1/ Early stage founders regularly ask for advice on setting their own salaries. This is a somewhat touchy subject, but the main factors that I've seen people use to set their own salaries are: a) personal expenses, b) personal savings, c) how much cash the company has.
2/ The main tension for very young companies is that their cash runway is very limited, so the difference between two founders each taking $50k vs $150k per year is huge if the company only has $750k in the bank to start with.
3/ As a result, many founders tend to take a "minimum viable salary." The question you want to answer is: how much cash do you need to cover expenses and not stress out about bills every month?
4/ If you're 22, living w/4 roommates, and have zero financial obligations, maybe you just need $25k-$50k/yr. If you're married w/a mortgage, maybe it's $75k or $100k. If you have kids and your spouse is unemployed, maybe it's $125k+. Almost any number is fine if it's justified.
5/ But there's strong pressure to not go too far above a minimum viable salary. Every month of company runway you remove will decrease your company's chance of success. E.g.:
18 mo of initial runway -> 50% chance to hit Series A metrics
15 mo -> 30% chance
12 mo -> 15% chance
18 mo of initial runway -> 50% chance to hit Series A metrics
15 mo -> 30% chance
12 mo -> 15% chance
6/ So if you don't *need* more cash, it's better to use the runway for other company expenses.
Why? Because if you own 40% of a company, a $100k salary and 40% chance of the company being worth $40m next year is better than a $200k salary but only a 20% chance of $40m next year.
Why? Because if you own 40% of a company, a $100k salary and 40% chance of the company being worth $40m next year is better than a $200k salary but only a 20% chance of $40m next year.
7/ When you own such a big chunk of a company, the expected value of your stock dominates your salary.
It's not even close.
It's not even close.
8/ For founders who are fortunate enough to have lots of savings, not taking any salary and maximizing the company's runway can be a good option. That's a privileged position to be in.
9/ For most founders who are not so lucky, take whatever salary you need to not be anxious about your life outside of work.
10/ If that salary number is uncomfortably high, one possible solution is a more dilutive seed round.
For example, instead of selling 20% in a seed round for $2.5m, sell 22% for $2.75m. It's a little more dilution, but gives you more cash if you really need it.
For example, instead of selling 20% in a seed round for $2.5m, sell 22% for $2.75m. It's a little more dilution, but gives you more cash if you really need it.
11/ Finally, talking about money is uncomfortable, but it's crucial. If you're the founder of a seed stage co & you're worried about your electricity staying on this month, then your salary is too low. If you're saving $10k/mo, then your salary is probably higher than necessary.
12/ Ultimately what you, your investors, your employees, & your customers ALL want is for the company to create a lot of value and be hugely successful. Usually the best way to do that is to have a low personal burn rate and give your company as much time to succeed as possible.
13/ And finally, salaries reset a lot after a Series A. An extra $50k/yr is a lot if your company only has $1m in the bank, but it doesn't matter if you have $15m in the bank.
Addendum: to make it explicit, I want all founders to have salaries that don't cause stress. For every 1 founder that asks me if $250k is ok b/c that's what they made as a lawyer/etc, 10 founders ask if $30K is too much. Not even close to too much, and if you need more take more!
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