How much do startup founders pay themselves? And how much should they pay themselves if they raise money from investors?
Career research company 80,000 Hours estimates that founders going through the Y Combinator accelerator program pay themselves about $US50,000. If they go on to raise more money, that salary can double. If the startup flops, $US50,000 could be the highest salary a founder makes.
“During the Y Combinator program, they use only a one-off seed investment from Y Combinator of US$120,000 to pay living and business expenses,” 8,000 Hours’ Ryan Carey writes. The investment is expected to cover everything, including a small salary for the founder. “If they go on to receive angel investment [they] can pay themselves about $US50,000 per year. With venture capital funding, this tends to increase to about US$100,000 per year.”
The most successful Y Combinator founders can make much, much more. Carey estimates that the founding teams of Dropbox and Airbnb are worth $US6 billion combined, for example.
Carey’s salary estimates for early-stage startups up with a Quora post on a similar topic. A founder who raised $US500,000 used the Q&A site to ask, “Is a $US100K salary too much for an angel/VC-backed startup co-founder?”
Foundry Group’s Brad Feld thought a six-figure salary was too high for an early entrepreneur. Another person agreed, stating that while $US100,000 is below what an engineer should make, it’s “certainly above market for a seed-funded startup.”
“Salary should be sufficient to not create hardship — no sense in losing productivity because you can barely eat,” this person concluded.
The general consensus seemed to be that a $US50-$75,000 salary was reasonable. “$50K/year is plenty. Some families live on that,” says VC Sean Owen.
David Rose agrees. “In my experience, that fact pattern (a pair of founders, $US500K seed round) would typically see them each taking $US50-$75K, at least until they either start generating revenue, or raise a larger round.”
When you’re profitable, you can start paying yourself a more impressive salary.
“An adviser once told me to keep the total annual figure (including taxes) under $US100k per year until you’re profitable, and VCs have seemed to accept this,” another says.
Here’s the most voted up response by Michael Wolfe, a four-time entrepreneur:
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