I was on a panel last week when someone in the audience asked: “how much should founders pay themselves?”
The answer isn’t an obvious one — but I was surprised at some of the answers other panelists gave. They started rattling off industry averages…and I don’t think industry averages are particularly useful in this context.
That would be like a founder asking how much money to raise, and the panelists saying “raise the industry average for your round.” Sounds a bit inappropriate, right? The amount of capital a company raises should be determined case by case.
Founder salary should similarly be approached on a circumstantial basis.
My quick answer is: “pay yourself the amount that will align your interests with your investors’.
If you are a seed stage founder — you should pay yourself a salary that will most closely focus your energy on the business.
If you pay yourself too much, you won’t be incentivized enough to get the company off the ground. You’ll also be burning unnecessary cash out of the business.
If you pay yourself too little — you’ll be stressed about things outside of work (like feeding your kids, making rent, taking a taxi to a meeting when late).
Both outcomes are bad ones. There’s nothing that will bring your company down faster than worrying about whether or not you are being a good parent to your child.
I’ve encouraged our founders to write out their personal budgets (how much they spend on rent, entertainment, food etc.). They can then use that budget to come up with a salary and justify it to any of their advisors, angels or institutional VC’s.
It ideally will be a salary that allows the founder to break-even (you’re not gonna retire on your startup salary for a couple of years—but you won’t starve).
If you’re living in Manhattan and have two kids — your salary will be much higher than that of a recently graduated college student. And that’s fine.
I’ve seen salaries range from $45,000 all the way up to $110,000. Anything above or below that would make me worry. (I’d be equally worried if a founder just conjured up the number out of thin air).
As your company gets bigger, your board will be more helpful in deciding what compensation should look like. Board members will take other factors into account (like ensuring you live comfortably enough that a liquidation event doesn’t look attractive, etc). But by the time you get to that point, you won’t be relying on a blog post to determine your salary!
*Note: this is directed at first time founders or those who have not previously generated significant wealth. Serial entrepreneurs or wealthy entrepreneurs are often asked to put skin in the game (via not taking a salary at all, or investing into the company, personally).