A Founder Salary Calculator
christophjanz.blogspot.com
christophjanz.blogspot.com
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.
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.
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.
* Trying to ensure all of our employees have a 40 hour week (or as close to it as possible). * Making sure the cofounders have time - whether we're single or not - to spend time with friends and loved ones. That probably translates to simply not guilting each other into working too much - it's okay (and encouraged) to take a good weekend. And that's generally been the reality, too.
Are there other balance-related questions you have, or does that kind of answer it?
Mental health and happiness is a real issue, though. I'd be miserable eating the bland meal every day and that does cause some people to underperform their potential. On the other hand, it motivates other people to work harder to escape their situation.
I could eat Ramen every day but good restaurant Ramen is quite expensive.
I get sad when I realize that the HN community doesn't remember "ramen profitable".
Not making a point about ramen, obviously (except to say you can eat well and very healthy on a budget that makes even ramen "expensive"). Just that modern "starups" have an expectation of funding that would have seemed ridiculous on this site a decade ago.
The "ramen" is just a rhetorical placeholder for "low expenses" and not about an actual diet. For example, Paul Graham is not advising entrepreneurs to literally eat ramen noodles: http://www.paulgraham.com/ramenprofitable.html
I trust you had an experience that lead you to think this way, but you clearly don't know "most founders."
Investors should take the time to look at a founder’s life circumstances, and set their pay to optimize time-at-work, even going so far as to pay a nanny and house keeper directly to ensure the founder isn’t wasting precious hours on household chores.
I have kids, you don't. I "should" make more.
I am trying to have kids, you already have them. My IVF treatments are expensive and mess up my partner to the point that it's expensive for me. I should make more.
I am trying to adopt because my partner is infertile. That's a long and laborious and expensive procedure. I should make more.
My partner and I want kids, but she's infertile because of ongoing chemo treatments. Life is rough. I should make more.
My partner or I don't even think about kids because we have medical issues that we do not want to advertise. What does this have to do with my salary?
The only sane way to answer the question of salary is "how replaceable are you, and what can they afford to pay?"
Anything else can and likely will leave a festering wound that will affect the company later.
In fact, a simple, approximate model for this phenomenon is inheritances split among siblings when parents die. It was (and is) quite common to have one sibling inherit more because they have had a difficult life in some way, or because boys should inherit more money than girls, or other such blather.
It rips families apart.
Do you really think that your startup will survive better?
Could be kids. Could be IVF treatments. Could be student debt. Could be geography. Could be past success/failure.
Doesn’t really matter the specifics - kids are just one example - but paying founders enough so they can frugally live and not stress about their financial situation is the optimal choice, and it may result in differences in comp early on.
If the founding team has a big problem with small inequalities in salary, there are bigger issues at play that will likely eventually surface.
$10K won’t make much of a difference in the final outcome.
$10K can make a massive difference in alleviating personal stress levels - and have limited marginal benefit for a founder with fewer expenses.
Any founder who genuinely doesn’t need the extra $10K, and has a problem with a co-founder who genuinely needs the extra $10K getting the $10K - and accepts that that $10K is not likely to make a difference in the final outcoming - is not acting rationally.
Causing friction in this scenario is, to me, a huge sign of immaturity, ignorance, and a lack of commitment and/or understanding of the long game.
The reason most people raise early stage finance is to reduce their personal risk, and push that onto the investor. Which is fine if both parties understand the deal they're getting (risk reduction for potential massive upside).
But since this is mostly done to take risk away (during the riskiest phase of the company), I also believe you should equal the salaries. With equal equity stakes, one party shouldn't be taking more risk than the other by foregoing salary.
Founder one is 19, has no-one to depend on him, can happily live for 40k a year.
Found two is 27, has a wife and a kid, has a mortgage, the lowest "stress" free amount he could live on is 80k a year.
So what are the options:
* Pay both 40k. Founder two cannot make end meets, and has to get a second consulting job on the side. He therefore puts less work into the product.
* Pay both 80k. This is "fair", but it is literally just padding the bank account of Founder one. You are cutting your runway N months short for no real gain in output.
* Pay one 40k, pay two 80k, give 1 a bit more equity. This can also be seen as "fair", but it may not be. Founder two is bringing 10 years of experience to the table. Founder one is bringing only two. So in the long haul, you are giving one more money.
* Pay one 40k, pay two 80k, give each equity based on what they bring to the table. Maybe founder one gets more equity. Maybe founder two does. Decent chance it would be founder two, as he has more experience.
To me the right play is pay people what they need to not stress, and give equity based on what they bring to the table. Obviously I am closer to founder two in the above scenario, and I suspect a few people advocating equal pay are closer to founder one.
At the end of the day, each founder is either worth it or not. Some wizard that lives in SF so needs 120k to live? Maybe he is worth it. Some guy with a party problem that needs 95k to live, despite being a junior dev? Maybe not worth it. I think it is better to evaluate each person and see if what they need is worth it, if not keep looking for someone else!
If you lean on early stage investment to pay yourself a salary (which imo shouldn't happen in the early stages, but I do understand why people do it: to take risk away) then by default you are "padding the bank account" of the founders.
Generally equity divisions will be decided before setting up an entity and raising investment, so by the time you get there, it will have already been decided.
Given 1) the low probability of an exit when playing the venture game, and 2) the small equity stake you'll be left with at the end if you do magically manage to exit, I don't think it makes sense to forego (any) salary if your partner is taking out a much larger amount.
But again, I don't follow the line of thinking that states investors should be paying you a salary in the early stages either way.
I understand the gist of what you’re saying, but in the early stages, investors might provide advice about salary but certainly shouldn’t be controlling salary. That’s the company’s job.
Investors get to have a say about the CEO’s salary once they have board seats but not until then.
Perhaps someone decided to wait with kids because they want to have more time for the startup and/or more money left over for it.
You really don't want to be the person who took more money out of your startup than necessary either though. That's what you're arguing in favour of - a higher burn rate and consequently less time for building your business in order for things to be 'fair'.
If you're in that situation I'd recommend agreeing to track the difference and only pay it in the event of an exit, maybe with a multiple (say, double) to recognise the risk you took. That'd be better than increasing the burn rate just to make things equal.
If you're doing this, either: 1) both don't take any salary and use the raised money to build out the business (this is really how it should be), or 2) both take the same salary.
All the rest makes no sense to me and will most likely cause friction, unless one of the founders is already wealthy.
I really like this idea as a way to expand access to startup opportunities.
Have any acceleartors/incubators experimented with offering child care? I imagine that economies of scale could make that more economical than having X% of each investment go to child care with no coordination, even if it was just a group-rate contract with a local child care center.
I think you are better off just giving the person that needs childcare enough money so he can cover it...
I did two startups earning almost nothing and at first I was super focused and driven but as time went by, worrying about paying rent or being able to afford the dentist (or whatever) had a drastic negative effect on my mental health, work quality and quantity and over time increased disagreements with cofounders (when you’re super stressed for long periods of time, it gets harder to work through things). Ultimately this led to the demise of both companies.
Pressure is a very useful tool in moderation. It helps you focus on what’s important and encourages clever solutions and innovations. But too much (especially worries about your personal survival like rent) I believe drastically reduces your chances of success.
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.
You have to do the math, of course, to see whether it makes sense for you, given your estimate of chance of success, and payoffs under different scenarios.
But it usually makes sense to forgo a market salary early on because you don't want to give up too many shares. Imagine you're about to start a business, and are looking for investors to fund the first 12 months. Imagine the terms an investor might offer if you need:
A) $500k (of which $80k is your salary, payroll taxes etc.)
B) $700k (of which $280k is your salary, payroll taxes etc.)
In (A), the investor is contributing $500k of cash, and you're contributing $200k in foregone income.
In (B), the investor is contributing $700k (out of which your market salary is being paid). You're already being compensated in cash for your contribution, so why would any of your shares vest during this period?
Another thing to consider is perceived alignment of incentives. If you're not risking anything (because you're earning the same as you would with a regular job), and you're the CEO, what reason is there for you to optimise for the success of the company? You could rationally decide instead to just chill out, or spend all day learning new front-end frameworks, or whatever you feel like.
Making the case for becoming a founder using math is tough. It's well possible that the expected value is higher for an employee career because, as you say, most startups fail, although it's difficult to do this comparison really well methodologically.
I think if you become a founder you do it because you just want to start your own thing and love the freedom and satisfaction of working on your own idea. And maybe because you think you can beat the odds and get rich.
As an aside, the probability of a startup to become a unicorn may be 1 in 10,000, but the chances for a more modest (but still financially very rewarding) outcome, say a $20M exit, are of course much higher. Also, you learn so much as a founder that your chances increase for your 2nd or 3rd startup.
http://web.stanford.edu/~rehall/Hall-Woodward%20on%20entrepr...
Compare that with a statistical 90% of failure starting a company, but frequently resulting the loss of the founder's savings due to having invested it in the company. Basically the startup should give at least $50k/year of increase (above the cost of living), plus a 7%/year growth, so for two years doing a startup, you need to walk away with a little over $100k. At a 90% failure rate, you need to exit at $1 million for the expected value to break even. If you are not the sole owner and/or with VC funding it will need to be even higher. (If you are an early employee getting 1% or something you'd need about a $1 billion exit for a positive expected value.) That's some pretty uncompelling math. It gets even worse if you have a family.
Indeed it's higher in some areas. In Metro Boston, that's not uncommon compensation 10 seconds into your career.
You might find this blog entry interesting and on the same line of thinking you laid out above: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
Good reasons to forgo salary:
- startup already has revenue and/or a clear path to profitability that would be affected by the salary decision
- because you probably need as much cash as possible for the first technical hire(s). This is a good problem and usually indicates growth
- because you legitimately don't need or want it (e.g. cash from successful exit or good pre-fulltime planned savings)
Because as a founder you have a great idea that you think will be worth those odds. If you truly think it is a lottery ticket then your idea isn't that good and you should look for another idea.
You can always make more money working for BiggleCorp. The benefits are always better at NanoSoft. So the deciding question for you is not what flavor of ramen you'll eat but whether your idea is so insanely great that you're willing to suffer.
Moreover, your skillset is already factored into both your stock and the relative ease vs difficulty of your raise.
Like equity, founder salaries are a major source of dispute, and if the business takes too long to reach market rates then it becomes a source of tension. That's why I think relying on low salaries as a business model is a bad idea -- the business should be focused on sustainably paying market rate ASAP, which should mean that the business has revenue or customers incoming steady and growing.
I would argue that as a rule below market salaries means the business is unsustainable and has not found market fit. Founders can (and often do) still choose a lower salary when it makes sense to them.
Myself, I don't think execution is everything. It is a lot but you can't execute a mediocre idea into a success.
If I'm wrong about that, and I could be given my technical bias, then I'll rephrase that to if you can execute a mediocre idea into a success then anyone can and it just becomes a lottery. Been there and I won't revisit there.
BTW, we are talking about initial salaries. If your startup is killing it then you can dictate your terms and your funders will still say thank you.
No, but great founders can realize this sooner, wasting less money and decide to either return what's left of the money or pivot.
Very few successful companies grew into their original vision - they changed along the way because they had great leadership (and luck).
Oracle is still a database company. Apple still makes computers.
I’m blanking on a great founder who successfully pivoted, operative word being great. Successful is a lower bar.
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).
Why are you convinced there are no roles as these companies for people who want to make a difference, or that everyone feels like a cog in a machine?
These companies are not my cup of tea at the moment, but I know your assumptions are wrong for a fact. Proof by counterexample only requires one data point, and I've been there and seen people who share your ethos and make that kind of money.
This is not to say you can't find any number of people there that feel their jobs are thankless, insignificant, life force draining prospects. But we're talking about hundreds of thousands of people, and there are a variety of experiences people have. What percentage of them have you asked to be certain it's necessary to give up hundreds of thousands of dollars?
I can imagine a more productive interpretation of your post, which may or not actually match your opinion, that goes like this:
Those attributes are difficult to find in general at companies large and small. If you're fortunate enough to find a job that has them, think carefully before giving them up to make a few bucks more.
I could make the same argument of your point of view as well. I work at Google precisely because I think I can make a difference here.
That means something different to different people I imagine
> 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.
Twice a week personal training is 8 sessions a month. That's $875 per month. Divided by 8 it is slightly less $110 per hour. A good personal trainer can easily charge $110 per hour, including facilities charges.
Spending money on personal trainers allows you and your wife not to look like tubs of lard by mid thirties which in turns solves a boat load of very expensive problems in your forties and fifties. It is difficult to "change the world" with high blood pressure and diabetes.
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.
Paying one founder more than another is a good way to start a founder conflict and those you need like you need a toothache.
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.
Adding that kind of special treatment for founders on top of all they already have seems kind of unfair.
The argument about the lack of responsibility because children cannot be cancelled at startup time is very curious. Absolutely everybody knows that children come with costs, some are monetary, some are about other factors. You can not retrospectively pretend that those costs shall be privately covered by others beyond all the social organisation already agreed on (tax reductions), just because of status. Yes those costs can not be erased at startup time; asking for others to erase some of them -- well if everybody involved agrees why not, but on my side I will never see that as fair without serious compensations (distribution of shares for ex.)
And what about ANY other costly choices that can not be easily cancelled at startup time? Should alimony for their ex-spouses be paid for by others too? If they have a horse they are bounded to and would be horrified to the suggestion of abandoning it, should the recurring costs it involves be covered by others too?
Founders do not live in an alternate universe were all common laws and wealth distribution are to be renegotiated in private: those questions are important but should be applied for everybody, and actually they have been debated and there are important cases where the society have decided that doing this or that would be good. If this is actually not enough in some cases, that should be changed.
In practice? Yes. Any financial obligation (debt, mortgage, family, etc) contributes to a negotiation floor.
If your demands mean that you’re not going to enter into business with you unless I sell my horse and fubar my family, I’m going to walk.
Hopefully you don’t need me or have enough cash to buy out whatever I bring in. Otherwise, you’re fucked for want of a few thousand dollars.
Very often the answer is yes from my observation, particularly for fathers.
The salary calculation mechanism and amounts cited in the post may be debatable but framing it as "special treatment for founders on top of all they already have" is strange because early startups are often characterized by what founders don't have: the security of market salary and benefits (e.g. healthcare), substantial savings (many plow it into the company), etc.
There is no argument about "lack of responsibility because children cannot be cancelled" - I simply outline it being a common circumstance and recognizing it being a factor in higher living expenses that should be accounted for in salary calculations. It's also not about massive debate on common laws, wealth distribution or society input as you cite. It is simply about agreement between a couple of partners on the road to building a company. As already explained, the issue is negotiable in different ways and most importantly, you can self-select out if it's just unacceptable to you and you're satisfied limiting your pool of partners in this way.
Bottomline, if you're comfortable holding this view because unlike most people, you actually have many potential partners with the necessary industry skills that have no kids and have the qualities I listed above and share your views, good for you. Otherwise, not starting a company or having it prematurely fail because you picked wrong partners partly by skipping better ones because they had kids seems ridiculous.
So the decision for the cofounder becomes whether they want me involved. And my decision is whether the company will likely be successful with that burn rate. A single cofounder taking the same salary as me might push that burn rate over the edge. In which case, we just say no and move on.
I think this is a better approach to calculating these things.
I also think that society should help parents with tax cuts, but this lets the whole country pay for it, not just me, because I just happen to work with a parent.
What would be next?
Paying me less because I live in a shared flat?
Because I don't own a car?
I didn't make these decisions to have more money to throw it away, but to spend it on stuff I care about.
It seems like a dickhead attitude that bodes poorly for the future of a business enterprise.
Just because you have an immediate need that is evidenced by children doesn't mean others don't have equally legitimate needs.
My point is that if your “partner” is going to take an extreme, aggressive stance on such a thing, that’s a red flag.
And that may be fine for your startup. But you are limiting your talent pool, and should make sure that is worth the trade-off.
We were discussing about the fairness of that situation.
After all, what is the commodity the company is buying when they pay a salary and equity?
The book "Startupland"[1] that chronicles Zendesk[2] talked about this exact problem. One of the 3 founders had "family" to take care of and because of that, he wanted a higher salary. The 2 other founders were thinking, "what?!? you're not the only one making sacrifices here!"
After some discussion, the 2 other eventually agreed to it but they really resented it and it was a source of bad tension for a long time.
Zendesk eventually got to the IPO so the 3 got past that unequal salary episode but the soap opera drama doesn't seem to be something you want for a struggling company.
(Side note: I think it's unfair to downvote jacquesm for bringing this up. Even if you disagree with his opinion, it's still worth leaving the text ungreyed to discuss pros & cons.)
[1] https://www.amazon.com/Startupland-Risked-Everything-Global-...
[2] coincidentally, Zendesk is one of the companies in Point Nine's portfolio: http://www.pointninecap.com/portfolio/
(However, author Christoph Janz joined Point Nine in 2011 and Zendesk started 2007 so he may be unaware of their early salary drama.)
FYI, Zendesk was a "pre Point Nine" angel investment from me that I made in 2008, but I wasn't aware of these discussions among the founders. Maybe they took place before I joined or they wanted to keep them to themselves.
Well sure, I agree it doesn't have to. But as this thread has shown, it's a contentious issue demonstrated by:
(1) furious downvoting & upvoting of jacquesm parent comment,
(2) many comments in this thread from opposing sides debating it
(3) chapter from Zendesk founders' book discussing the uncomfortable tensions it caused
Therefore, saying "paying one founder more than another can cause conflict. But it doesn't have to." -- sounds somewhat naive. To be clear, I'm not saying _you_ are naive. It's that your sentence sounds like it brushes the human complexity under the rug. (We can also say "paying everyone equally also can cause conflict, but it doesn't have to." -- a kind of tautology that's true but doesn't really inform us.)
Also, it's important to stress the timeline of the startup:
It's one thing for the startup to not exist yet and the 3 founders are just sitting around a dining table and agree that 1 founder should get more salary because he has kids.
It's a very different situation when the startup is already up & running for a year and the 3 equally paid founders are living on cheap ramen to keep expenses low and make the struggling company survive. If at that point in the timeline, if one founder asks for more salary because his wife is pregnant, don't be surprised if the 2 other founders will react very negatively. It's human nature.
Recruiting a parent with existing kids to create a new startup is a different dynamic than increasing a partner's salary because they have a family after they've been working. The other founders may feel like they contributed the unspoken sacrifice of not having kids so subsidizing another person's family at a critical time can seem unfair.
One can "agree" to something because of business expediency but simultaneously have a human response that it feels unfair.
As analogy, I'm sure many programmers have "agreed" to a low $55k salary and took the job but simultaneously felt that the company was unfairly compensating them because they thought they were worth $100k. Unfortunately, agreement doesn't override human feelings.
If you were interpreting my blurb from the book that the 2 founders were constantly throwing the unequal salary in the 3rd founder's face, I don't think that's what happened. The book made it seem like it was a more like a silent resentment. Also, the salary argument came up after Zendesk was already established and running. I didn't previously make it clear that this wasn't 3 founders deciding on unequal salaries when Zendesk was just an idea on a napkin. If one agrees at the founding, that should remove triggers for resentment.
Could extend that thinking to living in the middle of an ultra-expensive locale like SF or London and take that multiplier away too ;-)
I do kinda agree, though. If one founder needs more salary, they should pay for it with (slightly) less equity IMHO.
No - at least in the US, you avoid pricing your start up until it's necessary, in order to plausibly say the equity is worth as close to $0 as possible, so equity grants result in the smallest possible tax liability. In practice, this means raising early rounds in convertible notes, which don't require the company be priced.
This is about startups that can afford to pay founders a salary, and those startups have either raised money at a specific value or are profitable enough that you can't claim the equity is worth $0.
This is one of my main reasons for advising against founders that are in very different phases of their lives, there is an element in there that you can not easily get rid of that might cause issues in the longer term.
I think you can argue either way, but I will tell you as a founder with kids that if the startup can't pay me enough to take care of my family, I won't be part of that startup for long. You can't pay tuition with equity.
That said, this may be a valid filter for you. The most important thing is that the discussion about compensation happens aboveboard and that everyone feels the situation is fair.
I’m not stating whether I agree or disagree. Just pointing out a similar system already in place.
BTW in almost all situations that I've been in where this would have mattered I was the one with the children.
Granted, the dorm isn't great, but it's not a straight salary difference.
Dorm residents don't pay for the room or food, if they choose to eat at the mess hall. They also usually get free use of washing machines, a common room with TV, etc.
Basically, it varies. In some locations the married soldier might be better off. In others they aren't. Either way, the difference isn't striking.
You also give up the housing allowance if you live in base housing as a married couple. These units are typically pretty modest.
There are, of course, exceptions. Areas where single soldiers get a housing allowance because no barrack exists. And areas where the married allowance is higher than it should be, for various reasons.
The point is, though, that it's not a direct comparison to the story. The single founders didn't get a compensating free room and board.
This can play out as one founder having to take off for dr appointments b/c things are stretched so thin their spouse can’t take off or they can’t afford a nanny, etc.
It also plays out that the founder in the tighter spot is going to be making decisions geared to a faster influx of minimal cash vs long-term value building. This is the same as VCs letting founders take some money off the table in later rounds b/c “the first million is worth more” and the investors want to swing for the fence.
Happiness doesn’t change much over $50k, but that number goes up with kids. BUT, that also means if you are going to take into account family situation, you should also take into account family money, if you have kids and a spouse with a big salary, you may not need more.
Every time I hear this I cringe. I was much happier making $180K than I was making $60K. I could go out more often, purchase more of my wants and needs without worrying about mounting credit card debt. Afford to live in a non-shit-tier apartment, and still have money left over to tuck away a decent emergency savings fund without it taking a decade to reach 6 months living expense backup savings. Who came up with this figure I wonder?
That takes a lot of work. Investors discount a person because he has a family due to some perception that therefore he or she won't work as hard on the company are either ignorant or unforgivably stupid.
And besides, they already do.
It is so, so very simple for a business to account for children among its workforce. Any staff aged under ~45 on your books? Well, guess what? A percentage (look up your regional variation) are going to have kids, soon.
A business that refuses to financially support its staff through predicatble life changes is flagrantly abusing those staff. Even unpredictable life changes can be mitigated and supported.
A business that cannot afford to support these staff is failing, and again abusing the staff by shifting the blame onto them.
People work for remuneration which reasonably exceeds their expenses.
A predictable percentage of the population will have children.
Children increase drain on financial and time resources.
It's reasonable that people with children might look for work that offers reduced/compressed hours, or higher remuneration in order to manage increased financial/time costs.
If your org does not offer these options, why not? Is it deliberately witholding employment from ~50% of the population?
If your org cannot offer these options, why not? The figures are eminently predictable. Why are they not in the business plan?
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.
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.
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?
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.
Yes, yes it should and it regularly does. Jantz's suggestions are just that - suggestions. As he says himself:
> However, our data set is quite limited and the numbers produced by the calculator should by no means be taken as the ultimate truth.
As with all of VC's publicly available content - don't treat it as dogma. It's a guideline and think for yourself.
That said, most VCs I have read indicate you should pay yourself enough to take the money concerns off the table, but enough to cause the startup stress. Obviously there's a tension and no perfect answer.
But not so much that you're checking flight availability for your weekend in Cabo.
<< 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.
If you want external funding then you stop being sole owner and you need agreement with othe owners on what is the worth of your services to the company. Your stake has nothing to do with it.
Yeah. You sure won't be hanging out at the cool cafes with your new superfriends delegating menial tasks to your hirelings. You'll be working your personal ass off while risking someone else's money.
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.
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.
Really: talk to a lawyer or accountant. The IRS are not going to accept "but I read it on Hacker News" as an acceptable defence to getting something wrong. Plus professionals have insurance to cover their mistakes -- commenters here do not.
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.
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.
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?
Be careful with giving your buffers (capital buffers, energy buffers, credibility buffers) away.
This is critical leverage that you need in many situations and almost all VCs refuse to give you any credit for whatever you have already given of yourself.
Sweat equity has minimal redeemable value outside of a success, in the eyes of sharks.
It is a dangerous game to play, especially with sharks.
I always recommend founders aim to contribute to the mission more personally than any other executive, and get paid at the maximum salary within the organization. Then, you should aim at fairness inside the organization, which is a very hard bar to reach, but is the correct response. What the market pays is immaterial, it's about what you value and how much you want to invest in your employees lives.
Generosity is one thing, but some people waste the money. Try not to give them large budgets. If a single mom is doing an amazing job on a tiny salary for her many kids, consider giving her more budgetary responsibility -- and training her by regular conversations. Etc.
A big mistake is giving "top talent" the money they were used to in big companies and racing teams. The assumption is always that with billionaires behind us and tech and talent this good, we could find the money.
But, in our case, after our largest corporate sponsor was killed tragically in a plane crash, and the price of oil dropped 3x (and has stayed low...), it was very hard to raise money for clean tech. Very few companies were funded, and almost none were funded by new investors -- mainly existing investors supported the companies that they had already invested in.
In many places the "top talent" could not adapt, and just went to places like Google X, where they have much more money but have much less independence and creative freedom than as a startup. Then, over time, almost all companies failed (though not us...)
But the truly dedicated people are still working on solving the problems. The people who are still trying found they could develop new capabilities. Those who've fought through the lean times are now a new elite, with value and respect beyond any pedigree from outside, within the group of those who've struggled through this Silicon Valley Forge.
To get in with us, people start with a baseline level of high respect and then strive to prove our faith in them correct through their actions, and strive to show the whole company what they can do. It is a wonderful thing to earn recognition of their capabilities through clever, elegant, and hard work, creativity, and play, but even better to work with a collection of people with unusual abilities harmoniously.
Being part of an outstanding team, so long as you are paid enough to live well (which is dependent on needs, particularly with family, education, and health on the mind), is worth far more than the money that we could possibly pay at this point.
If we are successful the work may be worth billions and might just make the future way better. We obviously cannot pay billions now. But we have a shot at making a difference. For those who believe it is possible, that can be enough, if you take care of their needs.
Many of the people who've worked for us say that it was the most exciting and productive and creative learning environment of their lives. There's something in that that cannot be put into a value in terms of dollars. You have to work with people who value that, or it will not sustain itself as a creative working environment. It's not about what you get out of work, it's about what you put into it, and how it grows.
The big problem with the modern world is that nobody plans for success. Everybody assumes that once they get to the next step, and solve their current money problem, then they can relax and things will be better. Everyone dismisses the possibility of success, and says "these are good problems to have." Actually, problems are problems, and the more successful you are, the more problems you have.
Make the success worth fighting for, and plan on it, and win.
That should be enough, for the right kind of person. The challenge of making that win come true, and having you and your team really believe in yourselves and your shared vision despite the odds being so far against you, that's really the trick. Rarely does anyone pull it off.
And then, rarely does a vision survive its first successes. Protect these fragile hopes and dreams. Plant them in the most fertile soil of your soul, and nurture them with your care and your love and your actions. The soul breathes choices.
Remember, you hope for so much more than the world is giving anyone right now. So don't settle for the trappings of success.
Make the world we live in your art, weave positive visions together from a zillion hearts, minds and souls, help friend realize their visions in our shared world, and then awaken to a universe alive beyond any one mind's wildest imaginations.
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...
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.
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.
A technical founder of a consulting company would be making above market rate from day one, or you are doing it wrong.
https://lh3.googleusercontent.com/-gpJ2FfhmWMc/TYb7Un7m-gI/A...
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.
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. :-))
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?
It is a guideline to determine a reasonable amount a founder can get by paying themselves.
That's why things like location and family size matter.
If it was strictly a value proposition, the founder could pick any number that his investors would be okay with; he's the founder.