How much do founders pay themselves? A European data set
sifted.eu
sifted.eu
Putting that aside, I think big chunks of this article are trying to draw conclusions from tiny datasets that might not stand up. For example, the chart showing "Average Number of Employees By Annual Salary" is very clearly just a line connecting the individual data points, that should be a scatter plot with a trend line most likely, and what it shows is that most of the companies consist of only the founding team. Or the bar chart of number of founders vs CEO salary - I think they've sliced that data into so many buckets (4 buckets, 3 groups, N=200) that probably the variance between the groups is just noise.
Even if not, you could eat a large piece of the pie.
If anyone has any ideas in particular, feel free to let me know, please. :)
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eg. there are no companies that raised an A and have 10+ ARR in EU
Pay yourself as much as you need to not be distracted by anything that would slow you down. It is different for different founders and for whatever stage they are at in life. But if you are a founder with a family, that is gonna be different from a founder fresh out of college.
Obviously you want to spend as little as possible, but not to the detriment of you lacking focus and dedication because you can't pay your rent.
I'd say this goes equally for your employees, no? Pay them enough to take money off the table
They're both bearing the same risk, it's just quantified differently for two people in two different life situations.
And to be honest, the kind of experience that someone who worked 15 years as a developer brings to the table is probably not going to be the kind of experience that makes or breaks a startup. Experienced devs can bring much more value at later stage companies, where they can focus on the thing they are good at, rather than at an early stage startup where the founders have a million different responsibilities.
Well, this is in response to a post that said they had an offer, so my presumption here is that the startup needed that experience or they wouldn't have offered the role.
> And to be honest, the kind of experience that someone who worked 15 years as a developer
The original post didn't specify whether they were a developer, only that they were 15 years older than the other co-founder. I'm making my own assumption about that translating into 15 more years experience (not accounting for breaks, back to school, whatever).
If you try to get a single junior developer to ship the product... well, good luck with that. I can count on one hands the people in my circle who could do that fresh out of university. You definitely need at least a mid developer who shipped something else - of you can just outsource the tech side.
When my startup was incubated there were plenty of biz founder with a junior who couldn't ship something simple (even a wordpress with some plugins would have worked!) or ended up outsourcing their development (which ended up being a way to make some income when my startup didn't go anywhere).
Hard disagree here, as many many junior devs treat startup/greenfield work as their personal playground for trying esoteric tech, prematurely building their own platform, etc.
The primary compensation for a founder position is the equity stake. A co-founder would get substantial equity (20% or more). For perspective, consider that future investors will be pouring millions of dollars into the company in exchange for a similarly sized equity stake.
You need to remember that as a co-founder, they're deciding what to pay themselves. The higher the base compensation, the less runway they have and the fewer employees they can hire.
If someone is demanding a $450K/year base compensation as a co-founder, they're not looking at this as a true co-founder role. A co-founder would want to focus on equity and take something like $150K/year so the company could hire 1-2 additional engineers with the other $300K/year.
If this sounds weird or unfair, then you're probably not a good fit for a co-founder role. And that's fine! For most people, taking the $450K-$600K big tech is the better choice. Not everyone is cut out for the risk-taking of a co-founder role.
I think we're both making some assumptions around what GP was offered, but I would agree with you that asking for $450k as a cofounder is unreasonable. But I'd say that for someone closer to middle age with a family, $200k isn't unreasonable. The idea is that you want the cofounder to focus on the company, so you remove the financial distraction.
> Not everyone is cut out for the risk-taking of a co-founder role.
Sure, but that's not what I'm talking about here. I'm saying that you should not expect your co-founder and their kids to live on ramen. If you want the experience they offer, you gotta pay their bills. It's not about extravagance, it's just the cost of mitigating the same risk that the 20-something cofounder faces and mitigates with their own salary. It just costs more to do it with someone who is a little further along in life.
That's basically what I said in my other comment above, right down to the same $200K number: https://news.ycombinator.com/item?id=30517360
The parent commenter responded that they don't like startups at all due to the high failure rate. Between that and the unwillingness to give up immediate compensation, I think it's likely that they just don't really want to be a startup co-founder. Nothing wrong with that, but it's not really cool to blame a startup for having expectations in line with standard startup practices (assuming they weren't offering $50K or something silly)
I see no mention of numbers aside from fractions in my comment. This is truly jumping the shark in order to form an argument.
> A co-founder would want to focus on equity and take something like $150K/year so the company could hire 1-2 additional engineers with the other $300K/year.
This is a rather bold assertion and you're stating it with the tone of authority and general application across the entire spectrum of what makes a startup, in any sector, of any flavor. You're also applying your own personal bias as a statement on a very personal situation offered anecdotally. Both are neither fair nor wise.
Startups come in a million flavors. What a person's responsibilities to their family are does not equate to not being "cut out for the risk-taking," as risks themselves are of great variety, nor does a co-founder need to focus on equity alone. I'm fortunate to have a wide network of colleagues that include co-founders that are in the game for long-term viability and stability to provide equitable income for themselves and their families, and their employees, as well as a return to investors. It's clear that your view is one through the lens of "to the moon on the back of a unicorn," where in fact there are many different long-term strategies. I personally find the unicorn startup path distasteful and disingenuous, as there's such an incredible rate of failure. Modesty and consistent, steady growth are now highly underrated.
Overall your message echoes that of the proposed co-founder I mentioned in my original post, and is antithetical with my views on business and startups in general. To those who may be reading the parent above, know that there are many successful startups that don't subscribe to the same philosophy.
I wasn't talking about you, I was speaking in generic terms to make an example.
You didn't give us any numbers so it's useless to discuss your specific scenario.
I commented above on the lack of numbers and provided more examples for different scenarios about your situation: https://news.ycombinator.com/item?id=30517360
> What a person's responsibilities to their family are does not equate to not being "cut out for the risk-taking,"
I think you've missed the point. Nobody here is saying that founders need to neglect their families or whatever. If the startup was trying to pay you a number so low that you couldn't make ends meet, then that's a problem with the startup.
> I personally find the unicorn startup path distasteful and disingenuous, as there's such an incredible rate of failure.
I think it's pretty clear that you're not a good match for startups. Like I said, there's nothing wrong with that. However, it doesn't make sense to blame the startup founder for (presumably, impossible to say without numbers) having standard startup expectations or startups for being risky in general.
If you don't like startups and you value immediate compensation above all else, that's fine! Nothing wrong with that! You're just not a good match for a startup co-founder position.
That said, the founder's primary compensation is in the equity. Expecting cash compensation to match big companies is a no-go for early stage founders.
It's pretty clear you have little knowledge of startups outside of those seeking unicorn trajectory. That's to your detriment.
> You're just not a good match for a startup co-founder position.
This is just an absolutely incredulous and naive take, and it shows some of the worst bubble mentality and arrogance that this industry has to offer. I've spent my career within startups, I've cofounded several you've probably never heard of that are still going and are still successful. But because they're not unicorns, never aspired to be one, and don't fit the mold of your specific view of what a startup is - well, clearly this person isn't fit.
I'm not sure how anyone can take your opinions on the topic seriously after you've revealed yourself in this way. In a way, I pity that your view is so narrow.
Again, to anyone reading this thread - it doesn't have to be the way they're describing it. Life and business are not confined to the stereotypes and tropes of Silicon Valley startup culture, and you don't have to subscribe to their tenets to be successful.
In which world are any of your numbers realistic for a founder position?
I mean we talk startups. Most startups not even get 500k in a seeding round ever
Pay for your time and if it all goes south, a couple months of developer pay to try something new.
(But a runaway success is a poor model for expected outcome.)
He says in the linked interview there were ~150 employees when he joined.
https://www.freshworks.com/hrms/eric-schmidt-talks-about-wha...
OTOH, if you were making $200K and the startup insisted you drop to $70K/year, that's just short-sighted on their part. Especially in this generous funding environment it doesn't make any sense to squeeze founders with tiny salaries.
The life stage and family differences are indeed a big gap, but I think the career stage differences would have also been insurmountable. Once you're a decade or two into a career and you have a comfortable position at a big company, it's really difficult to shift back into scrappy startup founder mode.
To be clear: There's absolutely nothing wrong with taking well-paid roles at big companies. It's actually a great option, and it's fantastic that we can get paid so much without taking on the risks of a startup. There's not really a right or wrong answer in this job decision.
For example: two founders, one innovator at $150k current wages, and one tech at $350k. They work earning $0 each, spending their savings for one year, and then get a seed round of $1 million. Even though they have invested $500k equivalent at the highest risk they will only get common shares in their first round, so their cash-equivalent investment is usually highly undervalued. The standard VC return is looking for 30x return over 10 years (from their one successful investment out of 10 companies). The standard VC returns represent the best approximation to investment risk. However founders have higher variance (one company) and they don’t get preferential shares, so founders need far more than 30x return (much greater than $15 million) to even break even on their risk because they are highly leveraged due to common shares. Only 5% of VC funds even achieve fair returns, so founders are even more fucked than you might think.
Edit: although wages are less in most countries, I expect the risk for founders is actually higher. Investment amounts are smaller, less chance of outstanding company success, and investors seem to really screw up the companies they invest in (from my experience in NZ watching other companies that took VC or seed investment).
Assuming founders are still in charge, they’re often given substantial bonuses ($1-2mm or more) if an acquisition would make their equity worthless. This is done to align their incentives with getting the acquisition done, otherwise they’ll hold out.
Also, founders tend to pay themselves market rate once the company has grown significantly. In your scenario they wouldn’t take the reduced $150K salary forever.
The bigger risk is to employees of startups. They don’t get the generous acquisition bonuses of other companies.
That said, founders of any startup that makes a mark are usually in high demand. Even if they fail, they can point to a lot of experience that few others have.
Survivorship bias. The big unknown is how many founders didn’t make enough money?
I would be very interested to see some stats on YC company failures (didn’t exit, or common shares returned zero). We hear a lot about the big successes, but we don’t hear about the legions of failures.
A founder needs to return somewhere between 20x[1] and 50x investment to cover risk e.g. $150k opportunity cost in first year needs 3 million to 7.5 million returns to cover risks (power distribution, so return is dominated by unicorn outcomes).
> they’re often given substantial bonuses ($1-2mm or more)
That is the successful startups - again what matters is the dominant number of unsuccessful startups, which most likely are not giving out big bonuses.
[1] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... (a) only 5% of VC funds achieve an acceptable return*, and (b) “realistic” scenario for that 5% result is: “Five startups fail and do $0, three exit at $25 million, one exits at $200 million and our superstar does $1 billion, (c) founders get common shares, (d) many founders won’t get paid by their company much more than their opportunity cost (especially because founders of unsuccessful startups are most likely to get underperforming pay).
One in fact said they wouldn’t fund us if we pay ourselves way too little because then we would be massively distracted to create anything valuable.
I have a new startup, and I picked the lowest number that makes me not worry about the bills.
Seeing founders pay themselves exorbitantly was not a great sign, though. If someone is truly building a company into something they believe to be very valuable, the salary shouldn’t matter very much beyond helping them not worry about bills while they grow the company.
That’s all kind of obvious and well known. What I didn’t know was how the unscrupulous founders also know this very well and instead come up with creative ways to pay themselves outside of salary numbers. One founder liked to pay himself $100,000 consulting fees after fundraises to “reimburse” his work done before the raise at what he believed to be “below market rate”. It’s the kind of thing that won’t show up on cursory due diligence, but will poison later rounds when investors dig into finances and realize the CEO or other cofounders have been quietly extracting extra money for themselves. In one case it damaged a startup I was fond of enough that it cost the CEO potentially millions in equity in a later acquisition that failed.
I don’t know. Just seems like accounting to me. They take a small salary but own 80% of the company you’re helping build for the same salary but 0.03% ownership.
If you hire 100 employees and split that 5% equally then you get 0.05% per employee. What else would you propose? If you tried to give everyone something like 0.5% then the first 100 employees would have to own 50% of the company. Doesn’t really work.
The earliest employees who join when company size is less than 10 people or so, as well as key early hires like valuable VPs will end up with higher equity, but once a company reaches a point of paying market rate compensation then a 0.05% equity stake isn't really unfair.
- Don't split equity evenly across the first 100 employees. A non-cofounding VP Engineering should probably get a bigger stake than a non-founding customer support rep.
- Increase the employee option pool.
On the other hand, I've been reading lately about the vast acceleration in the pace of investor money since last I did a venture-backed startup. [1] To me this looks somewhat like the diet of a pâté goose: more to the benefit of the feeders than the goose itself. If my investors are in it for a quick flip, I would have to question how much I should be long-term focused.
[1] Scroll down to "fast is in fashion" here: https://pivotal.substack.com/p/minsky-moments-in-venture-cap...
Investors invest in companies to give them runway and for hiring. If the founder is extracting that money back out of the company to line their own pockets (beyond a reasonable salary) then it doesn't help the company at all. Founders should be selling their equity, not withdrawing from the company's bank accounts.
But my point is that even when I last took venture money, more than a decade ago, I had some questions about how much the goal of investors was to "help the company". With the way funding trends have changed, that's an even bigger question. Which would then force me to ask: how much sense does it make for me to be more invested in the long-term future of the company than the investors are?
Personally, my behavior wouldn't change. But the more investors are in it for their short-term interests, the more they should expect to attract founders who feel the same way.
How did discovering this affect the acquirer's investment thesis? Presumably they felt like the company's growth potential and revenue was sufficient to invest many millions to own it, but then this changed their evaluation?
Not that I think it's best practices for a founder to do this with investor money, but it sounds like a just-so story.
I'm guessing there was more to it than this. It seems like VC's always have a perfect anecdotal narrative of why it's in everyone's best interest to do things that make the VC firm more money.
Yes. It goes to the CEO's honesty and character. When you find something like this in due diligence, you start wondering what you haven't found.
This is somewhat similar to https://www.insider.com/van-halen-brown-m-ms-contract-2016-9
Although it wasn't a single $100K payment. It was a pattern of bragging about "taking a $1 salary in the early days" while doing essentially the opposite on the books.
When investing you can't due diligence everything. When you find a couple instances of the CEO telling you one thing but then doing something else and using accounting tricks hide it, it raises red flags. It's rarely ever just a single lapse of judgment like that.
Lying about what you did with the money is definitely a red flag. I think any sane investor would worry about a CEO making financial misrepresentations. But the actual behavior of taking low compensation and then making up for it when the company later has excess funds seems completely defensible if it's done without deception.
In a startup, compensation packages for executives (especially the CEO) will be approved by the board, which probably includes lead investors.
If the CEO is negotiating a specific compensation but then doing anything to pay themselves outside of the compensation channels, it's nearly impossible to do this in a way that isn't somewhat dishonest or misleading.
Unless, of course, they go to the board and negotiate a bonus for themselves through normal compensation channels.
But no, literally just paying yourself company money because you decided you were underpaid in the past is a huge no-no, no matter how justified you feel as CEO. Executive compensation always always always goes through the board.
Turns out the CEO in question was engaged in deception and self-dealing and self-enrichment without consent of shareholders.
Sounds like a good reason to back out of a deal. Unlike the reason you originally stated which was excessive compensation.
As I pointed out that’s not a good reason. Clearly there was more to the story.
The company didn't have "excess funds".
When you do a raise, you tell investors how you're going to spend the money. There may be a lot of money in the bank, but it's not "excess", it's merely not yet spent.
If he didn't disclose that $100k before the investment, he took it from what he told investors that the money would go for.
But I dismiss anyone in it for the long term anyway, so I'm actually screening against that and instead of trying to figure out how they're lying about being in their new corporate forever home. Don't get married to positions. Different strategy.
I don’t get that. If someone is truly sitting on a lottery ticket they believe to be valuable, salary still matters very much, because there’s significant irreducible risk that it doesn’t pay out. From a strictly financial perspective, it’s the same reason people don’t go all in on one company in the stock market, but rather diversify their portfolios: People maximize risk adjusted values rather than just expected values.
Do you have an email address or a contact method?
If you take VC, than there is always an existential risk, since you are relying on new money being available for the next round.
Also, you diversify in the stock market mainly due to information uncertainty. I.e. you do not have any control on different risks (economy, company corruption, etc.).
However, in a startup you have much more control on the company future (again, if you DONT take VC money).
If you take VC money, than the company is basically a privately traded company, and you assume all the risks of a public company.
- would love to see distribution rather average, as average is easily skewed by outliers
- salary Vs exit (bust, acquisition or public)
- salary Vs employee. I was listening an episode of How I Built This by Guy Raz. The founder of Goodreads is paying himself about the same level as highest salary employee. I find it a good reference
For my next startup, I will try to bootstrap as much as I can first, and then pay myself a livable salary so that I'm not distracted by looking for others sources of income / radically downgrading my lifestyle.
How does the average founder in a 4-founder startup hold more than 1/4 of the equity at all? Something is wrong with this stat.
Keep in mind that it’s common to have at least one cofounder. Some times more. Start with 3 cofounders and an equal split and already nobody can have more than 33% of the company.
The term “Series A” has also become kind of diluted away by a growing list of earlier rounds: Angel, pre-seed, seed, etc. It’s getting kind of funny to see how much fundraising a company can do before “Series A” these days.
Equity is a tough topic to think about because everyone expects to have a lot, but numerically a startup with multiple cofounders and multiple investment rounds and an employee option pool and equity for early hires will end up with a lot of entries on the cap table. It becomes difficult for any one person to have >20% equity very quickly in most cases.
At startups I often had to explain this to early but post-investment hires who expected 10% or more equity for themselves on top of market rate salaries. Unfortunately the equity gets spread across a lot of different parties.
Is it because they are not creating anything truly unique with great market pull?
Normal SWEs can follow this example by saving up and being willing to work for a big discount if it's their own company they're working on. That's not going to let you start a car company but for a website it might be enough.
Didn't he _not_ start Tesla, though? I thought he bought his way in, and negotiated cofounder status?
Side note, as a potential employee (and a different kind of investor) that's the determining factor in whether or not the equity vs paycut gamble makes sense.
The vast majority of tech companies that IPO have revenues of (much) less than $500M.
Are you the founder or the majority shareholder too? Would that entitle you to more compensation?
> I happen to think it actually works.
That's good to hear.
Raising takes you out of building the business and turns you into someone who spends all their time talking to investors instead, usually at precisely the time your business needs you to do founder things. By hitching your pay to when you land another round you're incentivizing raising rather than growing the business, and that's probably a bad thing.
Waiting for a fundraise to increase a below-market salary in an unprofitable business is a responsible thing to do.
In early(er) stage startups the situation is of course different, but once there is revenue and maybe larger capital injections from VCs, it is my experience that compensation committees or who ever is deciding founders salaries, should make sure founders are not left too far behind compared to what new hires are being paid.
What would you need to pay to replace the closest version to you at the stage of the company u are at.
I think it would be worth investing on learning a bit of statistics or discussing with a data scientist before publishing that kind of article.
Honestly throwing averages after averages all day long brings 0 value and understanding on the dataset. Smells like a random software engineer or marketing eng with no consideration for basic data science was tasked to study this with excel.
Showcasing concentration metrics (means) all day long is useless, I want to understand at the very least how the distribution is shaped (is it normal?), what's the std, hell I'd like a PCA on all the fields (years of exp, sector of activity, number of employees, successful funding rounds,...).
As an investor, you have information that only you are founders are privy to. You can continue drawing a salary in whatever your day job is. At the end of the day, your loss is limited to the money you put in and the relatively low time investment. A founder gives up all of their time and near term compensation for a lottery ticket. For people already on a good trajectory, anything but a stellar exit is probably a net loss. For early employees, it almost always is a loss.
There are a bunch of rules, all aiming at making sure as a company director you can’t qualify for any government benefits, and income is taxed in box 1 (income from employment) which has the highest rate.
First is a minimum of €45k, then you can’t be paid less than your highest paid employee, for an LLC you need to pay yourself at least 75% of profits. There’s probably more to stop creative accounting and ensure the first chunk of money is always taxed as personal income.