If you think your startup is going to put you on the road to becoming a millionaire, good luck.
Being the founder of a new company doesn’t pay out a hefty salary, at least at first. If you remember this when calculating your starting salary, it’ll give you some peace of mind.
According to The Next Web, a tech news company, 66 percent of startup founders in Silicon Valley pay themselves less than $50,000 per year. That percentage is even larger in smaller startup hubs like London, Toronto, and Tel Aviv.
How do these founders determine their own salaries? There’s not one easy formula. Experienced entrepreneurs make more than newcomers, and leaders of larger teams take home more than those with just a handful of employees.
How much do CEOs make
One of the best predictors of a founder’s salary is how much money the company has raised from investors. For example, the average yearly salary for startup owners who raised less than $500,000 is $35,529. If a business took in between $5 million and $10 million, startup owners would get $62,150 per year.
“We’re not in this to take big salaries and make big money,” says Julian Jung, founder and CEO of Tablelist, which is based out of New York City’s WeWork 42nd Street space. “If we bring new team members on the board and their goal is to make six figures or more, then we won’t hire them. The founding team members don’t draw that much. It’s a misalignment of what we’re trying to do here.”
When he first launched Tablelist, Jung raised $500,000 from individual angel investors. He and his top team members decided to pay themselves $40,000 a year.
“We had a conversation and talked about how much money we needed to get by so we’re not killing ourselves or starving to death,” he says.
Following a second round of fundraising, during which the company received an additional $2 million, his and his team members increased their salaries. But they capped it at $90,000 per year.
Sam Rosen is a founder of MakeSpace, a WeWork partner in New York. While he paid himself $60,000 per year when the company launched, he allotted more to his founding partner because as a husband and father, he had additional expenses.
When the company started racking up investors, Rosen says he gave himself a raise. But he says he’s always aware that his first priority is the business.
“The dollars I pay myself are what I don’t give back to the business,” he says. “It’s really about paying yourself what you need to live.”
Andrew Englander, a cofounder at Plowz & Mowz, agrees that founders should funnel as much of the money as possible back into the business.
“My cofounder and I are not overly concerned about our compensation,” says the WeWork 42nd Street member. “Those dollars, from our perspective, are best applied to technology and growth marketing.”
Nanxi Liu, cofounder of Enplug, says she didn’t take any salary during the company’s early years.
“We were fortunate to all be in a financial position that allowed us to not take an income,” she says. “We’d rather use cash from sales and investments towards hiring and operations. Our team’s mentality was to build the best digital signage software product ever and then care about making money later.”
When they brought in investors, they based their salaries on their sales.
“The incentives were aligned among everyone,” she says. “When the company makes more money, so do all the teammates.”
Many startup founders say they have to dip into their savings just to keep their companies afloat.
“In the beginning, we were bootstrapping the whole entire thing,” says Jung. “I wasn’t drawing a salary. It was all from my own personal savings, and I paid employees out of my bank account.”
Rosen says that founders should launch their startups as soon as possible.
“It’s best to start earlier in life,” Rosen says. “Once you have more financial commitments like homes, relationships, or elderly parents, it becomes harder. If you have such high expenses that it’s problematic to start a company, then it’s less practical to bootstrap.”
If it’s tough at first, well, it’s supposed to be. But by keeping the end goal in mind, you’ll survive the preliminary stages and be on your way to running a highly successful company.
“We care about long-term success over short-term gains,” says Liu. “This attitude is reflected in how our team develops our digital signage software to be built for long-term growth and innovation.”