploring just how
little money they can actually live on.

~~~
chrija
The reason why I ignored the data is that it was in stark contrast to several
other data sources that I've seen. But it's a good point, I need to look into
this again. I will also contact the research team of that study and ask how
they collected the data.

~~~
dahart
Ah, that is interesting. I'd love to see something on the multiple data you've
seen! I tried to look but didn't see whether this data is for only VC funded
startups, or for a wider set that includes others, do you know. If there are
other data sources on SV startup salaries that disagree, then I have to take
back my US vs Germany comment. Perhaps the discrepancy is that this data was
all opt-in, which could bias the sample? Anyway, thanks for following up!

------
louprado
A bit off topic but lets say you and your co-founder follow the canonical YC
advice. You form a Deleware C-Corp, register your California foreign entity
and grant yourselves ISOs with a 4 year vesting period and a 1-year cliff.

But then your company starts to do very well and in 6-months you both agree
you won't need to raise VC and want to start paying yourselves more than the
~$100k mentioned in this article. What would be the best way to draw money
from the company ? Increasing you payroll check seems unwise from a tax
standpoint. Dividends might be a good way but you don't yet own a single share
so you can't be paid through a dividend. You could pay yourselves bonus
checks, but isn't that taxed at same rate as payroll ?

Side request, can anyone recommend a CPA in the East Bay (SF). Thanks.

~~~
brianwawok
You need to be careful with the dividend route. The IRS seems to frown on
someone in a career that normally makes 6 figures drawing a 50k salary and
200k in dividends a year. I would ask an accountant. But this is exactly the
downside of early C corp.

------
WhitneyLand
_in response to feedback being requested_

The post: It's great, adds a lot of value.

The calculator: Terrible idea. Might even add negative value or be
counterproductive.

The post is appreciated for multiple reasons. Insights from investors are not
overflowing the Internet. It’s a relatively small group, so it’s often very
helpful when someone chooses to share their thinking. It also has value
because it’s not just pulling back the curtain, or sharing facts, rather, it
offers critical analysis of how to approach the question. Even if some of the
analysis is wrong, it’s still valuable, in that it inspires further analysis
and facilitates understanding of the mechanics.

However the calculator is a reductionist solution to a problem, that can be
highly inconsistent from one situation to another. Paraphrasing: Please input
the number of kids you have? Sounds like something a government office would
come up with. How about a calculator to pick startups to fund? Well, some
people do try to automate betting on companies for various needs, however they
often have limited success, and it usually involves very complex modeling
systems, rather than a google spreadsheet.

The net of it is, using a spreadsheet might be helpful to track and manipulate
data inputs, but not to generate an actionable result to drive a nuanced
decision. I'm wary even of using it as a starting point, given the risk of
building additional reasoning on a flawed foundation. It would be a great tool
to have. The problem is there are just too many subtleties to capture (known
and unknown), and even then they would apply differently across the startup
world's highly variable situations and contexts.

In some ways the question is typical of many other questions startups
encounter: It's at least partially and possibly highly subjective, the number
of potentially relevant factors makes it impractical to spend lots of time of
each factor, and the available data points are imperfect and/or incomplete.

As AI slowly but steadily chips away at the list of things humans can do
better, questions with these attributes might be the some of the very last to
fall. And when they do, it will not be office productivity software that slays
them.

------
grandalf
Isn't the founder salary something that only the founder and those who bought
a board seat should care about? If I'm an investor and the founder wants a 40%
premium over what the algorithm recommends, I may or may not agree, but surely
the founder's judgment on that one issue is not an outlier from other good or
bad judgement he or she may have.

I'd actually be more worried about minor graft like the founder hiring a
family member to provide catering or the founder taking bonuses when most
employees are not paid bonuses.

~~~
DonHopkins
At a flat rate of $10,000/year per pop, the Duggars and their Quiverfull
movement would love this Founder Salary Calculator.

Should you get more or less financial reward if you pay child support to
outsource your kids (KAAS) instead of raising them yourself, so you have more
time to dedicate to the start-up?

------
wonderous
It would be interesting to hear YC’s official position on founder salary.
Anyone have a link to an official post or comment from YC?

------
Overtonwindow
I've been through a few startups and I always paid myself as little as
possible. That is to say, I paid myself the minimum I needed to cover my own
personal fixed costs. For me it was important to leave as much money as
possible for others and growing the company. When the startup is successful,
then I'll take a higher salary.

~~~
chrija
Same here. I think this is the right attitude. By the way, this even goes for
micro VCs, we didn't (couldn't) pay ourselves a salary in the first year or
so.

------
danieltillett
Ultimately everything comes down to BATNA [0], but a good place to start is
what you would be doing if you weren’t running a startup and how much you
would earn (after tax) if you worked as hard for someone else as an employee.
This is your BATNA.

An investor (in theory) could pay you a high salary as an employee to work on
the business and keep all the equity. An investment is in someways equivalent
to a very high interest non-recourse loan. Given this you want to take the
absolutely minimum in investment you can and an extra paid in salary to
founders will cause you to take more investment than you need.

Personal circumstance should never play a role in what someone is paid, only
their BATNA. When it comes to startups there are three forms of compensation;
salary, conditions, equity. The split between these can vary, but the total
should be fixed by the individual's BATNA, not how much many kids they have or
student debt.

Slightly off topic your compensation in any job should never be based on how
much value you bring to the company, but what your BATNA is. It is up to your
boss to decide if your BATNA means they want to pay you as much.

0\.
[https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiat...](https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiated_agreement)

------
amimetic
Hoping the "100-hour-work-week" bit was a joke.

~~~
simonswords82
Probably not...getting any business off the ground usually requires a god
awful amount of work at the outset. That's the trade off.

------
abalone
_> If you raise a small angel or friends & family round, you’ll probably want
to spend it on other things than founder salaries._

This part in particular doesn’t make sense, or at least assumes founders have
savings and assets. But what if you don’t because you’re young or you’ve
already bootstrapped your way through all of it and gone into debt too?

It makes sense to pay subsistence salaries at the angel stage.

------
ninjakeyboard
Ya in the last company I founded I would go without paychecks to let my co-
founder pay himself when we were running out of money/struggling to collect
payment. It's a lot more about the needs of the people to be able to get
through the initial phases than it is about 'equality and fairness'

------
rbcgerard
I’d think the starting point would be a market rate salary - to the extent
that a founder is willing to take a lower than market rate salary their equity
should be increased taking that into consideration at each stage (or just
issuing equity to that person that’s the difference between actual and market
each year).

~~~
edanm
Supposedly that's what equity plus vesting achieves, which is pretty much the
default.

------
k33n
It's amazing how little VC's value early stage founders. It's an accepted fact
that hiring a competent CEO is going to cost you well into 6 figures and up.
Because their experiences and track records are rare. If we all know having a
good CEO is well worth that kind of money, then why don't we apply the same
logic when allocating capital for paying the founder(s)? It's a hard job,
fraught with literal peril. Founders often face personal financial ruin if the
venture fails. Founders are literally pulling on a yarn to iterate on and
articulate very broad visions. They are faced with critical decisions that
will affect many people's lives every day under incredibly stressful
conditions. If there's $1,000,000+ in the bank, it's a disgrace to pay a
founder what amounts to Jr. level rates anywhere else.

~~~
brianwawok
Startup A pays founders 50k and has budget for 4 developers.

Startup B pays founders 200k and has budget for 2 developers.

All else equal, B should win right? It is running leaner that gives you more
effort to throw at the problem. Until the point your pay is so low you have to
stress about money.

Founder pay that is lowest to avoid stress seems optimal.

~~~
alfiedotwtf
"What one programmer can do in one month, two programmers can do in two
months"

~~~
brianwawok
Yes this is why Google, Apple, and Facebook all have 1 programmer.

------
ilaksh
Seems like it should factor in the expected size of the company. If it can
work with 2 solid engineers and 2 other people then $2 million goes a lot
farther than if it is 10 people. So why not pay closer to market in that case.

------
seattle_spring
Do the employees get an extra $15k / child?

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trisimix
I agree with most points but if you are dead set on dedicating yourself to the
compahy you work at why did you take a large exit?

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tibbon
I frequently see advocating paying founders with kids more, but (partially
because a company can't legally ask about having kids during an interview)
almost never factor in those type of expenses for other employees. Unsure what
I think about this.

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sheeshkebab
I’d qualify these with - a non technical founder in a product company.

A technical founder of a consulting company would be making above market rate
from day one, or you are doing it wrong.

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DonHopkins
How much does prior experience and shipping successful products count? Is it
really better for your salary to pump out a few kids instead of shipping a few
successful products? Do the kids have to be successful or will any kids do? ;)

[https://lh3.googleusercontent.com/-gpJ2FfhmWMc/TYb7Un7m-gI/A...](https://lh3.googleusercontent.com/-gpJ2FfhmWMc/TYb7Un7m-gI/AAAAAAAAACU/bD0C0FNpL-g/s1600/forgot.jpg)

------
usaar333
Overall, a sensible calculator.

One surprise for me is how low the kids addition is. $18k (pre-tax) is hardly
enough to cover the cost of a kid in SF. Even ignoring costs of additional
housing, daycare costs are going to be over $25k/year.

Looking at the numbers:

* $90k single founder in SF - pretty easy to do (live with roommates); probably slightly excessive ($80k should be just fine for most folks)

* $108k founder with kids in SF - difficult. I'd put $120k as being a reasonable minimum with one (pre-k) kid.

~~~
chrija
I agree, I don't expect the kid additions to fully cover the costs. Trying to
cover these costs fully is probably unrealistic, as it would lead to a very
large salary spread between, say, a founder with 3 kids and one with 0.

The good news is that once you have kids you won't have time for parties or
expensive hobbies anyway ... and the joy of having kids makes up for the
financial disadvantage several times over. :-))

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jerguismi
So this kind of defines value = able to raise lots of money. That just doesn't
make sense to me.

Also the idea that you should be paid more because you have kids is same logic
that communists used "to everyone according to their needs". In capitalism
people should be paid based on what value they provide.

So, to me this calculator looks stupid. What if my startup hasn't raised any
money, is still very profitable and employs 20 people?

~~~
__s
Could argue that raising children potentially provides society future value,
making the increase a kind of long term investment

~~~
aioprisan
For society, maybe. For the startup, no.

~~~
__s
Agreed. The line of thought probably ends up being an argument to have tax
cuts for parents

