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Having done this 5x times now. My advice is the same I got from one of my first VCs @FirstRound...

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.

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I was recently offered a founding role. The cofounder is 14 years younger than I. I have a family of 5, she is single and living on a very light income. Her advisers were telling her founders should pay themselves an amount that was approximately 1/3 of my current take-home. The divide in stage of life and accumulated responsibility was just too great to overcome and we parted ways.

The missing piece of this scenario is your current take-home. If you're pulling in $600K at a BigCo then it's not really reasonable to expect an early founder role to match that compensation and give you substantial (10-20% or more) equity in a new startup. Giving a founder $200K in the early days should be enough to let them focus on the startup and not worry about finances. If someone is in a personal position where something like $200K/year would cause great financial stress, they're probably not a good fit for a high-risk startup founding position anyway.

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.

I suspect most founders do not account for their opportunity cost correctly.

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).

Even with $10-$100 million range exits, typical founders are doing more than okay.

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.

> Even with $10-$100 million range exits, typical founders are doing more than okay.

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).

This seem so penny wise, pound foolish to me. Assuming the long-term value difference between a great founder and a mediocre one can be tens or hundreds of millions of dollars, it really makes sense to spend the extra few hundred thousand on the best cofounder available.

To me it's a sign of a lack of confidence in that long-term evaluation and is probably a sign they don't have the right risk attitude to be in the startup game to begin with.

And to me its a sign of not understanding and/or not valuing what an extra decade and a half of experience brings to the table. Paying that cofounder more based on their stage in life is a requisite to acquiring that experience.

They're both bearing the same risk, it's just quantified differently for two people in two different life situations.

> Paying that cofounder more based on their stage in life is a requisite to acquiring that experience.

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.

> If someone is demanding a $450K/year base compensation as a co-founder

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 see no mention of numbers aside from fractions in my comment. This is truly jumping the shark in order to form an argument.

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.

> I think it's pretty clear that you're not a good match for startups.

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.

> 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.

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.

> 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.

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)

Something like 150k.

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

I guess it depends very strongly whether the startup needs that experience or not.

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.

> I guess it depends very strongly whether the startup needs that experience or not.

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).

> 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.

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.

Having a developer with experience or one without is the kind of thing that can break a startup.

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).

I would argue that your take doesn't apply to T-shaped engineers, or engineers that have been in the industry through a multitude of technology shifts and trends.

Personally, if you spend several years. Make sure your ceo pay is at least a million the first year.

Pay for your time and if it all goes south, a couple months of developer pay to try something new.

It probably wouldn't have worked out well anyway. Your cofounder would have been upset the first time you spent time with your kids instead of working. Founders need to be in roughly the same life stage for things to work out, or if not, have a very strong understanding of what the other person's work life balance is. Or at least the one without kids needs to have very involved hobbies to spend time on when you spend time with your kids!

Eric Schmidt, Larry & Sergey are a counterexample.

(But a runaway success is a poor model for expected outcome.)

How are they a counterexample? Larry and Sergey were both grad students in the same place in life. Eric was hired after they had funding and profits and was not a cofounder.

Ah, thanks for the correction. I didn't recall there was 4 years between startup and Schmidt joining.

He says in the linked interview there were ~150 employees when he joined.

https://www.freshworks.com/hrms/eric-schmidt-talks-about-wha...

I would say that setting aside a tiny bit on top of “pay your rent” for savings is necessary. It doesn’t have to be a ton but you shouldn’t be in trouble if the company doesn’t work out. Startups can take years to play out and you need a safety cushion afterwards, some basic level of financial security

Multiple angel investors told us something similar.

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.

never heard this before, but that makes perfect sense. thanks for sharing

This! 100%. Last startup when I was promoted to an e-staff level I said "here is what I need not to have to think about anything but making us a success."

I have a new startup, and I picked the lowest number that makes me not worry about the bills.

> Pay yourself as much as you need to not be distracted by anything that would slow you down

I'd say this goes equally for your employees, no? Pay them enough to take money off the table

In this competitive market, you are likely paying them market plus equity for top talent. EU is less competitive, but you should be paying market or below market if you are augmenting with extra equity.

The article phrases it as "pay yourself just enough to not think about money."

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