A founder's salary should strike a balance between maximising their ability to work on their startup and minimising the startup's burn rate. Distractions like spending time finding somewhere cheaper to live, trying to decide whether you can afford something, or having arguments about money with a spouse reduce the likelihood of the startup succeeding so the founder needs enough for those problems to just go away. That means paying yourself enough for them not to be an issue any more. Equally though, paying yourself so much that the startup's capital will only last 6 months is stupid if you're a year from getting to market. You have to be sensible.
What you could earn elsewhere, what you earn compared to your co-founders, etc are just unnecessary distractions. The startup and the future value you're building are the only things that matter at this early stage.
I get chills reading that some founders were eating ramen for a year. Imagine how much extra work could have a fed brain complete.
Some may say I am not understanding the startup life, however without founder's health and sanity startups rarely succeed, because just like you said they're distracted with things they should not be worrying about like living frugally.
On the other hand I would never jeopardize my health, family and property for a startup. Maybe that will cost me 10 million in startup funds from a "get rich die trying" mentality loving VC, but at the end of the day, too many startups have failed because they scaled too soon and because someone made a decision when they lacked glucose. I'd much rather have my physical and mental health and future success, than a short term money to spend and an uncertain life ahead. Now, I am not saying that I would not work extra, but there has to be a balance otherwise you'll burn out.
I attribute some of my own startup’s success to the attitude of my cofounders and I to live a sensible schedule which gave time for loved ones and friends.
This was helped by two of my cofounders having a spouse, and one cofounder having children. Priorities and behavior are different for a single person than someone in a relationship.
Being in a relationship or having kids is not the only route to having that sensibility in life. I was single even when my cofounders were not, yet I had a pretty sensible life, in spite of dating and trying to find a partner for life while also starting to build a company. I think the influence of my other cofounders, who had dreams and aspirations outside of just the company, was a strong tempering force to me or anyone else in the company getting an unhealthy tunnel vision.
This certainly exposes a moral hazard for their investors who have an incentive to maximise output for as long as an exit takes. After that, I doubt they care that much aside from having a "successful serial entrepreneur" with a reputation to further exploit.
They have an incentive to maximise the expected value of an exit. The parents are suggesting that maximising output reduces probability of an any exit, I believe.
* Trying to ensure all of our employees have a 40 hour week (or as close to it as possible).
* Making sure the cofounders have time - whether we're single or not - to spend time with friends and loved ones. That probably translates to simply not guilting each other into working too much - it's okay (and encouraged) to take a good weekend. And that's generally been the reality, too.
Are there other balance-related questions you have, or does that kind of answer it?
Eating enough food for your physical needs is not normally a problem. You can get your 2000 calories, bit of protein and all the vitamins you require for $3/day anywhere in the USA and there aren't many startup founders who literally starve.
Mental health and happiness is a real issue, though. I'd be miserable eating the bland meal every day and that does cause some people to underperform their potential. On the other hand, it motivates other people to work harder to escape their situation.
> I get chills reading that some founders were eating ramen for a year.
I get sad when I realize that the HN community doesn't remember "ramen profitable".
Not making a point about ramen, obviously (except to say you can eat well and very healthy on a budget that makes even ramen "expensive"). Just that modern "starups" have an expectation of funding that would have seemed ridiculous on this site a decade ago.
ajross was responding to parent commenter bkovacev's literal interpretation of "ramen" as eating actual ramen and therefore depriving the brain of critical nutrients.
The "ramen" is just a rhetorical placeholder for "low expenses" and not about an actual diet. For example, Paul Graham is not advising entrepreneurs to literally eat ramen noodles: http://www.paulgraham.com/ramenprofitable.html
I fully agree with this. It’s not being “communistic” at all to pay a founder with kids a bit more. Rather, it’s about making sure he or she can actually focus on the business and outsource life’s overheads as necessary.
Investors should take the time to look at a founder’s life circumstances, and set their pay to optimize time-at-work, even going so far as to pay a nanny and house keeper directly to ensure the founder isn’t wasting precious hours on household chores.
I could not disagree more. Consider the following progression:
I have kids, you don't. I "should" make more.
I am trying to have kids, you already have them. My IVF treatments are expensive and mess up my partner to the point that it's expensive for me. I should make more.
I am trying to adopt because my partner is infertile. That's a long and laborious and expensive procedure. I should make more.
My partner and I want kids, but she's infertile because of ongoing chemo treatments. Life is rough. I should make more.
My partner or I don't even think about kids because we have medical issues that we do not want to advertise. What does this have to do with my salary?
The only sane way to answer the question of salary is "how replaceable are you, and what can they afford to pay?"
Anything else can and likely will leave a festering wound that will affect the company later.
In fact, a simple, approximate model for this phenomenon is inheritances split among siblings when parents die. It was (and is) quite common to have one sibling inherit more because they have had a difficult life in some way, or because boys should inherit more money than girls, or other such blather.
It rips families apart.
Do you really think that your startup will survive better?
I think you’re too focused on kids, specifically, when the real point is paying each founder enough to minimize personal stress for their individual situation (and not much more than that).
Could be kids. Could be IVF treatments. Could be student debt. Could be geography. Could be past success/failure.
Doesn’t really matter the specifics - kids are just one example - but paying founders enough so they can frugally live and not stress about their financial situation is the optimal choice, and it may result in differences in comp early on.
If the founding team has a big problem with small inequalities in salary, there are bigger issues at play that will likely eventually surface.
Why not pay everyone the same? That extra 10k in a venture founded startup won't make much of a difference in the final outcome. But I guarantee you it will cause more friction than it's worth.
$10K won’t make much of a difference in the final outcome.
$10K can make a massive difference in alleviating personal stress levels - and have limited marginal benefit for a founder with fewer expenses.
Any founder who genuinely doesn’t need the extra $10K, and has a problem with a co-founder who genuinely needs the extra $10K getting the $10K - and accepts that that $10K is not likely to make a difference in the final outcoming - is not acting rationally.
Causing friction in this scenario is, to me, a huge sign of immaturity, ignorance, and a lack of commitment and/or understanding of the long game.
I meant it doesn't make a big difference in the outgoings of the company. Not sure I agree with what you're saying. But I honestly also don't think (early stage) investors should even be paying the salaries of the founding team.
The reason most people raise early stage finance is to reduce their personal risk, and push that onto the investor. Which is fine if both parties understand the deal they're getting (risk reduction for potential massive upside).
But since this is mostly done to take risk away (during the riskiest phase of the company), I also believe you should equal the salaries. With equal equity stakes, one party shouldn't be taking more risk than the other by foregoing salary.
But just going equal salaries is often suboptimal.
Founder one is 19, has no-one to depend on him, can happily live for 40k a year.
Found two is 27, has a wife and a kid, has a mortgage, the lowest "stress" free amount he could live on is 80k a year.
So what are the options:
* Pay both 40k. Founder two cannot make end meets, and has to get a second consulting job on the side. He therefore puts less work into the product.
* Pay both 80k. This is "fair", but it is literally just padding the bank account of Founder one. You are cutting your runway N months short for no real gain in output.
* Pay one 40k, pay two 80k, give 1 a bit more equity. This can also be seen as "fair", but it may not be. Founder two is bringing 10 years of experience to the table. Founder one is bringing only two. So in the long haul, you are giving one more money.
* Pay one 40k, pay two 80k, give each equity based on what they bring to the table. Maybe founder one gets more equity. Maybe founder two does. Decent chance it would be founder two, as he has more experience.
To me the right play is pay people what they need to not stress, and give equity based on what they bring to the table. Obviously I am closer to founder two in the above scenario, and I suspect a few people advocating equal pay are closer to founder one.
At the end of the day, each founder is either worth it or not. Some wizard that lives in SF so needs 120k to live? Maybe he is worth it. Some guy with a party problem that needs 95k to live, despite being a junior dev? Maybe not worth it. I think it is better to evaluate each person and see if what they need is worth it, if not keep looking for someone else!
I only consider the second and third situation to make sense, and this is regardless of whether you're founder one or two.
If you lean on early stage investment to pay yourself a salary (which imo shouldn't happen in the early stages, but I do understand why people do it: to take risk away) then by default you are "padding the bank account" of the founders.
Generally equity divisions will be decided before setting up an entity and raising investment, so by the time you get there, it will have already been decided.
Given 1) the low probability of an exit when playing the venture game, and 2) the small equity stake you'll be left with at the end if you do magically manage to exit, I don't think it makes sense to forego (any) salary if your partner is taking out a much larger amount.
But again, I don't follow the line of thinking that states investors should be paying you a salary in the early stages either way.
I understand the gist of what you’re saying, but in the early stages, investors might provide advice about salary but certainly shouldn’t be controlling salary. That’s the company’s job.
Investors get to have a say about the CEO’s salary once they have board seats but not until then.
I don't want to be the person who earns less than someone else just because they have kids and i don't.
You really don't want to be the person who took more money out of your startup than necessary either though. That's what you're arguing in favour of - a higher burn rate and consequently less time for building your business in order for things to be 'fair'.
If you're in that situation I'd recommend agreeing to track the difference and only pay it in the event of an exit, maybe with a multiple (say, double) to recognise the risk you took. That'd be better than increasing the burn rate just to make things equal.
I honestly don't think this reasoning makes sense. Most people raise investment because it shifts the risk ratio in their favour ("get paid to survive and work on their own idea"), at least in the early stages.
If you're doing this, either: 1) both don't take any salary and use the raised money to build out the business (this is really how it should be), or 2) both take the same salary.
All the rest makes no sense to me and will most likely cause friction, unless one of the founders is already wealthy.
I really like this idea as a way to expand access to startup opportunities.
Have any acceleartors/incubators experimented with offering child care?
I imagine that economies of scale could make that more economical than having X% of each investment go to child care with no coordination, even if it was just a group-rate contract with a local child care center.
Those are the two reasonable boundaries but you want to bias towards suffering because suffering has a way of focusing the mind in the short term that comfort just doesn't offer. It's called sweat equity for a reason.
This works for some people but not all, fwiw. I know founders of very successful companies that paid themselves well from the start because they needed to focus on the company and not whether their credit card was getting paid off on time or what they were going to eat for dinner. For some, that sort of stress is completely antithetical to building a company. For some, it's a crucible. Not everyone reacts the same way to stress.
It’s a fine line though. A little pressure helps focus, but too much is imho extremely detrimental.
I did two startups earning almost nothing and at first I was super focused and driven but as time went by, worrying about paying rent or being able to afford the dentist (or whatever) had a drastic negative effect on my mental health, work quality and quantity and over time increased disagreements with cofounders (when you’re super stressed for long periods of time, it gets harder to work through things). Ultimately this led to the demise of both companies.
Pressure is a very useful tool in moderation. It helps you focus on what’s important and encourages clever solutions and innovations. But too much (especially worries about your personal survival like rent) I believe drastically reduces your chances of success.
If a founder is motivated by the mission objectives, then suffering only serves to associate those objectives with negative things. It is more likely to burn them out
Suffering is really too strong of a word. I think most people focus best when they are out over their skis a bit. It's not suffering as much continuously challenging that requires focus.
What would be a fair division of equity (or the right salaries) when one founder starts the company in his/her basement working to develop the key product of the startup for say 3 years and entirely self-funded over the period and other cofounders join in once the system is sufficiently mature to attract top investors’ interests? (Fundraising was possible before but it wouldn’t get the same caliber of investors / cofounders.)
I have to say, I usually love Janz's writing, but I think this model is too simplistic and does not provide enough evidence.
As a technical founder with a successful track record, I could be working with any number of businesspeople or all sorts of opportunities, and I'm good at math. Why should I forgo a market rate salary to take a 1 in 100 chance at a lottery ticket, where my likelihood of success is largely determined by the people who also choose my salary? Major conflict of interest. The math does not add up.
I would think my team should be motivated to pay enough to keep each other from leaving for attractive opportunities in this lucrative market. It's one thing to voluntarily give up salary to help the company. It's another to force it by means of a questionably sustainable business model.
Evidence: try to hire yourself a technical co-founder from their job at FaceGoogAmaSoft (or pay equivalent) and find out that money talks.
You have to do the math, of course, to see whether it makes sense for you, given your estimate of chance of success, and payoffs under different scenarios.
But it usually makes sense to forgo a market salary early on because you don't want to give up too many shares. Imagine you're about to start a business, and are looking for investors to fund the first 12 months. Imagine the terms an investor might offer if you need:
A) $500k (of which $80k is your salary, payroll taxes etc.)
B) $700k (of which $280k is your salary, payroll taxes etc.)
In (A), the investor is contributing $500k of cash, and you're contributing $200k in foregone income.
In (B), the investor is contributing $700k (out of which your market salary is being paid). You're already being compensated in cash for your contribution, so why would any of your shares vest during this period?
Another thing to consider is perceived alignment of incentives. If you're not risking anything (because you're earning the same as you would with a regular job), and you're the CEO, what reason is there for you to optimise for the success of the company? You could rationally decide instead to just chill out, or spend all day learning new front-end frameworks, or whatever you feel like.
Making the case for becoming a founder using math is tough. It's well possible that the expected value is higher for an employee career because, as you say, most startups fail, although it's difficult to do this comparison really well methodologically.
I think if you become a founder you do it because you just want to start your own thing and love the freedom and satisfaction of working on your own idea. And maybe because you think you can beat the odds and get rich.
As an aside, the probability of a startup to become a unicorn may be 1 in 10,000, but the chances for a more modest (but still financially very rewarding) outcome, say a $20M exit, are of course much higher. Also, you learn so much as a founder that your chances increase for your 2nd or 3rd startup.
I'd say the expected value is almost certainly higher for an employee career, assuming some financial discipline. After 10 years so in the industry, you should be able to get $100k/year, more in high expense areas. That's $5.8k/month after taxes (assume 30%). Assuming you are single, at $1k/month rent, $300/month food, and $700/month for other things, you have $3.8k/month left over. That's about $45k/year you can save, say $50k for easy math. So in 20 years, you can save $1 million, buy some large-cap stock at 3% dividend and have $30k/year for free (more if you buy a higher-yield utility-type stock like AT&T or Verizon). But the stock market grows by 6 - 8%, on average. If you invest in large, "safe" companies, or in an S&P 500 index fund, at 7%, you'll double your money in 10 years, so you'll end up with $2 million (I did the math on a spreadsheet: yearN = yearN-1 * 1.07 + $50k). That's $60k/year at age 50 (not including 401k matching, and assuming that ages 20 - 30 are years of profligate spending with no saving), about as risk-free as you get.
Compare that with a statistical 90% of failure starting a company, but frequently resulting the loss of the founder's savings due to having invested it in the company. Basically the startup should give at least $50k/year of increase (above the cost of living), plus a 7%/year growth, so for two years doing a startup, you need to walk away with a little over $100k. At a 90% failure rate, you need to exit at $1 million for the expected value to break even. If you are not the sole owner and/or with VC funding it will need to be even higher. (If you are an early employee getting 1% or something you'd need about a $1 billion exit for a positive expected value.) That's some pretty uncompelling math. It gets even worse if you have a family.
I should clarify I'm playing Devil's Advocate. I do try to bootstrap my startups part-time, no salary until we have enough cash to pay decent full-time salary to founders.
Good reasons to forgo salary:
- startup already has revenue and/or a clear path to profitability that would be affected by the salary decision
- because you probably need as much cash as possible for the first technical hire(s). This is a good problem and usually indicates growth
- because you legitimately don't need or want it (e.g. cash from successful exit or good pre-fulltime planned savings)
Why should I forgo a market rate salary to take a 1 in 100 chance at a lottery ticket, where my likelihood of success is largely determined by the people who also choose my salary?
Because as a founder you have a great idea that you think will be worth those odds. If you truly think it is a lottery ticket then your idea isn't that good and you should look for another idea.
You can always make more money working for BiggleCorp. The benefits are always better at NanoSoft. So the deciding question for you is not what flavor of ramen you'll eat but whether your idea is so insanely great that you're willing to suffer.
Moreover, your skillset is already factored into both your stock and the relative ease vs difficulty of your raise.
Ideas are cheap, execution is everything. Actually getting liquidity for equity compensation is a function of the execution of the team, not me as an individual. So the real question of how much to pay yourselves as founders is "what makes you all get along and feel worthwhile?" so that you can maximize your productivity.
Like equity, founder salaries are a major source of dispute, and if the business takes too long to reach market rates then it becomes a source of tension. That's why I think relying on low salaries as a business model is a bad idea -- the business should be focused on sustainably paying market rate ASAP, which should mean that the business has revenue or customers incoming steady and growing.
I would argue that as a rule below market salaries means the business is unsustainable and has not found market fit. Founders can (and often do) still choose a lower salary when it makes sense to them.
Yes, ideas ARE cheap but good ideas are very expensive. Hell, YC was giving away some ideas for free yesterday. But I don't think any of them were good ideas and respectfully, I don't think your successful track record as a technical founder could save AI for Communicating with Dogs or Social Network for Children regardless of the amount of VC dumped in or your founder salary. They just aren't good ideas.
Myself, I don't think execution is everything. It is a lot but you can't execute a mediocre idea into a success.
If I'm wrong about that, and I could be given my technical bias, then I'll rephrase that to if you can execute a mediocre idea into a success then anyone can and it just becomes a lottery. Been there and I won't revisit there.
BTW, we are talking about initial salaries. If your startup is killing it then you can dictate your terms and your funders will still say thank you.
I would have thought great founders would have realised this before wasting time on a bad idea. I have never understood the logic behind working on something bad just on the hope you will pivot to something good later.
> try to hire yourself a technical co-founder from their job at FaceGoogAmaSoft (or pay equivalent) and find out that money talks
What an incredibly simplistic view of the world. Even as someone living on the west coast I still find it insane that people think the best engineers only work at FaceGoogAmaSoft or somewhere else paying exorbitant salaries.
There are thousands of engineers that work for far less. They're more interested in making a difference and solving difficult problems than collecting $300k per year as a cog in the machine.
Not having to work for FaceGoogAmaSoft is likely worth hundreds of thousands of dollars to some people (I know it is for me).
That comes across as sour grapes reasoning, have you actually spent any time working for one of them? If so please forgive my assumption, but your points depend on a couple of huge assumptions.
Why are you convinced there are no roles as these companies for people who want to make a difference, or that everyone feels like a cog in a machine?
These companies are not my cup of tea at the moment, but I know your assumptions are wrong for a fact. Proof by counterexample only requires one data point, and I've been there and seen people who share your ethos and make that kind of money.
This is not to say you can't find any number of people there that feel their jobs are thankless, insignificant, life force draining prospects. But we're talking about hundreds of thousands of people, and there are a variety of experiences people have. What percentage of them have you asked to be certain it's necessary to give up hundreds of thousands of dollars?
I can imagine a more productive interpretation of your post, which may or not actually match your opinion, that goes like this:
Those attributes are difficult to find in general at companies large and small. If you're fortunate enough to find a job that has them, think carefully before giving them up to make a few bucks more.
Nope, your parent is absolutely correct ( most likely because he is successful technical co-founder with a track record, which would put him into his mid thirties or more). People get wiser with age and realize that while money may not buy one happiness, it certainly removes barriers to achieving happiness.
> They're more interested in making a difference and solving difficult problems than collecting $300k per year as a cog in the machine.
That means their take home is roughly $150k/year after taxes, which is $12.5K/mo, which is not an great take home. Most likely the take home for his partner would be about $4-$5k/mo. Lets make it $5k. So the total take home is $17k/mo. For someone in his thirties the apartment would be about $5k/mo. Wife's personal trainer + ClassPass ( you are accounting for things like that, right? You realize that 'I like the way you look' costs real money?) is $1k/mo. Food + incidentals is another $1k mo. Utilities + misc recurring is another $1k mo.
So we are down to $9k/mo not going to anything before:
1. Going out
2. Clothes
3. Trips
4. Parties to host or go to
5. Emergency funds
By the time this is all accounted for $300k/year income is perfectly fine but not extravagant in any of the areas where one gets $300k/year for his co-founder worthy skills.
Twice a week personal training is 8 sessions a month. That's $875 per month. Divided by 8 it is slightly less $110 per hour. A good personal trainer can easily charge $110 per hour, including facilities charges.
Spending money on personal trainers allows you and your wife not to look like tubs of lard by mid thirties which in turns solves a boat load of very expensive problems in your forties and fifties. It is difficult to "change the world" with high blood pressure and diabetes.
I don't think he was asking for a breakdown of what goes into the cost - I think the point is that most reasonable people would conclude that $1,000+/month spent on personal training very much qualifies as extravagant spending.
You are just naming a bunch of things and then assigning arbitrary numbers which you could possibly spend on those things, if you really loved spending money. I am your exact demographic target audience, and I and my partner spend on the order of 4k/month each, while being healthy, happy, and so on, and it's not because we try super hard.
Yes, a month is 30 days. 1000/30 is slightly more than $33 per day for two people. Your lunch coffee at starbucks habit is $5 per person per day. So with that or with "i grabbed an apple" or "I got a granola bar" habit that you or your wife has you are at $26 per person per day for breakfast/lunch/dinner for two people, which is $13 per person per day for breakfast, lunch and dinner.
I seem to remember people arguing with me that $10 per person per dinner is the lowest that they pay per person ( see Blue Apron/Home Chef/Plated/etc business models) So based on their math it is $20 for two people per dinner. Now I personally think it is too much because I automatically only shop sales but I'm weird.
Maybe if you're a literally-every-second-of-my-time-is-money sort and never, ever cook, and you're also socialized to a certain standard of living and never eat cheap take-out or low-end frozen meals or whatever.
Strong disagree on letting the founders personal situation count for the salary to be taken off the table. Having kids or not is a personal decision, if your co-founder has kids and you don't or vv then your salaries should be - all other things being equal too - equal.
Paying one founder more than another is a good way to start a founder conflict and those you need like you need a toothache.
Strong disagree on letting the founders personal situation count for the salary to be taken off the table. Having kids or not is a personal decision
Having kids is a factual part of many people's lives, not an arbitrary personal decision that can be erased at startup time. A person with kids simply has higher living expenses. Of course, if you feel that strongly about it, you can choose to only found companies with single people but that needlessly reduces your pool of potential founders who are talented, experienced, disciplined, of great character and compatible personalities.
Otherwise, the issue of varied expenses can be balanced via 2 approaches:
a) All cofounders take salary equal to the amount required by the one with highest expenses and agree on the resulting consequences (smaller operating budget, higher urgency towards independence via profitability/ funding, etc).
b) Equal salary nominally assigned but the founders with less expenses agree to loan the startup the "excess" portion of their salaries. This can be structured and recorded as deferred compensation/loan agreement payable upon achieving X financial milestone, e.g. when revenue hits a certain level or target amount of funding is received.
Are employees paid more (in a given company) just because they have children? It might not be even legal to ask them in some jurisdictions, during recrutement and salary negotiation. Most of the time employees are not paid more just for that reason. Should they? Maybe a little (well in lots of civilised countries they might already have tax cuts, but so do the founders), but throwing them 10k$ more per child for that would seems quite insane.
Adding that kind of special treatment for founders on top of all they already have seems kind of unfair.
The argument about the lack of responsibility because children cannot be cancelled at startup time is very curious. Absolutely everybody knows that children come with costs, some are monetary, some are about other factors. You can not retrospectively pretend that those costs shall be privately covered by others beyond all the social organisation already agreed on (tax reductions), just because of status. Yes those costs can not be erased at startup time; asking for others to erase some of them -- well if everybody involved agrees why not, but on my side I will never see that as fair without serious compensations (distribution of shares for ex.)
And what about ANY other costly choices that can not be easily cancelled at startup time? Should alimony for their ex-spouses be paid for by others too? If they have a horse they are bounded to and would be horrified to the suggestion of abandoning it, should the recurring costs it involves be covered by others too?
Founders do not live in an alternate universe were all common laws and wealth distribution are to be renegotiated in private: those questions are important but should be applied for everybody, and actually they have been debated and there are important cases where the society have decided that doing this or that would be good. If this is actually not enough in some cases, that should be changed.
Context for salary agreements for employees of established companies is fundamentally different and not applicable to a discussion of salaries for founders of a new company.
The salary calculation mechanism and amounts cited in the post may be debatable but framing it as "special treatment for founders on top of all they already have" is strange because early startups are often characterized by what founders don't have: the security of market salary and benefits (e.g. healthcare), substantial savings (many plow it into the company), etc.
There is no argument about "lack of responsibility because children cannot be cancelled" - I simply outline it being a common circumstance and recognizing it being a factor in higher living expenses that should be accounted for in salary calculations. It's also not about massive debate on common laws, wealth distribution or society input as you cite. It is simply about agreement between a couple of partners on the road to building a company. As already explained, the issue is negotiable in different ways and most importantly, you can self-select out if it's just unacceptable to you and you're satisfied limiting your pool of partners in this way.
As long as you disclose your views upfront, rather than partnering with seething resentment because your cofounder has kids. Such people and even others without kids who also abhor such a perspective would like to know upfront so they can partner with someone else.
Bottomline, if you're comfortable holding this view because unlike most people, you actually have many potential partners with the necessary industry skills that have no kids and have the qualities I listed above and share your views, good for you. Otherwise, not starting a company or having it prematurely fail because you picked wrong partners partly by skipping better ones because they had kids seems ridiculous.
Agree. The first thing I would discuss with a cofounder is my financial requirements. I'm not going to quit my job and draw a $100k salary (in SF) to start a company. I wouldn't be able to pay my mortgage, even on the most aggressive of budgets.
So the decision for the cofounder becomes whether they want me involved. And my decision is whether the company will likely be successful with that burn rate. A single cofounder taking the same salary as me might push that burn rate over the edge. In which case, we just say no and move on.
Equity changes that a bit. Especially for founders, equity is how you capture "what do I deliver". Salary is "what do I need". It's not a strict divide, and the calculus changes as the company matures.
I guess he would not resent that his cofounder has kids, but rather because he just would be kind of paying (even more than usual) for those kids; why exactly?
Yes, I don't have a problem with kids and I think work life balance is very important.
I also think that society should help parents with tax cuts, but this lets the whole country pay for it, not just me, because I just happen to work with a parent.
What would be next?
Paying me less because I live in a shared flat?
Because I don't own a car?
I didn't make these decisions to have more money to throw it away, but to spend it on stuff I care about.
The need for an equitable salary is just as legitimate as the need to care for children. I have a family to care for even if they are not listed as dependencies. I also have a future family to prepare for that I might want to get a leg up on. Or maybe I want to forego children because I'd rather save up to start something more meaningful to me later.
Just because you have an immediate need that is evidenced by children doesn't mean others don't have equally legitimate needs.
As I mentioned in other comments I think this would serve as a valid filter. You'll either not work with founders with kids, or only with founders who have enough money they can take the smaller salary.
And that may be fine for your startup. But you are limiting your talent pool, and should make sure that is worth the trade-off.
In my experience the employees without kids tend to work longer hours and put in more effort and cultural time. So from that perspective perhaps the founder with children should acknowledge that their total input will be lower due to obligations competing for time and energy and should take a lower salary.
After all, what is the commodity the company is buying when they pay a salary and equity?
>Paying one founder more than another is a good way to start a founder conflict
The book "Startupland"[1] that chronicles Zendesk[2] talked about this exact problem. One of the 3 founders had "family" to take care of and because of that, he wanted a higher salary. The 2 other founders were thinking, "what?!?
you're not the only one making sacrifices here!"
After some discussion, the 2 other eventually agreed to it but they really resented it and it was a source of bad tension for a long time.
Zendesk eventually got to the IPO so the 3 got past that unequal salary episode but the soap opera drama doesn't seem to be something you want for a struggling company.
(Side note: I think it's unfair to downvote jacquesm for bringing this up. Even if you disagree with his opinion, it's still worth leaving the text ungreyed to discuss pros & cons.)
Yes, paying one founder more than another can cause conflict. But it doesn't have to. It really depends on how everyone in the founding team feels about it.
FYI, Zendesk was a "pre Point Nine" angel investment from me that I made in 2008, but I wasn't aware of these discussions among the founders. Maybe they took place before I joined or they wanted to keep them to themselves.
>Yes, paying one founder more than another can cause conflict. But it doesn't have to.
Well sure, I agree it doesn't have to. But as this thread has shown, it's a contentious issue demonstrated by:
(1) furious downvoting & upvoting of jacquesm parent comment,
(2) many comments in this thread from opposing sides debating it
(3) chapter from Zendesk founders' book discussing the uncomfortable tensions it caused
Therefore, saying "paying one founder more than another can cause conflict. But it doesn't have to." -- sounds somewhat naive. To be clear, I'm not saying _you_ are naive. It's that your sentence sounds like it brushes the human complexity under the rug. (We can also say "paying everyone equally also can cause conflict, but it doesn't have to." -- a kind of tautology that's true but doesn't really inform us.)
Also, it's important to stress the timeline of the startup:
It's one thing for the startup to not exist yet and the 3 founders are just sitting around a dining table and agree that 1 founder should get more salary because he has kids.
It's a very different situation when the startup is already up & running for a year and the 3 equally paid founders are living on cheap ramen to keep expenses low and make the struggling company survive. If at that point in the timeline, if one founder asks for more salary because his wife is pregnant, don't be surprised if the 2 other founders will react very negatively. It's human nature.
Recruiting a parent with existing kids to create a new startup is a different dynamic than increasing a partner's salary because they have a family after they've been working. The other founders may feel like they contributed the unspoken sacrifice of not having kids so subsidizing another person's family at a critical time can seem unfair.
There is no single right answer, but if the co-founders agreed to something, then held their choice against party making a request - that to me is a much more serious issue than the party that make the request for a higher salary.
>if the co-founders agreed to something, then held their choice against party making a request
One can "agree" to something because of business expediency but simultaneously have a human response that it feels unfair.
As analogy, I'm sure many programmers have "agreed" to a low $55k salary and took the job but simultaneously felt that the company was unfairly compensating them because they thought they were worth $100k. Unfortunately, agreement doesn't override human feelings.
If you were interpreting my blurb from the book that the 2 founders were constantly throwing the unequal salary in the 3rd founder's face, I don't think that's what happened. The book made it seem like it was a more like a silent resentment. Also, the salary argument came up after Zendesk was already established and running. I didn't previously make it clear that this wasn't 3 founders deciding on unequal salaries when Zendesk was just an idea on a napkin. If one agrees at the founding, that should remove triggers for resentment.
Signing a contract doesn't switch off emotional reactions. Under duress it is difficult to remain empathetic or to maintain logical distance from disputes.
Why "slightly" less? Even if it can't be sold, equity in early stage startups has an exact dollar amount attached to it. If one founder needs more salary it should be a simple calculation determine how much equity they should give up for that salary.
> equity in early stage startups has an exact dollar amount attached to it
No - at least in the US, you avoid pricing your start up until it's necessary, in order to plausibly say the equity is worth as close to $0 as possible, so equity grants result in the smallest possible tax liability. In practice, this means raising early rounds in convertible notes, which don't require the company be priced.
At that stage, you're not taking a salary, so your point is moot.
This is about startups that can afford to pay founders a salary, and those startups have either raised money at a specific value or are profitable enough that you can't claim the equity is worth $0.
I think there needs to be some quid pro quo, but early stage startups often have such a low valuation that accurately matching the difference in salary could result in an equity disparity that breaks any pretence of being "equal"(ish) partners.
If your founders have so little respect for each other that they can't acknowledge and gracefully accept the varying circumstances of their peers then the business is likely screwed anyway. If founders are that tightly wound, with respect to each other, then that's a recipe for turmoil ending in disaster.
The problem is that such things tend to go underground and they can pop out years later, for instance when you're raising your series 'A' or during an exit. And if and when that happens - besides it being unfair in the intermediate time - it can cause real problems.
This is one of my main reasons for advising against founders that are in very different phases of their lives, there is an element in there that you can not easily get rid of that might cause issues in the longer term.
Would you pay founders differently if they lived in different areas (SF vs Thailand)?
I think you can argue either way, but I will tell you as a founder with kids that if the startup can't pay me enough to take care of my family, I won't be part of that startup for long. You can't pay tuition with equity.
That said, this may be a valid filter for you. The most important thing is that the discussion about compensation happens aboveboard and that everyone feels the situation is fair.
The military has this system. A married service member gets paid more than a single service member. The idea is that the single soldier has less requirements for housing.
I’m not stating whether I agree or disagree. Just pointing out a similar system already in place.
Yes, but the military is not your start-up. Society will also give couples with kids tax breaks, which will already widen the gap in net income between two otherwise equally salaried co-founders, I really see no reason to artificially widen that gap.
BTW in almost all situations that I've been in where this would have mattered I was the one with the children.
Daycare cost for one child where I am is $15000 after tax dollars, not including child cost. Add other necessarily child costs and that number goes up. Grown ups might go on ramen diet to build a business but their children can't afford to.
Receiving a housing allowance sounds like more pay to me. Is there a requirement that states the service member must utilize all of the allowance on housing? Could they chose to live under their allowance? Doesn’t sound like the single service member has the same choice. What if two service members marry each other, do they both get a housing allowance?
The housing allowance varies, but typically, it's below what the actual costs are. Varies by location.
Dorm residents don't pay for the room or food, if they choose to eat at the mess hall. They also usually get free use of washing machines, a common room with TV, etc.
Basically, it varies. In some locations the married soldier might be better off. In others they aren't. Either way, the difference isn't striking.
You also give up the housing allowance if you live in base housing as a married couple. These units are typically pretty modest.
There are, of course, exceptions. Areas where single soldiers get a housing allowance because no barrack exists. And areas where the married allowance is higher than it should be, for various reasons.
The point is, though, that it's not a direct comparison to the story. The single founders didn't get a compensating free room and board.
There are consequences for putting one founder in a tighter spot than the others.
This can play out as one founder having to take off for dr appointments b/c things are stretched so thin their spouse can’t take off or they can’t afford a nanny, etc.
It also plays out that the founder in the tighter spot is going to be making decisions geared to a faster influx of minimal cash vs long-term value building. This is the same as VCs letting founders take some money off the table in later rounds b/c “the first million is worth more” and the investors want to swing for the fence.
Happiness doesn’t change much over $50k, but that number goes up with kids. BUT, that also means if you are going to take into account family situation, you should also take into account family money, if you have kids and a spouse with a big salary, you may not need more.
Every time I hear this I cringe. I was much happier making $180K than I was making $60K. I could go out more often, purchase more of my wants and needs without worrying about mounting credit card debt. Afford to live in a non-shit-tier apartment, and still have money left over to tuck away a decent emergency savings fund without it taking a decade to reach 6 months living expense backup savings. Who came up with this figure I wonder?
It's a since discredited number from studies on gallup polls. I think it was the freakonomics blog that had a series of posts outlining the issues with it; since then there were more rigorous studies concluding that the earlier conclusion was not valid.
If you're having conflicts with your co-founders about a nominal difference in salary ($10K to $20K), I'd suggest that perhaps it's a sign that you're likely to encounter more frequent conflicts down the road about things that actually matter.
I'd like to see some of these singletons balance a family and successful technical career at the same time.
That takes a lot of work. Investors discount a person because he has a family due to some perception that therefore he or she won't work as hard on the company are either ignorant or unforgivably stupid.
They also say they had given up there salary for the first few years because of a previous exit. I think you should have enough to take care of your kids and the other non family members should make less, but not the price of your kids less.
It is so, so very simple for a business to account for children among its workforce. Any staff aged under ~45 on your books? Well, guess what? A percentage (look up your regional variation) are going to have kids, soon.
A business that refuses to financially support its staff through predicatble life changes is flagrantly abusing those staff. Even unpredictable life changes can be mitigated and supported.
A business that cannot afford to support these staff is failing, and again abusing the staff by shifting the blame onto them.
Downvoters, it would be useful to read your reasoning.
People work for remuneration which reasonably exceeds their expenses.
A predictable percentage of the population will have children.
Children increase drain on financial and time resources.
It's reasonable that people with children might look for work that offers reduced/compressed hours, or higher remuneration in order to manage increased financial/time costs.
If your org does not offer these options, why not? Is it deliberately witholding employment from ~50% of the population?
If your org cannot offer these options, why not? The figures are eminently predictable. Why are they not in the business plan?
Considering the cost of living in these cities, what this tells me when 66%+ of founders in SV pay themselves less than 50k/year is that the majority of them are already well-off, and have savings to spare for things like.. paying rent and eating food. It is completely unrealistic to expect the average college dropout to live comfortably on the same salary. Do these numbers match reality?
I live in Palo Alto making about $55k and live fairly comfortably; my actual living expenses are probably closer to $25k. It would be hard to have a family, but I get by just fine having roommates.
I live on the peninsula and was perfectly comfortable with the $60k salary at my first job here, even while paying off student loans and regularly going out to eat. Of course, I had a pretty dumpy apartment so I could pay relatively low rent, and I didn’t have many other expenses at the time. I definitely spend more now that I have more (nicer place, partner, cat) but I’ve worked my way up to a considerably higher salary as well.
Zillow tells me average house price in Palo Alto is $2.6m, average rent $5k. Do you own/share a house? I'm in Europe, so basing myself on public stats.
Thanks for answering! So the data is not far off. I should add "or is single and has no children" to my comment. Nothing bad about that, on the contrary, it does mean older founders with family or other obligations will need to bring/sacrifice their own nest egg.
I think a total household income of ~150-200k is right around the cutoff for 4 people to live in Palo Alto together. You can split that up however you want though. In my case, that's 4 people earning ~50k rooming together. In the case of a family, one person earning 120k and the other doing a startup earning 50k (plus 2 non working kids) works too.
You're right that someone trying to support a family on a single income at 50k would have a tough time, but I think the range of people who can make it work is a lot broader than you're making it seem.
To be fair two non working kids have a lot more costs than a frugal 20 something. Childcare alone in the bay area is probably in the 10s of thousands a year range.
The truth is that most companies once they get to series A fold for much more binary reasons that are almost never saving a few $1000 a month on the founders salaries. Additionally there are easy ways to turn your salary into a draw that ebbs and flows in times of cash flow crunches if thats a concern.
Ultimately a founder should just pay themselves what they want. The companies rise happens on the backs of the their judgement so I dont know why we are using some irrelevant framework for this particular decision. Like everything from raising money to hiring, create a narrative and then use it to optimize your target outcome.
It's also important to note the founder isnt entitled to struggle as a species. In fact you can build an incredible company and ask to maintain a quality of life.
If you can afford it pay yourself market or more and you think it will make you happier or more effective, do it!
In the end tolerance for pain isn't the skill that defines a great founder its the progress. Pay yourself whatever the hell you want as long as you keep doing good work.
Does/should a founder’s skills and market-rate salary affect their salary in the startup?
For example, if a highly sought-after AI expert founds a startup with a talented but somewhat junior businessperson, their market-rate salaries could be 2-5 times different and a case could be made that the one with higher market-rate salary makes a larger sacrifice/take on more risks and thus should be compensated more?
No, it shouldn't. If both senior and junior are starting the company at zero and working fulltime/equally pouring sweat equity in and assuming similar living expense profiles, then they should be compensated similarly. If you can't see your cofounder as equal, then partner with someone else. Or if the salary differential is that important to you, then remain on the corporate path.
What if the junior partner is the best person available with history of good working relationships with the senior cofounder? Not considering him/her because of salary differential might be suboptimal for the startup.
At the same time, the senior cofounder could have a much larger need for salary because of mortgage and family to take care of, so receiving too little salary would cause hardship and adversely affect the startup, while the junior person has less financial obligations.
Their talent could be a good match and the AI expert might have a good working relationship with them for a long time (thus reduced risks of future conflicts). Given the many constraints on having a great co-founder, market rate salary difference might not be the criterion to cut one out of the candidate pool.
Why is it when I read this it feels like the VC essentially "hazing" the founder saying that "you will get your payout later so suck it up." Thats not true for every company because not every company has the goal of doubling every year and then getting sold to Google. They don't all have to follow the Silicon Valley model. The irony of this is that the VC has the operating funds to wait till later to get their payout, its like they are making the founder suffer with them. Simultaneously they are taking as much equity as possible essentially minimizing the founder's payout. The difference is that this is probably not the VC's first venture so they have plenty of cash to rest upon whereas a first time founder is literally scraping by, possibly with a family, mortgage, etc.
Because when you take someone's money they have the right to counsel you that "you will get your payout later so suck it up."
That said, most VCs I have read indicate you should pay yourself enough to take the money concerns off the table, but enough to cause the startup stress. Obviously there's a tension and no perfect answer.
If your goal is not to double every year, at least for a number of years, and to eventually create huge enterprise value, you shouldn't raise venture capital. If your goal is to grow a little slower and to get a good salary (or dividends) rather soon, you should use a different way to finance your company.
Really the more I think about it, this more sounds like one VC's attempt to weed out people thinking about starting a company by scaring them. There is nothing set in stone that says founders should get paid a certain amount. Every company has different cash flows and situations.
I'm not sure if you've read my post. If you read it, you'll see that I wrote:
<< The numbers in the model reflect what I think is market and fair based on the data points that we have and some industry benchmarks that we were able to get. However, our data set is quite limited and the numbers produced by the calculator should by no means be taken as the ultimate truth. If you disagree with my assumptions or have seen different numbers in the market I’d love to hear from you! >>
You don't need external funding to start a company. Then you can pay yourself whatever you want it's your company.
If you want external funding then you stop being sole owner and you need agreement with othe owners on what is the worth of your services to the company. Your stake has nothing to do with it.
weed out people thinking about starting a company by scaring them
Yeah. You sure won't be hanging out at the cool cafes with your new superfriends delegating menial tasks to your hirelings. You'll be working your personal ass off while risking someone else's money.
> I saw a study according to which founder salaries are much lower. According to this data source, 75% of Silicon Valley based founders pay themselves less than $75,000, with 66% paying themselves less than $50,000. Based on these numbers, even for companies that have raised more than $10M the average salary is only $81,700. This looked odd to me, and maybe the difference is due to the fact that the study is three years old. I ignored this data source for now, but again, suggestions and input are very much appreciated.
I totally appreciate a VC saying it's okay to take a decent salary, but this point seems strange to me. Why on earth ignore the data?? I doubt three years makes any difference at all. I would speculate this is more likely a philosophical difference between the US and Germany.
A founder's entire existence is spent trying to figure out how to get a company to survive its first few years. Companies that raised $10M are dying all the time. $10M really isn't that much, it buys a startup with 30-50 people maybe a year of runway. In a company that size, one or two more engineers can make a real difference, and if four founders forego $50k/year they can then hire one or two more people using the difference. They basically spend every second trying to figure out how to stretch every dollar they have, it's not surprising to me that many live their early startup years exploring just how little money they can actually live on.
The reason why I ignored the data is that it was in stark contrast to several other data sources that I've seen. But it's a good point, I need to look into this again. I will also contact the research team of that study and ask how they collected the data.
Ah, that is interesting. I'd love to see something on the multiple data you've seen! I tried to look but didn't see whether this data is for only VC funded startups, or for a wider set that includes others, do you know. If there are other data sources on SV startup salaries that disagree, then I have to take back my US vs Germany comment. Perhaps the discrepancy is that this data was all opt-in, which could bias the sample? Anyway, thanks for following up!
A bit off topic but lets say you and your co-founder follow the canonical YC advice. You form a Deleware C-Corp, register your California foreign entity and grant yourselves ISOs with a 4 year vesting period and a 1-year cliff.
But then your company starts to do very well and in 6-months you both agree you won't need to raise VC and want to start paying yourselves more than the ~$100k mentioned in this article. What would be the best way to draw money from the company ? Increasing you payroll check seems unwise from a tax standpoint. Dividends might be a good way but you don't yet own a single share so you can't be paid through a dividend. You could pay yourselves bonus checks, but isn't that taxed at same rate as payroll ?
Side request, can anyone recommend a CPA in the East Bay (SF). Thanks.
You need to be careful with the dividend route. The IRS seems to frown on someone in a career that normally makes 6 figures drawing a 50k salary and 200k in dividends a year. I would ask an accountant. But this is exactly the downside of early C corp.
In Australia I was able to take money out of my Pty Ltd as director's fees. But the ATO views subcontracting very differently from the IRS.
Really: talk to a lawyer or accountant. The IRS are not going to accept "but I read it on Hacker News" as an acceptable defence to getting something wrong. Plus professionals have insurance to cover their mistakes -- commenters here do not.
The calculator: Terrible idea. Might even add negative value or be counterproductive.
The post is appreciated for multiple reasons. Insights from investors are not overflowing the Internet. It’s a relatively small group, so it’s often very helpful when someone chooses to share their thinking. It also has value because it’s not just pulling back the curtain, or sharing facts, rather, it offers critical analysis of how to approach the question. Even if some of the analysis is wrong, it’s still valuable, in that it inspires further analysis and facilitates understanding of the mechanics.
However the calculator is a reductionist solution to a problem, that can be highly inconsistent from one situation to another. Paraphrasing: Please input the number of kids you have? Sounds like something a government office would come up with. How about a calculator to pick startups to fund? Well, some people do try to automate betting on companies for various needs, however they often have limited success, and it usually involves very complex modeling systems, rather than a google spreadsheet.
The net of it is, using a spreadsheet might be helpful to track and manipulate data inputs, but not to generate an actionable result to drive a nuanced decision. I'm wary even of using it as a starting point, given the risk of building additional reasoning on a flawed foundation. It would be a great tool to have. The problem is there are just too many subtleties to capture (known and unknown), and even then they would apply differently across the startup world's highly variable situations and contexts.
In some ways the question is typical of many other questions startups encounter: It's at least partially and possibly highly subjective, the number of potentially relevant factors makes it impractical to spend lots of time of each factor, and the available data points are imperfect and/or incomplete.
As AI slowly but steadily chips away at the list of things humans can do better, questions with these attributes might be the some of the very last to fall. And when they do, it will not be office productivity software that slays them.
Isn't the founder salary something that only the founder and those who bought a board seat should care about? If I'm an investor and the founder wants a 40% premium over what the algorithm recommends, I may or may not agree, but surely the founder's judgment on that one issue is not an outlier from other good or bad judgement he or she may have.
I'd actually be more worried about minor graft like the founder hiring a family member to provide catering or the founder taking bonuses when most employees are not paid bonuses.
At a flat rate of $10,000/year per pop, the Duggars and their Quiverfull movement would love this Founder Salary Calculator.
Should you get more or less financial reward if you pay child support to outsource your kids (KAAS) instead of raising them yourself, so you have more time to dedicate to the start-up?
I've been through a few startups and I always paid myself as little as possible. That is to say, I paid myself the minimum I needed to cover my own personal fixed costs. For me it was important to leave as much money as possible for others and growing the company. When the startup is successful, then I'll take a higher salary.
Same here. I think this is the right attitude. By the way, this even goes for micro VCs, we didn't (couldn't) pay ourselves a salary in the first year or so.
Notes to a 20 year old me, from a 30 year old me who survived the last decade with my determination intact. I am a lonely survivor!
Be careful with giving your buffers (capital buffers, energy buffers, credibility buffers) away.
This is critical leverage that you need in many situations and almost all VCs refuse to give you any credit for whatever you have already given of yourself.
Sweat equity has minimal redeemable value outside of a success, in the eyes of sharks.
It is a dangerous game to play, especially with sharks.
I always recommend founders aim to contribute to the mission more personally than any other executive, and get paid at the maximum salary within the organization. Then, you should aim at fairness inside the organization, which is a very hard bar to reach, but is the correct response. What the market pays is immaterial, it's about what you value and how much you want to invest in your employees lives.
Generosity is one thing, but some people waste the money. Try not to give them large budgets. If a single mom is doing an amazing job on a tiny salary for her many kids, consider giving her more budgetary responsibility -- and training her by regular conversations. Etc.
A big mistake is giving "top talent" the money they were used to in big companies and racing teams. The assumption is always that with billionaires behind us and tech and talent this good, we could find the money.
But, in our case, after our largest corporate sponsor was killed tragically in a plane crash, and the price of oil dropped 3x (and has stayed low...), it was very hard to raise money for clean tech. Very few companies were funded, and almost none were funded by new investors -- mainly existing investors supported the companies that they had already invested in.
In many places the "top talent" could not adapt, and just went to places like Google X, where they have much more money but have much less independence and creative freedom than as a startup. Then, over time, almost all companies failed (though not us...)
But the truly dedicated people are still working on solving the problems. The people who are still trying found they could develop new capabilities. Those who've fought through the lean times are now a new elite, with value and respect beyond any pedigree from outside, within the group of those who've struggled through this Silicon Valley Forge.
To get in with us, people start with a baseline level of high respect and then strive to prove our faith in them correct through their actions, and strive to show the whole company what they can do. It is a wonderful thing to earn recognition of their capabilities through clever, elegant, and hard work, creativity, and play, but even better to work with a collection of people with unusual abilities harmoniously.
Being part of an outstanding team, so long as you are paid enough to live well (which is dependent on needs, particularly with family, education, and health on the mind), is worth far more than the money that we could possibly pay at this point.
If we are successful the work may be worth billions and might just make the future way better. We obviously cannot pay billions now. But we have a shot at making a difference. For those who believe it is possible, that can be enough, if you take care of their needs.
Many of the people who've worked for us say that it was the most exciting and productive and creative learning environment of their lives. There's something in that that cannot be put into a value in terms of dollars. You have to work with people who value that, or it will not sustain itself as a creative working environment. It's not about what you get out of work, it's about what you put into it, and how it grows.
The big problem with the modern world is that nobody plans for success. Everybody assumes that once they get to the next step, and solve their current money problem, then they can relax and things will be better. Everyone dismisses the possibility of success, and says "these are good problems to have." Actually, problems are problems, and the more successful you are, the more problems you have.
Make the success worth fighting for, and plan on it, and win.
That should be enough, for the right kind of person. The challenge of making that win come true, and having you and your team really believe in yourselves and your shared vision despite the odds being so far against you, that's really the trick. Rarely does anyone pull it off.
And then, rarely does a vision survive its first successes. Protect these fragile hopes and dreams. Plant them in the most fertile soil of your soul, and nurture them with your care and your love and your actions. The soul breathes choices.
Remember, you hope for so much more than the world is giving anyone right now. So don't settle for the trappings of success.
Make the world we live in your art, weave positive visions together from a zillion hearts, minds and souls, help friend realize their visions in our shared world, and then awaken to a universe alive beyond any one mind's wildest imaginations.
Ultimately everything comes down to BATNA [0], but a good place to start is what you would be doing if you weren’t running a startup and how much you would earn (after tax) if you worked as hard for someone else as an employee. This is your BATNA.
An investor (in theory) could pay you a high salary as an employee to work on the business and keep all the equity. An investment is in someways equivalent to a very high interest non-recourse loan. Given this you want to take the absolutely minimum in investment you can and an extra paid in salary to founders will cause you to take more investment than you need.
Personal circumstance should never play a role in what someone is paid, only their BATNA. When it comes to startups there are three forms of compensation; salary, conditions, equity. The split between these can vary, but the total should be fixed by the individual's BATNA, not how much many kids they have or student debt.
Slightly off topic your compensation in any job should never be based on how much value you bring to the company, but what your BATNA is. It is up to your boss to decide if your BATNA means they want to pay you as much.
> If you raise a small angel or friends & family round, you’ll probably want to spend it on other things than founder salaries.
This part in particular doesn’t make sense, or at least assumes founders have savings and assets. But what if you don’t because you’re young or you’ve already bootstrapped your way through all of it and gone into debt too?
It makes sense to pay subsistence salaries at the angel stage.
Ya in the last company I founded I would go without paychecks to let my co-founder pay himself when we were running out of money/struggling to collect payment. It's a lot more about the needs of the people to be able to get through the initial phases than it is about 'equality and fairness'
I’d think the starting point would be a market rate salary - to the extent that a founder is willing to take a lower than market rate salary their equity should be increased taking that into consideration at each stage (or just issuing equity to that person that’s the difference between actual and market each year).
It's amazing how little VC's value early stage founders. It's an accepted fact that hiring a competent CEO is going to cost you well into 6 figures and up. Because their experiences and track records are rare. If we all know having a good CEO is well worth that kind of money, then why don't we apply the same logic when allocating capital for paying the founder(s)? It's a hard job, fraught with literal peril. Founders often face personal financial ruin if the venture fails. Founders are literally pulling on a yarn to iterate on and articulate very broad visions. They are faced with critical decisions that will affect many people's lives every day under incredibly stressful conditions. If there's $1,000,000+ in the bank, it's a disgrace to pay a founder what amounts to Jr. level rates anywhere else.
Startup A pays founders 50k and has budget for 4 developers.
Startup B pays founders 200k and has budget for 2 developers.
All else equal, B should win right? It is running leaner that gives you more effort to throw at the problem. Until the point your pay is so low you have to stress about money.
Founder pay that is lowest to avoid stress seems optimal.
Seems like it should factor in the expected size of the company. If it can work with 2 solid engineers and 2 other people then $2 million goes a lot farther than if it is 10 people. So why not pay closer to market in that case.
I frequently see advocating paying founders with kids more, but (partially because a company can't legally ask about having kids during an interview) almost never factor in those type of expenses for other employees. Unsure what I think about this.
How much does prior experience and shipping successful products count? Is it really better for your salary to pump out a few kids instead of shipping a few successful products? Do the kids have to be successful or will any kids do? ;)
One surprise for me is how low the kids addition is. $18k (pre-tax) is hardly enough to cover the cost of a kid in SF. Even ignoring costs of additional housing, daycare costs are going to be over $25k/year.
Looking at the numbers:
* $90k single founder in SF - pretty easy to do (live with roommates); probably slightly excessive ($80k should be just fine for most folks)
* $108k founder with kids in SF - difficult. I'd put $120k as being a reasonable minimum with one (pre-k) kid.
I agree, I don't expect the kid additions to fully cover the costs. Trying to cover these costs fully is probably unrealistic, as it would lead to a very large salary spread between, say, a founder with 3 kids and one with 0.
The good news is that once you have kids you won't have time for parties or expensive hobbies anyway ... and the joy of having kids makes up for the financial disadvantage several times over. :-))
So this kind of defines value = able to raise lots of money. That just doesn't make sense to me.
Also the idea that you should be paid more because you have kids is same logic that communists used "to everyone according to their needs". In capitalism people should be paid based on what value they provide.
So, to me this calculator looks stupid. What if my startup hasn't raised any money, is still very profitable and employs 20 people?
A founder's salary should strike a balance between maximising their ability to work on their startup and minimising the startup's burn rate. Distractions like spending time finding somewhere cheaper to live, trying to decide whether you can afford something, or having arguments about money with a spouse reduce the likelihood of the startup succeeding so the founder needs enough for those problems to just go away. That means paying yourself enough for them not to be an issue any more. Equally though, paying yourself so much that the startup's capital will only last 6 months is stupid if you're a year from getting to market. You have to be sensible.
What you could earn elsewhere, what you earn compared to your co-founders, etc are just unnecessary distractions. The startup and the future value you're building are the only things that matter at this early stage.
Exactly this.
I get chills reading that some founders were eating ramen for a year. Imagine how much extra work could have a fed brain complete.
Some may say I am not understanding the startup life, however without founder's health and sanity startups rarely succeed, because just like you said they're distracted with things they should not be worrying about like living frugally.
On the other hand I would never jeopardize my health, family and property for a startup. Maybe that will cost me 10 million in startup funds from a "get rich die trying" mentality loving VC, but at the end of the day, too many startups have failed because they scaled too soon and because someone made a decision when they lacked glucose. I'd much rather have my physical and mental health and future success, than a short term money to spend and an uncertain life ahead. Now, I am not saying that I would not work extra, but there has to be a balance otherwise you'll burn out.
I attribute some of my own startup’s success to the attitude of my cofounders and I to live a sensible schedule which gave time for loved ones and friends.
This was helped by two of my cofounders having a spouse, and one cofounder having children. Priorities and behavior are different for a single person than someone in a relationship.
Being in a relationship or having kids is not the only route to having that sensibility in life. I was single even when my cofounders were not, yet I had a pretty sensible life, in spite of dating and trying to find a partner for life while also starting to build a company. I think the influence of my other cofounders, who had dreams and aspirations outside of just the company, was a strong tempering force to me or anyone else in the company getting an unhealthy tunnel vision.
This certainly exposes a moral hazard for their investors who have an incentive to maximise output for as long as an exit takes. After that, I doubt they care that much aside from having a "successful serial entrepreneur" with a reputation to further exploit.
They have an incentive to maximise the expected value of an exit. The parents are suggesting that maximising output reduces probability of an any exit, I believe.
Please could you expand on what sort of balance you chose? I’m very interested to hear what worked for you.
A few goals we've kept clear:
* Trying to ensure all of our employees have a 40 hour week (or as close to it as possible). * Making sure the cofounders have time - whether we're single or not - to spend time with friends and loved ones. That probably translates to simply not guilting each other into working too much - it's okay (and encouraged) to take a good weekend. And that's generally been the reality, too.
Are there other balance-related questions you have, or does that kind of answer it?
Eating enough food for your physical needs is not normally a problem. You can get your 2000 calories, bit of protein and all the vitamins you require for $3/day anywhere in the USA and there aren't many startup founders who literally starve.
Mental health and happiness is a real issue, though. I'd be miserable eating the bland meal every day and that does cause some people to underperform their potential. On the other hand, it motivates other people to work harder to escape their situation.
> I get chills reading that some founders were eating ramen for a year.
I could eat Ramen every day but good restaurant Ramen is quite expensive.
> I get chills reading that some founders were eating ramen for a year.
I get sad when I realize that the HN community doesn't remember "ramen profitable".
Not making a point about ramen, obviously (except to say you can eat well and very healthy on a budget that makes even ramen "expensive"). Just that modern "starups" have an expectation of funding that would have seemed ridiculous on this site a decade ago.
"Ramen profitable" means something other than "revenue is greater than expenses by enough to live on ramen?"
ajross was responding to parent commenter bkovacev's literal interpretation of "ramen" as eating actual ramen and therefore depriving the brain of critical nutrients.
The "ramen" is just a rhetorical placeholder for "low expenses" and not about an actual diet. For example, Paul Graham is not advising entrepreneurs to literally eat ramen noodles: http://www.paulgraham.com/ramenprofitable.html
If you don't want to jeopardize your health don't join the rat race to begin with. Or be rich and do little work like most founders
>be rich and do little work like most founders
I trust you had an experience that lead you to think this way, but you clearly don't know "most founders."
I fully agree with this. It’s not being “communistic” at all to pay a founder with kids a bit more. Rather, it’s about making sure he or she can actually focus on the business and outsource life’s overheads as necessary.
Investors should take the time to look at a founder’s life circumstances, and set their pay to optimize time-at-work, even going so far as to pay a nanny and house keeper directly to ensure the founder isn’t wasting precious hours on household chores.
I could not disagree more. Consider the following progression:
I have kids, you don't. I "should" make more.
I am trying to have kids, you already have them. My IVF treatments are expensive and mess up my partner to the point that it's expensive for me. I should make more.
I am trying to adopt because my partner is infertile. That's a long and laborious and expensive procedure. I should make more.
My partner and I want kids, but she's infertile because of ongoing chemo treatments. Life is rough. I should make more.
My partner or I don't even think about kids because we have medical issues that we do not want to advertise. What does this have to do with my salary?
The only sane way to answer the question of salary is "how replaceable are you, and what can they afford to pay?"
Anything else can and likely will leave a festering wound that will affect the company later.
In fact, a simple, approximate model for this phenomenon is inheritances split among siblings when parents die. It was (and is) quite common to have one sibling inherit more because they have had a difficult life in some way, or because boys should inherit more money than girls, or other such blather.
It rips families apart.
Do you really think that your startup will survive better?
I think you’re too focused on kids, specifically, when the real point is paying each founder enough to minimize personal stress for their individual situation (and not much more than that).
Could be kids. Could be IVF treatments. Could be student debt. Could be geography. Could be past success/failure.
Doesn’t really matter the specifics - kids are just one example - but paying founders enough so they can frugally live and not stress about their financial situation is the optimal choice, and it may result in differences in comp early on.
If the founding team has a big problem with small inequalities in salary, there are bigger issues at play that will likely eventually surface.
Why not pay everyone the same? That extra 10k in a venture founded startup won't make much of a difference in the final outcome. But I guarantee you it will cause more friction than it's worth.
You’re making my point for me.
$10K won’t make much of a difference in the final outcome.
$10K can make a massive difference in alleviating personal stress levels - and have limited marginal benefit for a founder with fewer expenses.
Any founder who genuinely doesn’t need the extra $10K, and has a problem with a co-founder who genuinely needs the extra $10K getting the $10K - and accepts that that $10K is not likely to make a difference in the final outcoming - is not acting rationally.
Causing friction in this scenario is, to me, a huge sign of immaturity, ignorance, and a lack of commitment and/or understanding of the long game.
I meant it doesn't make a big difference in the outgoings of the company. Not sure I agree with what you're saying. But I honestly also don't think (early stage) investors should even be paying the salaries of the founding team.
The reason most people raise early stage finance is to reduce their personal risk, and push that onto the investor. Which is fine if both parties understand the deal they're getting (risk reduction for potential massive upside).
But since this is mostly done to take risk away (during the riskiest phase of the company), I also believe you should equal the salaries. With equal equity stakes, one party shouldn't be taking more risk than the other by foregoing salary.
But just going equal salaries is often suboptimal.
Founder one is 19, has no-one to depend on him, can happily live for 40k a year.
Found two is 27, has a wife and a kid, has a mortgage, the lowest "stress" free amount he could live on is 80k a year.
So what are the options:
* Pay both 40k. Founder two cannot make end meets, and has to get a second consulting job on the side. He therefore puts less work into the product.
* Pay both 80k. This is "fair", but it is literally just padding the bank account of Founder one. You are cutting your runway N months short for no real gain in output.
* Pay one 40k, pay two 80k, give 1 a bit more equity. This can also be seen as "fair", but it may not be. Founder two is bringing 10 years of experience to the table. Founder one is bringing only two. So in the long haul, you are giving one more money.
* Pay one 40k, pay two 80k, give each equity based on what they bring to the table. Maybe founder one gets more equity. Maybe founder two does. Decent chance it would be founder two, as he has more experience.
To me the right play is pay people what they need to not stress, and give equity based on what they bring to the table. Obviously I am closer to founder two in the above scenario, and I suspect a few people advocating equal pay are closer to founder one.
At the end of the day, each founder is either worth it or not. Some wizard that lives in SF so needs 120k to live? Maybe he is worth it. Some guy with a party problem that needs 95k to live, despite being a junior dev? Maybe not worth it. I think it is better to evaluate each person and see if what they need is worth it, if not keep looking for someone else!
I only consider the second and third situation to make sense, and this is regardless of whether you're founder one or two.
If you lean on early stage investment to pay yourself a salary (which imo shouldn't happen in the early stages, but I do understand why people do it: to take risk away) then by default you are "padding the bank account" of the founders.
Generally equity divisions will be decided before setting up an entity and raising investment, so by the time you get there, it will have already been decided.
Given 1) the low probability of an exit when playing the venture game, and 2) the small equity stake you'll be left with at the end if you do magically manage to exit, I don't think it makes sense to forego (any) salary if your partner is taking out a much larger amount.
But again, I don't follow the line of thinking that states investors should be paying you a salary in the early stages either way.
> Investors should ... set their pay
I understand the gist of what you’re saying, but in the early stages, investors might provide advice about salary but certainly shouldn’t be controlling salary. That’s the company’s job.
Investors get to have a say about the CEO’s salary once they have board seats but not until then.
I don't want to be the person who earns less than someone else just because they have kids and i don't.
Perhaps someone decided to wait with kids because they want to have more time for the startup and/or more money left over for it.
I don't want to be the person who earns less than someone else just because they have kids and i don't.
You really don't want to be the person who took more money out of your startup than necessary either though. That's what you're arguing in favour of - a higher burn rate and consequently less time for building your business in order for things to be 'fair'.
If you're in that situation I'd recommend agreeing to track the difference and only pay it in the event of an exit, maybe with a multiple (say, double) to recognise the risk you took. That'd be better than increasing the burn rate just to make things equal.
I honestly don't think this reasoning makes sense. Most people raise investment because it shifts the risk ratio in their favour ("get paid to survive and work on their own idea"), at least in the early stages.
If you're doing this, either: 1) both don't take any salary and use the raised money to build out the business (this is really how it should be), or 2) both take the same salary.
All the rest makes no sense to me and will most likely cause friction, unless one of the founders is already wealthy.
> even going so far as to pay a nanny
I really like this idea as a way to expand access to startup opportunities.
Have any acceleartors/incubators experimented with offering child care? I imagine that economies of scale could make that more economical than having X% of each investment go to child care with no coordination, even if it was just a group-rate contract with a local child care center.
They have. It’s called “Sweden”. Works pretty well.
Margins are pretty slim in child care. In most parts of the country, you aren't going to get a great group rate.
I think you are better off just giving the person that needs childcare enough money so he can cover it...
Those are the two reasonable boundaries but you want to bias towards suffering because suffering has a way of focusing the mind in the short term that comfort just doesn't offer. It's called sweat equity for a reason.
This works for some people but not all, fwiw. I know founders of very successful companies that paid themselves well from the start because they needed to focus on the company and not whether their credit card was getting paid off on time or what they were going to eat for dinner. For some, that sort of stress is completely antithetical to building a company. For some, it's a crucible. Not everyone reacts the same way to stress.
It’s a fine line though. A little pressure helps focus, but too much is imho extremely detrimental.
I did two startups earning almost nothing and at first I was super focused and driven but as time went by, worrying about paying rent or being able to afford the dentist (or whatever) had a drastic negative effect on my mental health, work quality and quantity and over time increased disagreements with cofounders (when you’re super stressed for long periods of time, it gets harder to work through things). Ultimately this led to the demise of both companies.
Pressure is a very useful tool in moderation. It helps you focus on what’s important and encourages clever solutions and innovations. But too much (especially worries about your personal survival like rent) I believe drastically reduces your chances of success.
I might be leaning towards suffering maybe a little too much. Intellectually, I can justify but it but it takes its toll, perhaps needlessly.
Well, like I said, some suffering I think is motivating and focusing, but after a while it certainly takes it’s toll.
If a founder is motivated by the mission objectives, then suffering only serves to associate those objectives with negative things. It is more likely to burn them out
Suffering is really too strong of a word. I think most people focus best when they are out over their skis a bit. It's not suffering as much continuously challenging that requires focus.
What would be a fair division of equity (or the right salaries) when one founder starts the company in his/her basement working to develop the key product of the startup for say 3 years and entirely self-funded over the period and other cofounders join in once the system is sufficiently mature to attract top investors’ interests? (Fundraising was possible before but it wouldn’t get the same caliber of investors / cofounders.)
I have to say, I usually love Janz's writing, but I think this model is too simplistic and does not provide enough evidence.
As a technical founder with a successful track record, I could be working with any number of businesspeople or all sorts of opportunities, and I'm good at math. Why should I forgo a market rate salary to take a 1 in 100 chance at a lottery ticket, where my likelihood of success is largely determined by the people who also choose my salary? Major conflict of interest. The math does not add up.
I would think my team should be motivated to pay enough to keep each other from leaving for attractive opportunities in this lucrative market. It's one thing to voluntarily give up salary to help the company. It's another to force it by means of a questionably sustainable business model.
Evidence: try to hire yourself a technical co-founder from their job at FaceGoogAmaSoft (or pay equivalent) and find out that money talks.
"Why should I forgo a market rate salary"
You have to do the math, of course, to see whether it makes sense for you, given your estimate of chance of success, and payoffs under different scenarios.
But it usually makes sense to forgo a market salary early on because you don't want to give up too many shares. Imagine you're about to start a business, and are looking for investors to fund the first 12 months. Imagine the terms an investor might offer if you need:
A) $500k (of which $80k is your salary, payroll taxes etc.)
B) $700k (of which $280k is your salary, payroll taxes etc.)
In (A), the investor is contributing $500k of cash, and you're contributing $200k in foregone income.
In (B), the investor is contributing $700k (out of which your market salary is being paid). You're already being compensated in cash for your contribution, so why would any of your shares vest during this period?
Another thing to consider is perceived alignment of incentives. If you're not risking anything (because you're earning the same as you would with a regular job), and you're the CEO, what reason is there for you to optimise for the success of the company? You could rationally decide instead to just chill out, or spend all day learning new front-end frameworks, or whatever you feel like.
Thank you for your comment!
Making the case for becoming a founder using math is tough. It's well possible that the expected value is higher for an employee career because, as you say, most startups fail, although it's difficult to do this comparison really well methodologically.
I think if you become a founder you do it because you just want to start your own thing and love the freedom and satisfaction of working on your own idea. And maybe because you think you can beat the odds and get rich.
As an aside, the probability of a startup to become a unicorn may be 1 in 10,000, but the chances for a more modest (but still financially very rewarding) outcome, say a $20M exit, are of course much higher. Also, you learn so much as a founder that your chances increase for your 2nd or 3rd startup.
This topic has been studied in depth. I recommend a thorough read of this paper before being tempted to use gut-feelings.
http://web.stanford.edu/~rehall/Hall-Woodward%20on%20entrepr...
I'd say the expected value is almost certainly higher for an employee career, assuming some financial discipline. After 10 years so in the industry, you should be able to get $100k/year, more in high expense areas. That's $5.8k/month after taxes (assume 30%). Assuming you are single, at $1k/month rent, $300/month food, and $700/month for other things, you have $3.8k/month left over. That's about $45k/year you can save, say $50k for easy math. So in 20 years, you can save $1 million, buy some large-cap stock at 3% dividend and have $30k/year for free (more if you buy a higher-yield utility-type stock like AT&T or Verizon). But the stock market grows by 6 - 8%, on average. If you invest in large, "safe" companies, or in an S&P 500 index fund, at 7%, you'll double your money in 10 years, so you'll end up with $2 million (I did the math on a spreadsheet: yearN = yearN-1 * 1.07 + $50k). That's $60k/year at age 50 (not including 401k matching, and assuming that ages 20 - 30 are years of profligate spending with no saving), about as risk-free as you get.
Compare that with a statistical 90% of failure starting a company, but frequently resulting the loss of the founder's savings due to having invested it in the company. Basically the startup should give at least $50k/year of increase (above the cost of living), plus a 7%/year growth, so for two years doing a startup, you need to walk away with a little over $100k. At a 90% failure rate, you need to exit at $1 million for the expected value to break even. If you are not the sole owner and/or with VC funding it will need to be even higher. (If you are an early employee getting 1% or something you'd need about a $1 billion exit for a positive expected value.) That's some pretty uncompelling math. It gets even worse if you have a family.
> After 10 years so in the industry, you should be able to get $100k/year, more in high expense areas.
Indeed it's higher in some areas. In Metro Boston, that's not uncommon compensation 10 seconds into your career.
You might find this blog entry interesting and on the same line of thinking you laid out above: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
I should clarify I'm playing Devil's Advocate. I do try to bootstrap my startups part-time, no salary until we have enough cash to pay decent full-time salary to founders.
Good reasons to forgo salary:
- startup already has revenue and/or a clear path to profitability that would be affected by the salary decision
- because you probably need as much cash as possible for the first technical hire(s). This is a good problem and usually indicates growth
- because you legitimately don't need or want it (e.g. cash from successful exit or good pre-fulltime planned savings)
Why should I forgo a market rate salary to take a 1 in 100 chance at a lottery ticket, where my likelihood of success is largely determined by the people who also choose my salary?
Because as a founder you have a great idea that you think will be worth those odds. If you truly think it is a lottery ticket then your idea isn't that good and you should look for another idea.
You can always make more money working for BiggleCorp. The benefits are always better at NanoSoft. So the deciding question for you is not what flavor of ramen you'll eat but whether your idea is so insanely great that you're willing to suffer.
Moreover, your skillset is already factored into both your stock and the relative ease vs difficulty of your raise.
Ideas are cheap, execution is everything. Actually getting liquidity for equity compensation is a function of the execution of the team, not me as an individual. So the real question of how much to pay yourselves as founders is "what makes you all get along and feel worthwhile?" so that you can maximize your productivity.
Like equity, founder salaries are a major source of dispute, and if the business takes too long to reach market rates then it becomes a source of tension. That's why I think relying on low salaries as a business model is a bad idea -- the business should be focused on sustainably paying market rate ASAP, which should mean that the business has revenue or customers incoming steady and growing.
I would argue that as a rule below market salaries means the business is unsustainable and has not found market fit. Founders can (and often do) still choose a lower salary when it makes sense to them.
Yes, ideas ARE cheap but good ideas are very expensive. Hell, YC was giving away some ideas for free yesterday. But I don't think any of them were good ideas and respectfully, I don't think your successful track record as a technical founder could save AI for Communicating with Dogs or Social Network for Children regardless of the amount of VC dumped in or your founder salary. They just aren't good ideas.
Myself, I don't think execution is everything. It is a lot but you can't execute a mediocre idea into a success.
If I'm wrong about that, and I could be given my technical bias, then I'll rephrase that to if you can execute a mediocre idea into a success then anyone can and it just becomes a lottery. Been there and I won't revisit there.
BTW, we are talking about initial salaries. If your startup is killing it then you can dictate your terms and your funders will still say thank you.
> you can't execute a mediocre idea into a success
No, but great founders can realize this sooner, wasting less money and decide to either return what's left of the money or pivot.
Very few successful companies grew into their original vision - they changed along the way because they had great leadership (and luck).
I would have thought great founders would have realised this before wasting time on a bad idea. I have never understood the logic behind working on something bad just on the hope you will pivot to something good later.
You mean like google, facebook and amazon?
Google initially didn't want to sell ads. Amazon was an online book store. Facebook, admittedly, seems to be the exception to the rule.
Amazon is still an online bookstore and Google did want to sell ads. But they just wanted to sell search first which they did, to Yahoo.
Oracle is still a database company. Apple still makes computers.
I’m blanking on a great founder who successfully pivoted, operative word being great. Successful is a lower bar.
> try to hire yourself a technical co-founder from their job at FaceGoogAmaSoft (or pay equivalent) and find out that money talks
What an incredibly simplistic view of the world. Even as someone living on the west coast I still find it insane that people think the best engineers only work at FaceGoogAmaSoft or somewhere else paying exorbitant salaries.
There are thousands of engineers that work for far less. They're more interested in making a difference and solving difficult problems than collecting $300k per year as a cog in the machine.
Not having to work for FaceGoogAmaSoft is likely worth hundreds of thousands of dollars to some people (I know it is for me).
That comes across as sour grapes reasoning, have you actually spent any time working for one of them? If so please forgive my assumption, but your points depend on a couple of huge assumptions.
Why are you convinced there are no roles as these companies for people who want to make a difference, or that everyone feels like a cog in a machine?
These companies are not my cup of tea at the moment, but I know your assumptions are wrong for a fact. Proof by counterexample only requires one data point, and I've been there and seen people who share your ethos and make that kind of money.
This is not to say you can't find any number of people there that feel their jobs are thankless, insignificant, life force draining prospects. But we're talking about hundreds of thousands of people, and there are a variety of experiences people have. What percentage of them have you asked to be certain it's necessary to give up hundreds of thousands of dollars?
I can imagine a more productive interpretation of your post, which may or not actually match your opinion, that goes like this:
Those attributes are difficult to find in general at companies large and small. If you're fortunate enough to find a job that has them, think carefully before giving them up to make a few bucks more.
> What an incredibly simplistic view of the world.
I could make the same argument of your point of view as well. I work at Google precisely because I think I can make a difference here.
That means something different to different people I imagine
Nope, your parent is absolutely correct ( most likely because he is successful technical co-founder with a track record, which would put him into his mid thirties or more). People get wiser with age and realize that while money may not buy one happiness, it certainly removes barriers to achieving happiness.
> They're more interested in making a difference and solving difficult problems than collecting $300k per year as a cog in the machine.
That means their take home is roughly $150k/year after taxes, which is $12.5K/mo, which is not an great take home. Most likely the take home for his partner would be about $4-$5k/mo. Lets make it $5k. So the total take home is $17k/mo. For someone in his thirties the apartment would be about $5k/mo. Wife's personal trainer + ClassPass ( you are accounting for things like that, right? You realize that 'I like the way you look' costs real money?) is $1k/mo. Food + incidentals is another $1k mo. Utilities + misc recurring is another $1k mo.
So we are down to $9k/mo not going to anything before:
1. Going out
2. Clothes
3. Trips
4. Parties to host or go to
5. Emergency funds
By the time this is all accounted for $300k/year income is perfectly fine but not extravagant in any of the areas where one gets $300k/year for his co-founder worthy skills.
Spending $1k/mo on personal training is _not_ extravagant? I realise I must be living a much poorer life than I thought...
ClassPass is $125/mo.
Twice a week personal training is 8 sessions a month. That's $875 per month. Divided by 8 it is slightly less $110 per hour. A good personal trainer can easily charge $110 per hour, including facilities charges.
Spending money on personal trainers allows you and your wife not to look like tubs of lard by mid thirties which in turns solves a boat load of very expensive problems in your forties and fifties. It is difficult to "change the world" with high blood pressure and diabetes.
I don't think he was asking for a breakdown of what goes into the cost - I think the point is that most reasonable people would conclude that $1,000+/month spent on personal training very much qualifies as extravagant spending.
Most of people, especially in the tech world are clueless, which is why the US is obese.
Am I to understand continental Europeans, for example, are in much better shape than Americans because they employ more personal trainers?
C'mon. I agree a gym membership is required, but a 1k/month personal trainer is certainly not.
You are just naming a bunch of things and then assigning arbitrary numbers which you could possibly spend on those things, if you really loved spending money. I am your exact demographic target audience, and I and my partner spend on the order of 4k/month each, while being healthy, happy, and so on, and it's not because we try super hard.
You think 1000 a month on food for two people is normal?
Yes, a month is 30 days. 1000/30 is slightly more than $33 per day for two people. Your lunch coffee at starbucks habit is $5 per person per day. So with that or with "i grabbed an apple" or "I got a granola bar" habit that you or your wife has you are at $26 per person per day for breakfast/lunch/dinner for two people, which is $13 per person per day for breakfast, lunch and dinner.
I seem to remember people arguing with me that $10 per person per dinner is the lowest that they pay per person ( see Blue Apron/Home Chef/Plated/etc business models) So based on their math it is $20 for two people per dinner. Now I personally think it is too much because I automatically only shop sales but I'm weird.
Maybe if you're a literally-every-second-of-my-time-is-money sort and never, ever cook, and you're also socialized to a certain standard of living and never eat cheap take-out or low-end frozen meals or whatever.
Strong disagree on letting the founders personal situation count for the salary to be taken off the table. Having kids or not is a personal decision, if your co-founder has kids and you don't or vv then your salaries should be - all other things being equal too - equal.
Paying one founder more than another is a good way to start a founder conflict and those you need like you need a toothache.
Strong disagree on letting the founders personal situation count for the salary to be taken off the table. Having kids or not is a personal decision
Having kids is a factual part of many people's lives, not an arbitrary personal decision that can be erased at startup time. A person with kids simply has higher living expenses. Of course, if you feel that strongly about it, you can choose to only found companies with single people but that needlessly reduces your pool of potential founders who are talented, experienced, disciplined, of great character and compatible personalities.
Otherwise, the issue of varied expenses can be balanced via 2 approaches:
a) All cofounders take salary equal to the amount required by the one with highest expenses and agree on the resulting consequences (smaller operating budget, higher urgency towards independence via profitability/ funding, etc).
b) Equal salary nominally assigned but the founders with less expenses agree to loan the startup the "excess" portion of their salaries. This can be structured and recorded as deferred compensation/loan agreement payable upon achieving X financial milestone, e.g. when revenue hits a certain level or target amount of funding is received.
Are employees paid more (in a given company) just because they have children? It might not be even legal to ask them in some jurisdictions, during recrutement and salary negotiation. Most of the time employees are not paid more just for that reason. Should they? Maybe a little (well in lots of civilised countries they might already have tax cuts, but so do the founders), but throwing them 10k$ more per child for that would seems quite insane.
Adding that kind of special treatment for founders on top of all they already have seems kind of unfair.
The argument about the lack of responsibility because children cannot be cancelled at startup time is very curious. Absolutely everybody knows that children come with costs, some are monetary, some are about other factors. You can not retrospectively pretend that those costs shall be privately covered by others beyond all the social organisation already agreed on (tax reductions), just because of status. Yes those costs can not be erased at startup time; asking for others to erase some of them -- well if everybody involved agrees why not, but on my side I will never see that as fair without serious compensations (distribution of shares for ex.)
And what about ANY other costly choices that can not be easily cancelled at startup time? Should alimony for their ex-spouses be paid for by others too? If they have a horse they are bounded to and would be horrified to the suggestion of abandoning it, should the recurring costs it involves be covered by others too?
Founders do not live in an alternate universe were all common laws and wealth distribution are to be renegotiated in private: those questions are important but should be applied for everybody, and actually they have been debated and there are important cases where the society have decided that doing this or that would be good. If this is actually not enough in some cases, that should be changed.
> Are employees paid more (in a given company) just because they have children?
In practice? Yes. Any financial obligation (debt, mortgage, family, etc) contributes to a negotiation floor.
All of these things are part of a negotiation.
If your demands mean that you’re not going to enter into business with you unless I sell my horse and fubar my family, I’m going to walk.
Hopefully you don’t need me or have enough cash to buy out whatever I bring in. Otherwise, you’re fucked for want of a few thousand dollars.
> Are employees paid more (in a given company) just because they have children?
Very often the answer is yes from my observation, particularly for fathers.
Context for salary agreements for employees of established companies is fundamentally different and not applicable to a discussion of salaries for founders of a new company.
The salary calculation mechanism and amounts cited in the post may be debatable but framing it as "special treatment for founders on top of all they already have" is strange because early startups are often characterized by what founders don't have: the security of market salary and benefits (e.g. healthcare), substantial savings (many plow it into the company), etc.
There is no argument about "lack of responsibility because children cannot be cancelled" - I simply outline it being a common circumstance and recognizing it being a factor in higher living expenses that should be accounted for in salary calculations. It's also not about massive debate on common laws, wealth distribution or society input as you cite. It is simply about agreement between a couple of partners on the road to building a company. As already explained, the issue is negotiable in different ways and most importantly, you can self-select out if it's just unacceptable to you and you're satisfied limiting your pool of partners in this way.
I didn't choose "to not have kids" so I could pay more for the kids of other people, if I wanted to pay for kids, I would have got some myself. :D
As long as you disclose your views upfront, rather than partnering with seething resentment because your cofounder has kids. Such people and even others without kids who also abhor such a perspective would like to know upfront so they can partner with someone else.
Bottomline, if you're comfortable holding this view because unlike most people, you actually have many potential partners with the necessary industry skills that have no kids and have the qualities I listed above and share your views, good for you. Otherwise, not starting a company or having it prematurely fail because you picked wrong partners partly by skipping better ones because they had kids seems ridiculous.
Agree. The first thing I would discuss with a cofounder is my financial requirements. I'm not going to quit my job and draw a $100k salary (in SF) to start a company. I wouldn't be able to pay my mortgage, even on the most aggressive of budgets.
So the decision for the cofounder becomes whether they want me involved. And my decision is whether the company will likely be successful with that burn rate. A single cofounder taking the same salary as me might push that burn rate over the edge. In which case, we just say no and move on.
After I got into self-employment I got more into a "what do I deliver" mindset instead of a "what do I need" mindset.
I think this is a better approach to calculating these things.
Equity changes that a bit. Especially for founders, equity is how you capture "what do I deliver". Salary is "what do I need". It's not a strict divide, and the calculus changes as the company matures.
True, but only for people who intent to sell their company.
I guess he would not resent that his cofounder has kids, but rather because he just would be kind of paying (even more than usual) for those kids; why exactly?
Yes, I don't have a problem with kids and I think work life balance is very important.
I also think that society should help parents with tax cuts, but this lets the whole country pay for it, not just me, because I just happen to work with a parent.
What would be next?
Paying me less because I live in a shared flat?
Because I don't own a car?
I didn't make these decisions to have more money to throw it away, but to spend it on stuff I care about.
If you’re committed to ignoring the needs and wants of a business partner, why do you want to be their business partner?
It seems like a dickhead attitude that bodes poorly for the future of a business enterprise.
The need for an equitable salary is just as legitimate as the need to care for children. I have a family to care for even if they are not listed as dependencies. I also have a future family to prepare for that I might want to get a leg up on. Or maybe I want to forego children because I'd rather save up to start something more meaningful to me later.
Just because you have an immediate need that is evidenced by children doesn't mean others don't have equally legitimate needs.
I didn’t say that children trump all. It’s a negotiation point. Getting what you need/want may cost you.
My point is that if your “partner” is going to take an extreme, aggressive stance on such a thing, that’s a red flag.
The question is not about their needs, but about their gives.
If I choose to not have kids to have a better carreer, why should I compensate for my co-founder?
Why do you consider a cofounder to be an adversary?
As I mentioned in other comments I think this would serve as a valid filter. You'll either not work with founders with kids, or only with founders who have enough money they can take the smaller salary.
And that may be fine for your startup. But you are limiting your talent pool, and should make sure that is worth the trade-off.
I agree. This is why the government gives people with kids a $4,500/kid break on their taxes.
Then don’t start a company with people who do have kids. That is fully within your control.
This is not what we are discussing about. Your answer is plain false dichotomy.
We were discussing about the fairness of that situation.
No, we are discussing resentment.
In my experience the employees without kids tend to work longer hours and put in more effort and cultural time. So from that perspective perhaps the founder with children should acknowledge that their total input will be lower due to obligations competing for time and energy and should take a lower salary.
After all, what is the commodity the company is buying when they pay a salary and equity?
>Paying one founder more than another is a good way to start a founder conflict
The book "Startupland"[1] that chronicles Zendesk[2] talked about this exact problem. One of the 3 founders had "family" to take care of and because of that, he wanted a higher salary. The 2 other founders were thinking, "what?!? you're not the only one making sacrifices here!"
After some discussion, the 2 other eventually agreed to it but they really resented it and it was a source of bad tension for a long time.
Zendesk eventually got to the IPO so the 3 got past that unequal salary episode but the soap opera drama doesn't seem to be something you want for a struggling company.
(Side note: I think it's unfair to downvote jacquesm for bringing this up. Even if you disagree with his opinion, it's still worth leaving the text ungreyed to discuss pros & cons.)
[1] https://www.amazon.com/Startupland-Risked-Everything-Global-...
[2] coincidentally, Zendesk is one of the companies in Point Nine's portfolio: http://www.pointninecap.com/portfolio/
(However, author Christoph Janz joined Point Nine in 2011 and Zendesk started 2007 so he may be unaware of their early salary drama.)
Yes, paying one founder more than another can cause conflict. But it doesn't have to. It really depends on how everyone in the founding team feels about it.
FYI, Zendesk was a "pre Point Nine" angel investment from me that I made in 2008, but I wasn't aware of these discussions among the founders. Maybe they took place before I joined or they wanted to keep them to themselves.
>Yes, paying one founder more than another can cause conflict. But it doesn't have to.
Well sure, I agree it doesn't have to. But as this thread has shown, it's a contentious issue demonstrated by:
(1) furious downvoting & upvoting of jacquesm parent comment,
(2) many comments in this thread from opposing sides debating it
(3) chapter from Zendesk founders' book discussing the uncomfortable tensions it caused
Therefore, saying "paying one founder more than another can cause conflict. But it doesn't have to." -- sounds somewhat naive. To be clear, I'm not saying _you_ are naive. It's that your sentence sounds like it brushes the human complexity under the rug. (We can also say "paying everyone equally also can cause conflict, but it doesn't have to." -- a kind of tautology that's true but doesn't really inform us.)
Also, it's important to stress the timeline of the startup:
It's one thing for the startup to not exist yet and the 3 founders are just sitting around a dining table and agree that 1 founder should get more salary because he has kids.
It's a very different situation when the startup is already up & running for a year and the 3 equally paid founders are living on cheap ramen to keep expenses low and make the struggling company survive. If at that point in the timeline, if one founder asks for more salary because his wife is pregnant, don't be surprised if the 2 other founders will react very negatively. It's human nature.
Recruiting a parent with existing kids to create a new startup is a different dynamic than increasing a partner's salary because they have a family after they've been working. The other founders may feel like they contributed the unspoken sacrifice of not having kids so subsidizing another person's family at a critical time can seem unfair.
There is no single right answer, but if the co-founders agreed to something, then held their choice against party making a request - that to me is a much more serious issue than the party that make the request for a higher salary.
>if the co-founders agreed to something, then held their choice against party making a request
One can "agree" to something because of business expediency but simultaneously have a human response that it feels unfair.
As analogy, I'm sure many programmers have "agreed" to a low $55k salary and took the job but simultaneously felt that the company was unfairly compensating them because they thought they were worth $100k. Unfortunately, agreement doesn't override human feelings.
If you were interpreting my blurb from the book that the 2 founders were constantly throwing the unequal salary in the 3rd founder's face, I don't think that's what happened. The book made it seem like it was a more like a silent resentment. Also, the salary argument came up after Zendesk was already established and running. I didn't previously make it clear that this wasn't 3 founders deciding on unequal salaries when Zendesk was just an idea on a napkin. If one agrees at the founding, that should remove triggers for resentment.
Signing a contract doesn't switch off emotional reactions. Under duress it is difficult to remain empathetic or to maintain logical distance from disputes.
Having kids or not is a personal decision
Could extend that thinking to living in the middle of an ultra-expensive locale like SF or London and take that multiplier away too ;-)
I do kinda agree, though. If one founder needs more salary, they should pay for it with (slightly) less equity IMHO.
Why "slightly" less? Even if it can't be sold, equity in early stage startups has an exact dollar amount attached to it. If one founder needs more salary it should be a simple calculation determine how much equity they should give up for that salary.
> equity in early stage startups has an exact dollar amount attached to it
No - at least in the US, you avoid pricing your start up until it's necessary, in order to plausibly say the equity is worth as close to $0 as possible, so equity grants result in the smallest possible tax liability. In practice, this means raising early rounds in convertible notes, which don't require the company be priced.
At that stage, you're not taking a salary, so your point is moot.
This is about startups that can afford to pay founders a salary, and those startups have either raised money at a specific value or are profitable enough that you can't claim the equity is worth $0.
I think there needs to be some quid pro quo, but early stage startups often have such a low valuation that accurately matching the difference in salary could result in an equity disparity that breaks any pretence of being "equal"(ish) partners.
By all means, do it outside of "high burn" geographies and hipster playgrounds.
If your founders have so little respect for each other that they can't acknowledge and gracefully accept the varying circumstances of their peers then the business is likely screwed anyway. If founders are that tightly wound, with respect to each other, then that's a recipe for turmoil ending in disaster.
The problem is that such things tend to go underground and they can pop out years later, for instance when you're raising your series 'A' or during an exit. And if and when that happens - besides it being unfair in the intermediate time - it can cause real problems.
This is one of my main reasons for advising against founders that are in very different phases of their lives, there is an element in there that you can not easily get rid of that might cause issues in the longer term.
Would you pay founders differently if they lived in different areas (SF vs Thailand)?
I think you can argue either way, but I will tell you as a founder with kids that if the startup can't pay me enough to take care of my family, I won't be part of that startup for long. You can't pay tuition with equity.
That said, this may be a valid filter for you. The most important thing is that the discussion about compensation happens aboveboard and that everyone feels the situation is fair.
The military has this system. A married service member gets paid more than a single service member. The idea is that the single soldier has less requirements for housing.
I’m not stating whether I agree or disagree. Just pointing out a similar system already in place.
Yes, but the military is not your start-up. Society will also give couples with kids tax breaks, which will already widen the gap in net income between two otherwise equally salaried co-founders, I really see no reason to artificially widen that gap.
BTW in almost all situations that I've been in where this would have mattered I was the one with the children.
Daycare cost for one child where I am is $15000 after tax dollars, not including child cost. Add other necessarily child costs and that number goes up. Grown ups might go on ramen diet to build a business but their children can't afford to.
Yeah it makea perfect sense to model your startup after some massive government organisation.
They get paid a housing allowance, but their base salary isn't higher. The single soldiers live in a dorm that they aren't charged for.
Granted, the dorm isn't great, but it's not a straight salary difference.
Receiving a housing allowance sounds like more pay to me. Is there a requirement that states the service member must utilize all of the allowance on housing? Could they chose to live under their allowance? Doesn’t sound like the single service member has the same choice. What if two service members marry each other, do they both get a housing allowance?
The housing allowance varies, but typically, it's below what the actual costs are. Varies by location.
Dorm residents don't pay for the room or food, if they choose to eat at the mess hall. They also usually get free use of washing machines, a common room with TV, etc.
Basically, it varies. In some locations the married soldier might be better off. In others they aren't. Either way, the difference isn't striking.
You also give up the housing allowance if you live in base housing as a married couple. These units are typically pretty modest.
There are, of course, exceptions. Areas where single soldiers get a housing allowance because no barrack exists. And areas where the married allowance is higher than it should be, for various reasons.
The point is, though, that it's not a direct comparison to the story. The single founders didn't get a compensating free room and board.
There are consequences for putting one founder in a tighter spot than the others.
This can play out as one founder having to take off for dr appointments b/c things are stretched so thin their spouse can’t take off or they can’t afford a nanny, etc.
It also plays out that the founder in the tighter spot is going to be making decisions geared to a faster influx of minimal cash vs long-term value building. This is the same as VCs letting founders take some money off the table in later rounds b/c “the first million is worth more” and the investors want to swing for the fence.
Happiness doesn’t change much over $50k, but that number goes up with kids. BUT, that also means if you are going to take into account family situation, you should also take into account family money, if you have kids and a spouse with a big salary, you may not need more.
"Happiness doesn’t change much over $50k"
Every time I hear this I cringe. I was much happier making $180K than I was making $60K. I could go out more often, purchase more of my wants and needs without worrying about mounting credit card debt. Afford to live in a non-shit-tier apartment, and still have money left over to tuck away a decent emergency savings fund without it taking a decade to reach 6 months living expense backup savings. Who came up with this figure I wonder?
It's a since discredited number from studies on gallup polls. I think it was the freakonomics blog that had a series of posts outlining the issues with it; since then there were more rigorous studies concluding that the earlier conclusion was not valid.
But where do you live? In many cities $50k is more than enough to live in a decent appartment.
If you're having conflicts with your co-founders about a nominal difference in salary ($10K to $20K), I'd suggest that perhaps it's a sign that you're likely to encounter more frequent conflicts down the road about things that actually matter.
I'd like to see some of these singletons balance a family and successful technical career at the same time.
That takes a lot of work. Investors discount a person because he has a family due to some perception that therefore he or she won't work as hard on the company are either ignorant or unforgivably stupid.
They also say they had given up there salary for the first few years because of a previous exit. I think you should have enough to take care of your kids and the other non family members should make less, but not the price of your kids less.
By your logic theyshouldnt get tax breaks?
Obviously: No.
And besides, they already do.
> Having kids or not is a personal decision
It is so, so very simple for a business to account for children among its workforce. Any staff aged under ~45 on your books? Well, guess what? A percentage (look up your regional variation) are going to have kids, soon.
A business that refuses to financially support its staff through predicatble life changes is flagrantly abusing those staff. Even unpredictable life changes can be mitigated and supported.
A business that cannot afford to support these staff is failing, and again abusing the staff by shifting the blame onto them.
Downvoters, it would be useful to read your reasoning.
People work for remuneration which reasonably exceeds their expenses.
A predictable percentage of the population will have children.
Children increase drain on financial and time resources.
It's reasonable that people with children might look for work that offers reduced/compressed hours, or higher remuneration in order to manage increased financial/time costs.
If your org does not offer these options, why not? Is it deliberately witholding employment from ~50% of the population?
If your org cannot offer these options, why not? The figures are eminently predictable. Why are they not in the business plan?
Considering the cost of living in these cities, what this tells me when 66%+ of founders in SV pay themselves less than 50k/year is that the majority of them are already well-off, and have savings to spare for things like.. paying rent and eating food. It is completely unrealistic to expect the average college dropout to live comfortably on the same salary. Do these numbers match reality?
I live in Palo Alto making about $55k and live fairly comfortably; my actual living expenses are probably closer to $25k. It would be hard to have a family, but I get by just fine having roommates.
I live on the peninsula and was perfectly comfortable with the $60k salary at my first job here, even while paying off student loans and regularly going out to eat. Of course, I had a pretty dumpy apartment so I could pay relatively low rent, and I didn’t have many other expenses at the time. I definitely spend more now that I have more (nicer place, partner, cat) but I’ve worked my way up to a considerably higher salary as well.
Zillow tells me average house price in Palo Alto is $2.6m, average rent $5k. Do you own/share a house? I'm in Europe, so basing myself on public stats.
I rent in a house and split 4 ways. My share of the rent is a little over 1k.
Thanks for answering! So the data is not far off. I should add "or is single and has no children" to my comment. Nothing bad about that, on the contrary, it does mean older founders with family or other obligations will need to bring/sacrifice their own nest egg.
I think a total household income of ~150-200k is right around the cutoff for 4 people to live in Palo Alto together. You can split that up however you want though. In my case, that's 4 people earning ~50k rooming together. In the case of a family, one person earning 120k and the other doing a startup earning 50k (plus 2 non working kids) works too.
You're right that someone trying to support a family on a single income at 50k would have a tough time, but I think the range of people who can make it work is a lot broader than you're making it seem.
To be fair two non working kids have a lot more costs than a frugal 20 something. Childcare alone in the bay area is probably in the 10s of thousands a year range.
Palo Alto has a huge range, from $30M+ estates to stuff affordable by grad students.
This martyr narrative is tired.
The truth is that most companies once they get to series A fold for much more binary reasons that are almost never saving a few $1000 a month on the founders salaries. Additionally there are easy ways to turn your salary into a draw that ebbs and flows in times of cash flow crunches if thats a concern.
Ultimately a founder should just pay themselves what they want. The companies rise happens on the backs of the their judgement so I dont know why we are using some irrelevant framework for this particular decision. Like everything from raising money to hiring, create a narrative and then use it to optimize your target outcome.
It's also important to note the founder isnt entitled to struggle as a species. In fact you can build an incredible company and ask to maintain a quality of life.
If you can afford it pay yourself market or more and you think it will make you happier or more effective, do it!
In the end tolerance for pain isn't the skill that defines a great founder its the progress. Pay yourself whatever the hell you want as long as you keep doing good work.
Does/should a founder’s skills and market-rate salary affect their salary in the startup?
For example, if a highly sought-after AI expert founds a startup with a talented but somewhat junior businessperson, their market-rate salaries could be 2-5 times different and a case could be made that the one with higher market-rate salary makes a larger sacrifice/take on more risks and thus should be compensated more?
No, it shouldn't. If both senior and junior are starting the company at zero and working fulltime/equally pouring sweat equity in and assuming similar living expense profiles, then they should be compensated similarly. If you can't see your cofounder as equal, then partner with someone else. Or if the salary differential is that important to you, then remain on the corporate path.
What if the junior partner is the best person available with history of good working relationships with the senior cofounder? Not considering him/her because of salary differential might be suboptimal for the startup.
At the same time, the senior cofounder could have a much larger need for salary because of mortgage and family to take care of, so receiving too little salary would cause hardship and adversely affect the startup, while the junior person has less financial obligations.
> Does/should a founder’s skills and market-rate salary affect their salary in the startup?
Yes, yes it should and it regularly does. Jantz's suggestions are just that - suggestions. As he says himself:
> However, our data set is quite limited and the numbers produced by the calculator should by no means be taken as the ultimate truth.
As with all of VC's publicly available content - don't treat it as dogma. It's a guideline and think for yourself.
If the “junior businessperson” isn’t worthy, why is he a partner?
Their talent could be a good match and the AI expert might have a good working relationship with them for a long time (thus reduced risks of future conflicts). Given the many constraints on having a great co-founder, market rate salary difference might not be the criterion to cut one out of the candidate pool.
In your example the ownership wouldn't be 50/50, and in fact should probably approximate the ratio of salaries expected.
And that should be reflected in the equity split, not in comp.
Yes - or their equity ownership
Why is it when I read this it feels like the VC essentially "hazing" the founder saying that "you will get your payout later so suck it up." Thats not true for every company because not every company has the goal of doubling every year and then getting sold to Google. They don't all have to follow the Silicon Valley model. The irony of this is that the VC has the operating funds to wait till later to get their payout, its like they are making the founder suffer with them. Simultaneously they are taking as much equity as possible essentially minimizing the founder's payout. The difference is that this is probably not the VC's first venture so they have plenty of cash to rest upon whereas a first time founder is literally scraping by, possibly with a family, mortgage, etc.
Because when you take someone's money they have the right to counsel you that "you will get your payout later so suck it up."
That said, most VCs I have read indicate you should pay yourself enough to take the money concerns off the table, but enough to cause the startup stress. Obviously there's a tension and no perfect answer.
should pay yourself enough to take the money concerns off the table
But not so much that you're checking flight availability for your weekend in Cabo.
If your goal is not to double every year, at least for a number of years, and to eventually create huge enterprise value, you shouldn't raise venture capital. If your goal is to grow a little slower and to get a good salary (or dividends) rather soon, you should use a different way to finance your company.
Really the more I think about it, this more sounds like one VC's attempt to weed out people thinking about starting a company by scaring them. There is nothing set in stone that says founders should get paid a certain amount. Every company has different cash flows and situations.
I'm not sure if you've read my post. If you read it, you'll see that I wrote:
<< The numbers in the model reflect what I think is market and fair based on the data points that we have and some industry benchmarks that we were able to get. However, our data set is quite limited and the numbers produced by the calculator should by no means be taken as the ultimate truth. If you disagree with my assumptions or have seen different numbers in the market I’d love to hear from you! >>
No need to assume bad intentions.
You don't need external funding to start a company. Then you can pay yourself whatever you want it's your company.
If you want external funding then you stop being sole owner and you need agreement with othe owners on what is the worth of your services to the company. Your stake has nothing to do with it.
weed out people thinking about starting a company by scaring them
Yeah. You sure won't be hanging out at the cool cafes with your new superfriends delegating menial tasks to your hirelings. You'll be working your personal ass off while risking someone else's money.
> I saw a study according to which founder salaries are much lower. According to this data source, 75% of Silicon Valley based founders pay themselves less than $75,000, with 66% paying themselves less than $50,000. Based on these numbers, even for companies that have raised more than $10M the average salary is only $81,700. This looked odd to me, and maybe the difference is due to the fact that the study is three years old. I ignored this data source for now, but again, suggestions and input are very much appreciated.
I totally appreciate a VC saying it's okay to take a decent salary, but this point seems strange to me. Why on earth ignore the data?? I doubt three years makes any difference at all. I would speculate this is more likely a philosophical difference between the US and Germany.
A founder's entire existence is spent trying to figure out how to get a company to survive its first few years. Companies that raised $10M are dying all the time. $10M really isn't that much, it buys a startup with 30-50 people maybe a year of runway. In a company that size, one or two more engineers can make a real difference, and if four founders forego $50k/year they can then hire one or two more people using the difference. They basically spend every second trying to figure out how to stretch every dollar they have, it's not surprising to me that many live their early startup years exploring just how little money they can actually live on.
The reason why I ignored the data is that it was in stark contrast to several other data sources that I've seen. But it's a good point, I need to look into this again. I will also contact the research team of that study and ask how they collected the data.
Ah, that is interesting. I'd love to see something on the multiple data you've seen! I tried to look but didn't see whether this data is for only VC funded startups, or for a wider set that includes others, do you know. If there are other data sources on SV startup salaries that disagree, then I have to take back my US vs Germany comment. Perhaps the discrepancy is that this data was all opt-in, which could bias the sample? Anyway, thanks for following up!
A bit off topic but lets say you and your co-founder follow the canonical YC advice. You form a Deleware C-Corp, register your California foreign entity and grant yourselves ISOs with a 4 year vesting period and a 1-year cliff.
But then your company starts to do very well and in 6-months you both agree you won't need to raise VC and want to start paying yourselves more than the ~$100k mentioned in this article. What would be the best way to draw money from the company ? Increasing you payroll check seems unwise from a tax standpoint. Dividends might be a good way but you don't yet own a single share so you can't be paid through a dividend. You could pay yourselves bonus checks, but isn't that taxed at same rate as payroll ?
Side request, can anyone recommend a CPA in the East Bay (SF). Thanks.
You need to be careful with the dividend route. The IRS seems to frown on someone in a career that normally makes 6 figures drawing a 50k salary and 200k in dividends a year. I would ask an accountant. But this is exactly the downside of early C corp.
In Australia I was able to take money out of my Pty Ltd as director's fees. But the ATO views subcontracting very differently from the IRS.
Really: talk to a lawyer or accountant. The IRS are not going to accept "but I read it on Hacker News" as an acceptable defence to getting something wrong. Plus professionals have insurance to cover their mistakes -- commenters here do not.
You can always convert the C corp to an S corp.
in response to feedback being requested
The post: It's great, adds a lot of value.
The calculator: Terrible idea. Might even add negative value or be counterproductive.
The post is appreciated for multiple reasons. Insights from investors are not overflowing the Internet. It’s a relatively small group, so it’s often very helpful when someone chooses to share their thinking. It also has value because it’s not just pulling back the curtain, or sharing facts, rather, it offers critical analysis of how to approach the question. Even if some of the analysis is wrong, it’s still valuable, in that it inspires further analysis and facilitates understanding of the mechanics.
However the calculator is a reductionist solution to a problem, that can be highly inconsistent from one situation to another. Paraphrasing: Please input the number of kids you have? Sounds like something a government office would come up with. How about a calculator to pick startups to fund? Well, some people do try to automate betting on companies for various needs, however they often have limited success, and it usually involves very complex modeling systems, rather than a google spreadsheet.
The net of it is, using a spreadsheet might be helpful to track and manipulate data inputs, but not to generate an actionable result to drive a nuanced decision. I'm wary even of using it as a starting point, given the risk of building additional reasoning on a flawed foundation. It would be a great tool to have. The problem is there are just too many subtleties to capture (known and unknown), and even then they would apply differently across the startup world's highly variable situations and contexts.
In some ways the question is typical of many other questions startups encounter: It's at least partially and possibly highly subjective, the number of potentially relevant factors makes it impractical to spend lots of time of each factor, and the available data points are imperfect and/or incomplete.
As AI slowly but steadily chips away at the list of things humans can do better, questions with these attributes might be the some of the very last to fall. And when they do, it will not be office productivity software that slays them.
Isn't the founder salary something that only the founder and those who bought a board seat should care about? If I'm an investor and the founder wants a 40% premium over what the algorithm recommends, I may or may not agree, but surely the founder's judgment on that one issue is not an outlier from other good or bad judgement he or she may have.
I'd actually be more worried about minor graft like the founder hiring a family member to provide catering or the founder taking bonuses when most employees are not paid bonuses.
At a flat rate of $10,000/year per pop, the Duggars and their Quiverfull movement would love this Founder Salary Calculator.
Should you get more or less financial reward if you pay child support to outsource your kids (KAAS) instead of raising them yourself, so you have more time to dedicate to the start-up?
It would be interesting to hear YC’s official position on founder salary. Anyone have a link to an official post or comment from YC?
I've been through a few startups and I always paid myself as little as possible. That is to say, I paid myself the minimum I needed to cover my own personal fixed costs. For me it was important to leave as much money as possible for others and growing the company. When the startup is successful, then I'll take a higher salary.
Same here. I think this is the right attitude. By the way, this even goes for micro VCs, we didn't (couldn't) pay ourselves a salary in the first year or so.
Notes to a 20 year old me, from a 30 year old me who survived the last decade with my determination intact. I am a lonely survivor!
Be careful with giving your buffers (capital buffers, energy buffers, credibility buffers) away.
This is critical leverage that you need in many situations and almost all VCs refuse to give you any credit for whatever you have already given of yourself.
Sweat equity has minimal redeemable value outside of a success, in the eyes of sharks.
It is a dangerous game to play, especially with sharks.
I always recommend founders aim to contribute to the mission more personally than any other executive, and get paid at the maximum salary within the organization. Then, you should aim at fairness inside the organization, which is a very hard bar to reach, but is the correct response. What the market pays is immaterial, it's about what you value and how much you want to invest in your employees lives.
Generosity is one thing, but some people waste the money. Try not to give them large budgets. If a single mom is doing an amazing job on a tiny salary for her many kids, consider giving her more budgetary responsibility -- and training her by regular conversations. Etc.
A big mistake is giving "top talent" the money they were used to in big companies and racing teams. The assumption is always that with billionaires behind us and tech and talent this good, we could find the money.
But, in our case, after our largest corporate sponsor was killed tragically in a plane crash, and the price of oil dropped 3x (and has stayed low...), it was very hard to raise money for clean tech. Very few companies were funded, and almost none were funded by new investors -- mainly existing investors supported the companies that they had already invested in.
In many places the "top talent" could not adapt, and just went to places like Google X, where they have much more money but have much less independence and creative freedom than as a startup. Then, over time, almost all companies failed (though not us...)
But the truly dedicated people are still working on solving the problems. The people who are still trying found they could develop new capabilities. Those who've fought through the lean times are now a new elite, with value and respect beyond any pedigree from outside, within the group of those who've struggled through this Silicon Valley Forge.
To get in with us, people start with a baseline level of high respect and then strive to prove our faith in them correct through their actions, and strive to show the whole company what they can do. It is a wonderful thing to earn recognition of their capabilities through clever, elegant, and hard work, creativity, and play, but even better to work with a collection of people with unusual abilities harmoniously.
Being part of an outstanding team, so long as you are paid enough to live well (which is dependent on needs, particularly with family, education, and health on the mind), is worth far more than the money that we could possibly pay at this point.
If we are successful the work may be worth billions and might just make the future way better. We obviously cannot pay billions now. But we have a shot at making a difference. For those who believe it is possible, that can be enough, if you take care of their needs.
Many of the people who've worked for us say that it was the most exciting and productive and creative learning environment of their lives. There's something in that that cannot be put into a value in terms of dollars. You have to work with people who value that, or it will not sustain itself as a creative working environment. It's not about what you get out of work, it's about what you put into it, and how it grows.
The big problem with the modern world is that nobody plans for success. Everybody assumes that once they get to the next step, and solve their current money problem, then they can relax and things will be better. Everyone dismisses the possibility of success, and says "these are good problems to have." Actually, problems are problems, and the more successful you are, the more problems you have.
Make the success worth fighting for, and plan on it, and win.
That should be enough, for the right kind of person. The challenge of making that win come true, and having you and your team really believe in yourselves and your shared vision despite the odds being so far against you, that's really the trick. Rarely does anyone pull it off.
And then, rarely does a vision survive its first successes. Protect these fragile hopes and dreams. Plant them in the most fertile soil of your soul, and nurture them with your care and your love and your actions. The soul breathes choices.
Remember, you hope for so much more than the world is giving anyone right now. So don't settle for the trappings of success.
Make the world we live in your art, weave positive visions together from a zillion hearts, minds and souls, help friend realize their visions in our shared world, and then awaken to a universe alive beyond any one mind's wildest imaginations.
Ultimately everything comes down to BATNA [0], but a good place to start is what you would be doing if you weren’t running a startup and how much you would earn (after tax) if you worked as hard for someone else as an employee. This is your BATNA.
An investor (in theory) could pay you a high salary as an employee to work on the business and keep all the equity. An investment is in someways equivalent to a very high interest non-recourse loan. Given this you want to take the absolutely minimum in investment you can and an extra paid in salary to founders will cause you to take more investment than you need.
Personal circumstance should never play a role in what someone is paid, only their BATNA. When it comes to startups there are three forms of compensation; salary, conditions, equity. The split between these can vary, but the total should be fixed by the individual's BATNA, not how much many kids they have or student debt.
Slightly off topic your compensation in any job should never be based on how much value you bring to the company, but what your BATNA is. It is up to your boss to decide if your BATNA means they want to pay you as much.
0. https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiat...
Hoping the "100-hour-work-week" bit was a joke.
Probably not...getting any business off the ground usually requires a god awful amount of work at the outset. That's the trade off.
> If you raise a small angel or friends & family round, you’ll probably want to spend it on other things than founder salaries.
This part in particular doesn’t make sense, or at least assumes founders have savings and assets. But what if you don’t because you’re young or you’ve already bootstrapped your way through all of it and gone into debt too?
It makes sense to pay subsistence salaries at the angel stage.
Ya in the last company I founded I would go without paychecks to let my co-founder pay himself when we were running out of money/struggling to collect payment. It's a lot more about the needs of the people to be able to get through the initial phases than it is about 'equality and fairness'
I’d think the starting point would be a market rate salary - to the extent that a founder is willing to take a lower than market rate salary their equity should be increased taking that into consideration at each stage (or just issuing equity to that person that’s the difference between actual and market each year).
Supposedly that's what equity plus vesting achieves, which is pretty much the default.
It's amazing how little VC's value early stage founders. It's an accepted fact that hiring a competent CEO is going to cost you well into 6 figures and up. Because their experiences and track records are rare. If we all know having a good CEO is well worth that kind of money, then why don't we apply the same logic when allocating capital for paying the founder(s)? It's a hard job, fraught with literal peril. Founders often face personal financial ruin if the venture fails. Founders are literally pulling on a yarn to iterate on and articulate very broad visions. They are faced with critical decisions that will affect many people's lives every day under incredibly stressful conditions. If there's $1,000,000+ in the bank, it's a disgrace to pay a founder what amounts to Jr. level rates anywhere else.
Startup A pays founders 50k and has budget for 4 developers.
Startup B pays founders 200k and has budget for 2 developers.
All else equal, B should win right? It is running leaner that gives you more effort to throw at the problem. Until the point your pay is so low you have to stress about money.
Founder pay that is lowest to avoid stress seems optimal.
"What one programmer can do in one month, two programmers can do in two months"
Yes this is why Google, Apple, and Facebook all have 1 programmer.
Founders and CEOs are not the same thing just as startups and established corporations are not the same thing.
Seems like it should factor in the expected size of the company. If it can work with 2 solid engineers and 2 other people then $2 million goes a lot farther than if it is 10 people. So why not pay closer to market in that case.
Do the employees get an extra $15k / child?
I agree with most points but if you are dead set on dedicating yourself to the compahy you work at why did you take a large exit?
I frequently see advocating paying founders with kids more, but (partially because a company can't legally ask about having kids during an interview) almost never factor in those type of expenses for other employees. Unsure what I think about this.
I’d qualify these with - a non technical founder in a product company.
A technical founder of a consulting company would be making above market rate from day one, or you are doing it wrong.
How much does prior experience and shipping successful products count? Is it really better for your salary to pump out a few kids instead of shipping a few successful products? Do the kids have to be successful or will any kids do? ;)
https://lh3.googleusercontent.com/-gpJ2FfhmWMc/TYb7Un7m-gI/A...
Overall, a sensible calculator.
One surprise for me is how low the kids addition is. $18k (pre-tax) is hardly enough to cover the cost of a kid in SF. Even ignoring costs of additional housing, daycare costs are going to be over $25k/year.
Looking at the numbers:
* $90k single founder in SF - pretty easy to do (live with roommates); probably slightly excessive ($80k should be just fine for most folks)
* $108k founder with kids in SF - difficult. I'd put $120k as being a reasonable minimum with one (pre-k) kid.
I agree, I don't expect the kid additions to fully cover the costs. Trying to cover these costs fully is probably unrealistic, as it would lead to a very large salary spread between, say, a founder with 3 kids and one with 0.
The good news is that once you have kids you won't have time for parties or expensive hobbies anyway ... and the joy of having kids makes up for the financial disadvantage several times over. :-))
So this kind of defines value = able to raise lots of money. That just doesn't make sense to me.
Also the idea that you should be paid more because you have kids is same logic that communists used "to everyone according to their needs". In capitalism people should be paid based on what value they provide.
So, to me this calculator looks stupid. What if my startup hasn't raised any money, is still very profitable and employs 20 people?
This salary calculator doesn't seem to be focused on producing pay based on value provided.
It is a guideline to determine a reasonable amount a founder can get by paying themselves.
That's why things like location and family size matter.
If it was strictly a value proposition, the founder could pick any number that his investors would be okay with; he's the founder.
Could argue that raising children potentially provides society future value, making the increase a kind of long term investment
For society, maybe. For the startup, no.
Agreed. The line of thought probably ends up being an argument to have tax cuts for parents