When a startup gets handed that first big check, how much of that can they dedicate to their own livelihoods?
To read the tech media, you’d think they’re all millionaires and billionaires. But they’re not.
According to Brad Feld, a VC at Foundry Group, the short answer is:
- $100,000 – $US250,000 in cash salary, with the CEO generally earning the most salary.
- potential bonus money of $US0 – $US100,000
- and equity (ranging from less than 1% – 20%).
The CEO and CTO founders tend to keep the biggest stakes, but it’s surprisingly small by the time they have raised multimillions. According to Feld the stakes often break out like this:
- Founder CEO 5% – 20%
- Founder CTO 2% – 10%
- other co-founders between 3 – 7%
- and non-founder equity holders 0.5% – 5%.
Obviously, startups living in expensive places, like Silicon Valley, tend to pay higher salaries than those in cheaper areas of the country, Feld says, and founders of later-stage companies get paid more, too. While he originally posted those numbers in 2007, they hold true today, he told us, however “stage and geography matters a lot.”
And things get complicated from here. For instance, venture capitalist Peter Thiel won’t invest in any startup that pays its CEO more than $US150,000, period. So he said in his Stanford CS183 class on startups:
A categorical rule of thumb that Founders Fund has developed is that no CEO should be paid more than $US150k per year. Experience has shown that there is great predictive power in a venture-backed CEO’s salary: the lower it is, the better the company tends to do. Empirically, if you could reduce all your diligence to one question, you should ask how much the CEO of a prospective portfolio company draws in salary. If the answer is more than $US150k, do not invest.
Before paying themselves anything, founders are expected to get the OK from their board and seed investor, says New York super angel David S. Rose on Quora. For a startup that just raised $US5 million he advises:
“It should be discussed directly with the Series A board director, and it is up to you to propose something. … it will likely end up somewhere between $US100K and $US200K. I’d personally suggest +/-$150K.”
Rose answered a similar question on Quora back in 2011 from someone who had just raised $US1 million, and this is what he said then:
“In my experience, the range is generally between about $US75,000 and $US150,000 per year.”
The stage of the startup is probably the biggest factor. A seed startup that’s raised $US500,000 – $US1 million can’t pay as much as one that’s raised $US5 million in a Series A. Some founders give themself a raise every time they raise more funds.
What Foundry Group venture capitalist Seth Levine wrote in a blog post in 2012 is still fundamentally true today, too:
- Companies that have raised $US1M or less tend to pay their CEO between $US75k and $US125k, skewed to the low end of the scale.
- Companies that have raised less than $US500k tend to top out at $US75k for CEO comp.
- Companies that have raised between $US1M and about $US2.5M tend to pay their CEOs around $US125k.
- Companies who have raised more than that, pay more. amount skew up from there.
All that said, investors are not looking to turn the founders into slave labour. Levine adds:
“Don’t starve. There’s no sense in paying yourself so little that you can’t live or will be overly stressed about paying your bills. … You don’t need to tighten the belt so much that it ends up distracting you from your focus on building a great business.”
Venture capitalist Jason Lemkin, a partner at Storm Ventures and previous CEO co-founder of EchoSign (acquired by Adobe), dittos that. On Quora he wrote:
“Putting yourself in a position where you are overly stressed about making enough money to live is just going to damage the company’s growth potential now.”