[HN Gopher] How much do founders pay themselves? A European data...
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How much do founders pay themselves? A European data set
Author : vinnyglennon
Score : 172 points
Date : 2022-03-01 14:01 UTC (8 hours ago)
(HTM) web link (sifted.eu)
(TXT) w3m dump (sifted.eu)
| holoduke wrote:
| In my last +10m startup I received a management fee of 6000
| euro's a month. It was considered by all investors as a normal
| salary. Yet it was the lowest in the company. And of course the
| tax authority asked us questions about it. Afraid that I would
| lower my salary to a minimum and receive high dividends. I am
| located in the Netherlands.
| milansm wrote:
| Is lowering the salary and receive high dividends illegal in
| Holland?
| ricardobeat wrote:
| (Disclaimer: not a founder or tax expert here)
|
| There are a bunch of rules, all aiming at making sure as a
| company director you can't qualify for any government
| benefits, and income is taxed in box 1 (income from
| employment) which has the highest rate.
|
| First is a minimum of EUR45k, then you can't be paid less
| than your highest paid employee, for an LLC you need to pay
| yourself at least 75% of profits. There's probably more to
| stop creative accounting and ensure the first chunk of money
| is always taxed as personal income.
| mtgx wrote:
| Traster wrote:
| Nice little subtle marketing from Graphy there. In the first
| paragraph he's just a random CEO giving a quote, then you click
| through to the survey and turns out it's by SeedCamp powered by
| Graphy. Oh and _then_ it turns out that Graphy is one of the
| companies that SeedCamp seeded.
|
| Putting that aside, I think big chunks of this article are trying
| to draw conclusions from tiny datasets that might not stand up.
| For example, the chart showing "Average Number of Employees By
| Annual Salary" is very clearly just a line connecting the
| individual data points, that should be a scatter plot with a
| trend line most likely, and what it shows is that most of the
| companies consist of only the founding team. Or the bar chart of
| number of founders vs CEO salary - I think they've sliced that
| data into so many buckets (4 buckets, 3 groups, N=200) that
| probably the variance between the groups is just noise.
| tbarbugli wrote:
| I also suspect the dataset is too small to be relevant.
|
| eg. there are no companies that raised an A and have 10+ ARR in
| EU
| batterylow wrote:
| First I'm hearing of Graphy... it's just my lucky after
| launching https://PlotPanel.com yesterday! My salary throughout
| was PS0!
| sireat wrote:
| PlotPanel looks quite nice for a launch, congrats! (Graphy
| looks decent too)
|
| For those who work with Python it is hard to beat plotly.js
| for front end because it transfers almost directly to
| whatever plots you are doing in your notebooks. Extremely
| customizable and also powerful.
|
| Well one downside to Plotly is that it is quite heavy about
| 3-4MB. Couldn't figure out a way to separate different graph
| types.
| Shindi wrote:
| I know that sinking feeling you're feeling after discovering
| a successful competitor but you can totally crush Graphy.
| Just make sure to differentiate.
|
| Even if not, you could eat a large piece of the pie.
| batterylow wrote:
| Thank you! I'll be taking a step back to figure out how to
| move forward... Marketing isn't my strength and I'm solo,
| but hopefully I can get the word out!
| mwint wrote:
| Your marketing page is beautiful, kudos.
| batterylow wrote:
| That's made my day, thank you!
| wongarsu wrote:
| How does the average founder in a four-founder startup hold
| 31.79% of equity after the pre-seed round? (from the "Impact of
| the number of co-founders on equity" graph). Am I reading that
| wrong, or is their sample too small or heavily skewed?
| PragmaticPulp wrote:
| > How does the average founder in a four-founder startup hold
| 31.79% of equity after the pre-seed round?
|
| How does the average founder in a 4-founder startup hold more
| than 1/4 of the equity _at all_? Something is wrong with this
| stat.
| Wilduck wrote:
| I noticed this too. I think the charitable way to read this
| is: "The average survey respondant who is part of a 4-founder
| startup" and that the survey was biased towards responses
| from founders with larger equity stakes in their companies.
| nicksalt wrote:
| You should pay yourself replacement value.
|
| What would you need to pay to replace the closest version to you
| at the stage of the company u are at.
| 6510 wrote:
| Or what you would earn elsewhere.
| consp wrote:
| Depending on the type of company, in some countries in the EU
| there is a required minimum depending on company age for the
| Founders. This might skew the lower bound a bit (if they included
| those).
| Cenk wrote:
| Here are the actual survey results: https://seedcamp.com/start-
| up-founder-compensation-survey/
| mountainofdeath wrote:
| It's for this reason I consider being an investor a much stronger
| position than a founder and orders of magnitude better than an
| early employee.
|
| As an investor, you have information that only you are founders
| are privy to. You can continue drawing a salary in whatever your
| day job is. At the end of the day, your loss is limited to the
| money you put in and the relatively low time investment. A
| founder gives up all of their time and near term compensation for
| a lottery ticket. For people already on a good trajectory,
| anything but a stellar exit is probably a net loss. For early
| employees, it almost always is a loss.
| TameAntelope wrote:
| Well yeah, it's hardly revelatory that having money puts you in
| a better position than not having money. The scale of privilege
| is obviously going to favor people who can invest in risk
| rather than rely on risk.
| motohagiography wrote:
| Worth noting that there isn't a time dimension on the X axis
| other than funding round interval, as when you average that comp
| over the 3-5 years it takes to get from seed to A, and then from
| A to eventual dilution and exit, the average compensation is
| significantly lower than the high watermark number for
| salary/comp package.
| karim79 wrote:
| In my case, I got a clued-up response from my lawyers, as to what
| I should pay myself from my in-profit startup, that is accepted
| by the German government and fair to the shareholders of my/our
| company. That was helpful. I think it is fair to be fair and on
| the right side of morality, ethics, and the law.
| duckmysick wrote:
| Can you expand on this? It would be cool to hear the details,
| especially from a non-US country.
| karim79 wrote:
| I can try. In Germany, as a soul proprietor, one can pay
| himself as much as is available in terms of revenue, minus
| taxes and costs of doing business. As a private shared
| company, which is my case, it's a bit different. The
| compensation of the CEO (myself) needs to be fair to the
| shareholders and the founders and somehow scientifically
| balanced (also in terms of what is perceived to be the
| "correct" compensation for such a role or endeavour, which
| includes having to answer to everything, government,
| customers, employees, all the things basically come together
| from case history and you get a number which is the "seal"
| for the role. It's interesting, to say the least. I happen to
| think it actually works.
| vincentmarle wrote:
| There's a similar minimum CEO wage requirement for limited
| companies in the Netherlands ( _DGA salaris_ ) but the
| reason is not so altruistic as you make it seem: the reason
| is that dividends are taxed lower than income, so they want
| to make sure you pay enough taxes on regular income first
| before you can enjoy the benefit of the lower dividend tax.
| auggierose wrote:
| That's why there are so many great startups from Germany.
| ricardobeat wrote:
| N26, GetYourGuide, Gorillas, Flink, Grover, Blinkist,
| Lillium, Zalando, HelloFresh, Delivery Hero, Home24,
| Trivago, SoundCloud... yeah that's clearly not working!
| auggierose wrote:
| That does not sound very impressive.
| CedarMills wrote:
| I made the mistake of paying myself too much after fundraising
| round and then too little in order to extend runway. Nothing is
| more stressful when you have less than three months of runway
| left and you have absolutely no saving and have a family and
| mortgage.
|
| For my next startup, I will try to bootstrap as much as I can
| first, and then pay myself a livable salary so that I'm not
| distracted by looking for others sources of income / radically
| downgrading my lifestyle.
| kavalg wrote:
| From the data it looks like they get more or less an average
| market salary for e.g. architect, team lead, project manager
| position. What really surprised me was the equity that they keep
| until series A (below 20%). I expected something at least around
| 35% for a successful startup that even makes it to series A.
| sam0x17 wrote:
| From what I've seen anything over 5% is usually ridiculous. At
| least for startups on a track to a billion $ valuation, most
| startups of this caliber (or that see themselves as being of
| this caliber, key point) will be in situations where each
| cofounder has 1-2% at most and the rest is kept aside for later
| rounds, employees, eventually going public, etc. Your mileage
| may vary, but that is what I've seen.
| PragmaticPulp wrote:
| > What really surprised me was the equity that they keep until
| series A (below 20%). I expected something at least around 35%
| for a successful startup that even makes it to series A.
|
| Keep in mind that it's common to have at least one cofounder.
| Some times more. Start with 3 cofounders and an equal split and
| already nobody can have more than 33% of the company.
|
| The term "Series A" has also become kind of diluted away by a
| growing list of earlier rounds: Angel, pre-seed, seed, etc.
| It's getting kind of funny to see how much fundraising a
| company can do before "Series A" these days.
|
| Equity is a tough topic to think about because everyone expects
| to have a lot, but numerically a startup with multiple
| cofounders and multiple investment rounds and an employee
| option pool and equity for early hires will end up with a lot
| of entries on the cap table. It becomes difficult for any one
| person to have >20% equity very quickly in most cases.
|
| At startups I often had to explain this to early but post-
| investment hires who expected 10% or more equity for themselves
| on top of market rate salaries. Unfortunately the equity gets
| spread across a lot of different parties.
| ilrwbwrkhv wrote:
| It's crazy that Elon Musk still has 17 percent of Tesla and
| founders are giving away more than that just by series A.
|
| Is it because they are not creating anything truly unique
| with great market pull?
| whatshisface wrote:
| It is because they aren't self-funding in the way that an
| ex-Paypal billionaire can. Elon Musk started Tesla with
| enough money to be a VC himself, but put it in to his own
| companies.
|
| Normal SWEs can follow this example by saving up and being
| willing to work for a big discount if it's their own
| company they're working on. That's not going to let you
| start a car company but for a website it might be enough.
| SmellTheGlove wrote:
| > Elon Musk started Tesla with enough money to be a VC
| himself, but put it in to his own companies.
|
| Didn't he _not_ start Tesla, though? I thought he bought
| his way in, and negotiated cofounder status?
| duped wrote:
| I'm not an expert in this, but most startups that have
| tried to recruit me in series A/B have such small ambitions
| (or more quantitatively, TAM) that I can understand why
| investors want higher stakes. If your TAM and desired
| market capture implies revenue of less than like $500
| million the company is never going to IPO, just for
| example.
|
| Side note, as a potential employee (and a different kind of
| investor) that's the determining factor in whether or not
| the equity vs paycut gamble makes sense.
| neilc wrote:
| > If your TAM and desired market capture implies revenue
| of less than like $500 million the company is never going
| to IPO, just for example.
|
| The vast majority of tech companies that IPO have
| revenues of (much) less than $500M.
| KptMarchewa wrote:
| Musk bought his shares at series A.
| PragmaticPulp wrote:
| On the investment side, seeing early founders pay themselves
| similarly to their employees or slightly less was usually a good
| sign that the founder was truly in it for the long term. You
| don't really want founders scraping by on ramen noodles and
| becoming financially desperate.
|
| Seeing founders pay themselves exorbitantly was not a great sign,
| though. If someone is truly building a company into something
| they believe to be very valuable, the salary shouldn't matter
| very much beyond helping them not worry about bills while they
| grow the company.
|
| That's all kind of obvious and well known. What I didn't know was
| how the unscrupulous founders also know this very well and
| instead come up with creative ways to pay themselves outside of
| salary numbers. One founder liked to pay himself $100,000
| consulting fees after fundraises to "reimburse" his work done
| before the raise at what he believed to be "below market rate".
| It's the kind of thing that won't show up on cursory due
| diligence, but will poison later rounds when investors dig into
| finances and realize the CEO or other cofounders have been
| quietly extracting extra money for themselves. In one case it
| damaged a startup I was fond of enough that it cost the CEO
| potentially millions in equity in a later acquisition that
| failed.
| CPLX wrote:
| Someone refused to acquire a company for (presumably) tens of
| millions of dollars because a founder took a below market
| salary and then made up for it after a funding round with a
| 100k payment?
|
| How did discovering this affect the acquirer's investment
| thesis? Presumably they felt like the company's growth
| potential and revenue was sufficient to invest many millions to
| own it, but then this changed their evaluation?
|
| Not that I think it's best practices for a founder to do this
| with investor money, but it sounds like a just-so story.
|
| I'm guessing there was more to it than this. It seems like VC's
| always have a perfect anecdotal narrative of why it's in
| everyone's best interest to do things that make the VC firm
| more money.
| anamax wrote:
| > Someone refused to acquire a company for (presumably) tens
| of millions of dollars because a founder took a below market
| salary and then made up for it after a funding round with a
| 100k payment?
|
| Yes. It goes to the CEO's honesty and character. When you
| find something like this in due diligence, you start
| wondering what you haven't found.
|
| This is somewhat similar to https://www.insider.com/van-
| halen-brown-m-ms-contract-2016-9
| [deleted]
| PragmaticPulp wrote:
| More or less, yes.
|
| Although it wasn't a single $100K payment. It was a pattern
| of bragging about "taking a $1 salary in the early days"
| while doing essentially the opposite on the books.
|
| When investing you can't due diligence everything. When you
| find a couple instances of the CEO telling you one thing but
| then doing something else _and_ using accounting tricks hide
| it, it raises red flags. It 's rarely ever just a single
| lapse of judgment like that.
| CPLX wrote:
| Seems to me the issue is lying.
|
| Lying about what you did with the money is definitely a red
| flag. I think any sane investor would worry about a CEO
| making financial misrepresentations. But the actual
| behavior of taking low compensation and then making up for
| it when the company later has excess funds seems completely
| defensible if it's done without deception.
| ska wrote:
| Agree this would (and should) raise eyebrows. If enough of
| a pattern it probably makes sense to spike the deal. At
| very least, it's going to change your risk profile.
| vmception wrote:
| My experience is that founders can have it all as long as they
| can articulate what the exit strategy is.
|
| But I dismiss anyone in it for the long term anyway, so I'm
| actually screening against that and instead of trying to figure
| out how they're lying about being in their new corporate
| forever home. Don't get married to positions. Different
| strategy.
| wpietri wrote:
| Agreed. As an occasional starter of things, if I really believe
| in my company, then all things considered, I'd rather have a
| surplus dollar in the company, as that's where I think my
| highest long-term ROI is. Early on, founders taking lots of
| cash out would be a negative sign for me. The $100k because-I-
| can fee strikes me as repulsively WeWork-esque.
|
| On the other hand, I've been reading lately about the vast
| acceleration in the pace of investor money since last I did a
| venture-backed startup. [1] To me this looks somewhat like the
| diet of a pate goose: more to the benefit of the feeders than
| the goose itself. If my investors are in it for a quick flip, I
| would have to question how much I should be long-term focused.
|
| [1] Scroll down to "fast is in fashion" here:
| https://pivotal.substack.com/p/minsky-moments-in-venture-cap...
| PragmaticPulp wrote:
| The "proper" way to take money off the table is for the
| founders to sell some of their own equity in a secondary
| sale. This way it's all above board, done in plain view of
| the investors (who might buy the equity themselves), and most
| importantly isn't extracting cash out of the startup.
|
| Investors invest in companies to give them runway and for
| hiring. If the founder is extracting that money back out of
| the company to line their own pockets (beyond a reasonable
| salary) then it doesn't help the company at all. Founders
| should be selling their equity, not withdrawing from the
| company's bank accounts.
| tomrod wrote:
| Reasonability of salary is my approach. For S-Corps, median
| of market passes the sniff test IMO.
| wpietri wrote:
| Oh, sure. I don't disagree. That's how I'd do it.
|
| But my point is that even when I last took venture money,
| more than a decade ago, I had some questions about how much
| the goal of investors was to "help the company". With the
| way funding trends have changed, that's an even bigger
| question. Which would then force me to ask: how much sense
| does it make for me to be more invested in the long-term
| future of the company than the investors are?
|
| Personally, my behavior wouldn't change. But the more
| investors are in it for their short-term interests, the
| more they should expect to attract founders who feel the
| same way.
| ed25519FUUU wrote:
| > _On the investment side, seeing early founders pay themselves
| similarly to their employees or slightly less was usually a
| good sign that the founder was truly in it for the long term._
|
| I don't know. Just seems like accounting to me. They take a
| small salary but own 80% of the company you're helping build
| for the same salary but 0.03% ownership.
| ska wrote:
| It's not just accounting, it speaks directly to the
| incentives of the founders & execs and their commitment to
| the long term success and growth of the company.
| PragmaticPulp wrote:
| Outside of cofounders and founding employees (who, by
| definition, joined before the company was funded and worth
| more), the total employee option pool might be around 5% of
| the company in an early startup. Note that it will grow in
| later rounds, but dilution will reduce the share of early
| employees in those rounds.
|
| If you hire 100 employees and split that 5% equally then you
| get 0.05% per employee. What else would you propose? If you
| tried to give everyone something like 0.5% then the first 100
| employees would have to own 50% of the company. Doesn't
| really work.
|
| The earliest employees who join when company size is less
| than 10 people or so, as well as key early hires like
| valuable VPs will end up with higher equity, but once a
| company reaches a point of paying market rate compensation
| then a 0.05% equity stake isn't really unfair.
| runako wrote:
| It would appear there are two main avenues:
|
| - Don't split equity evenly across the first 100 employees.
| A non-cofounding VP Engineering should probably get a
| bigger stake than a non-founding customer support rep.
|
| - Increase the employee option pool.
| 6gvONxR4sf7o wrote:
| > If someone is truly building a company into something they
| believe to be very valuable, the salary shouldn't matter very
| much beyond helping them not worry about bills while they grow
| the company.
|
| I don't get that. If someone is truly sitting on a lottery
| ticket they believe to be valuable, salary still matters very
| much, because there's significant irreducible risk that it
| doesn't pay out. From a strictly financial perspective, it's
| the same reason people don't go all in on one company in the
| stock market, but rather diversify their portfolios: People
| maximize risk adjusted values rather than just expected values.
| xwdv wrote:
| People diversify portfolios out of ignorance, not prudence.
| If you don't have any special knowledge that lets you favor
| one company over another, then you might as well pick a bunch
| of them. But if you know one company is a good bet for
| specific reasons, it makes sense to lean your portfolio
| heavily on it. That is how you get so rich.
| Thrymr wrote:
| That is still doubling down on risk, so diversifying is
| indeed prudence. Even a good bet is not a sure bet,
| particularly if it has a chance of high payoff.
| isbvhodnvemrwvn wrote:
| Or homeless.
| streetcat1 wrote:
| So this is not a 0-1 game. Most of the risk in a startup (if
| you dont take VC) is getting to 5K MRR - 10K MRR. Once there,
| the existential risk should be reduced to zero.
|
| If you take VC, than there is always an existential risk,
| since you are relying on new money being available for the
| next round.
|
| Also, you diversify in the stock market mainly due to
| information uncertainty. I.e. you do not have any control on
| different risks (economy, company corruption, etc.).
|
| However, in a startup you have much more control on the
| company future (again, if you DONT take VC money).
|
| If you take VC money, than the company is basically a
| privately traded company, and you assume all the risks of a
| public company.
| rixrax wrote:
| Assuming it is financially viable and healthy, founders should be
| paid around the same as some of the more expensive hires in the
| company. If the company is hiring talent that asks for e.g. 300k
| total comp, but founders are left behind at say 100k, it gets
| increasingly distasteful to hire people that probably should be
| hired because not everyone of these 300k total comp hot shots end
| up working out for the company (and need to be eventually let
| go). Down the line, this in my experience leads to poor hiring
| decisions where founders get increasingly frustrated of the
| discrepancy between their pay and that of hired talent and start
| opting for people whose ask is closer to what the founders are
| being paid (when they infact should really go for the best
| available talent that the company could afford).
|
| In early(er) stage startups the situation is of course different,
| but once there is revenue and maybe larger capital injections
| from VCs, it is my experience that compensation committees or who
| ever is deciding founders salaries, should make sure founders are
| not left too far behind compared to what new hires are being
| paid.
| a_c wrote:
| Several thoughts
|
| - would love to see distribution rather average, as average is
| easily skewed by outliers
|
| - salary Vs exit (bust, acquisition or public)
|
| - salary Vs employee. I was listening an episode of How I Built
| This by Guy Raz. The founder of Goodreads is paying himself about
| the same level as highest salary employee. I find it a good
| reference
| onion2k wrote:
| _As can be expected, founder salaries increase as their company
| goes on to raise more funding._
|
| Raising takes you out of building the business and turns you into
| someone who spends all their time talking to investors instead,
| usually at precisely the time your business needs you to do
| founder things. By hitching your pay to when you land another
| round you're incentivizing raising rather than growing the
| business, and that's probably a bad thing.
| robbiemitchell wrote:
| As you grow, a founder's job is to hire people who can build
| and lead the company with you.
|
| Waiting for a fundraise to increase a below-market salary in an
| unprofitable business is a responsible thing to do.
| MayeulC wrote:
| Graphs do not load for me, even with adblock disabled. Firefox.
| onebot wrote:
| Having done this 5x times now. My advice is the same I got from
| one of my first VCs @FirstRound...
|
| Pay yourself as much as you need to not be distracted by anything
| that would slow you down. It is different for different founders
| and for whatever stage they are at in life. But if you are a
| founder with a family, that is gonna be different from a founder
| fresh out of college.
|
| Obviously you want to spend as little as possible, but not to the
| detriment of you lacking focus and dedication because you can't
| pay your rent.
| culi wrote:
| > Pay yourself as much as you need to not be distracted by
| anything that would slow you down
|
| I'd say this goes equally for your employees, no? Pay them
| enough to take money off the table
| onebot wrote:
| In this competitive market, you are likely paying them market
| plus equity for top talent. EU is less competitive, but you
| should be paying market or below market if you are augmenting
| with extra equity.
| andrew_ wrote:
| I was recently offered a founding role. The cofounder is 14
| years younger than I. I have a family of 5, she is single and
| living on a very light income. Her advisers were telling her
| founders should pay themselves an amount that was approximately
| 1/3 of my current take-home. The divide in stage of life and
| accumulated responsibility was just too great to overcome and
| we parted ways.
| mywittyname wrote:
| This seem so penny wise, pound foolish to me. Assuming the
| long-term value difference between a great founder and a
| mediocre one can be tens or hundreds of millions of dollars,
| it really makes sense to spend the extra few hundred thousand
| on the best cofounder available.
| hwers wrote:
| To me it's a sign of a lack of confidence in that long-term
| evaluation and is probably a sign they don't have the right
| risk attitude to be in the startup game to begin with.
| SmellTheGlove wrote:
| And to me its a sign of not understanding and/or not
| valuing what an extra decade and a half of experience
| brings to the table. Paying that cofounder more based on
| their stage in life is a requisite to acquiring that
| experience.
|
| They're both bearing the same risk, it's just quantified
| differently for two people in two different life
| situations.
| newaccount74 wrote:
| I guess it depends very strongly whether the startup
| needs that experience or not.
|
| And to be honest, the kind of experience that someone who
| worked 15 years as a developer brings to the table is
| probably not going to be the kind of experience that
| makes or breaks a startup. Experienced devs can bring
| much more value at later stage companies, where they can
| focus on the thing they are good at, rather than at an
| early stage startup where the founders have a million
| different responsibilities.
| SmellTheGlove wrote:
| > I guess it depends very strongly whether the startup
| needs that experience or not.
|
| Well, this is in response to a post that said they had an
| offer, so my presumption here is that the startup needed
| that experience or they wouldn't have offered the role.
|
| > And to be honest, the kind of experience that someone
| who worked 15 years as a developer
|
| The original post didn't specify whether they were a
| developer, only that they were 15 years older than the
| other co-founder. I'm making my own assumption about that
| translating into 15 more years experience (not accounting
| for breaks, back to school, whatever).
| jokethrowaway wrote:
| Having a developer with experience or one without is the
| kind of thing that can break a startup.
|
| If you try to get a single junior developer to ship the
| product... well, good luck with that. I can count on one
| hands the people in my circle who could do that fresh out
| of university. You definitely need at least a mid
| developer who shipped something else - of you can just
| outsource the tech side.
|
| When my startup was incubated there were plenty of biz
| founder with a junior who couldn't ship something simple
| (even a wordpress with some plugins would have worked!)
| or ended up outsourcing their development (which ended up
| being a way to make some income when my startup didn't go
| anywhere).
| andrew_ wrote:
| I would argue that your take doesn't apply to T-shaped
| engineers, or engineers that have been in the industry
| through a multitude of technology shifts and trends.
| gedy wrote:
| > And to be honest, the kind of experience that someone
| who worked 15 years as a developer brings to the table is
| probably not going to be the kind of experience that
| makes or breaks a startup.
|
| Hard disagree here, as many many junior devs treat
| startup/greenfield work as their personal playground for
| trying esoteric tech, prematurely building their own
| platform, etc.
| PragmaticPulp wrote:
| > Paying that cofounder more based on their stage in life
| is a requisite to acquiring that experience.
|
| The primary compensation for a founder position is the
| equity stake. A co-founder would get substantial equity
| (20% or more). For perspective, consider that future
| investors will be pouring millions of dollars into the
| company in exchange for a similarly sized equity stake.
|
| You need to remember that as a co-founder, they're
| deciding what to pay _themselves_. The higher the base
| compensation, the less runway they have and the fewer
| employees they can hire.
|
| If someone is demanding a $450K/year base compensation as
| a co-founder, they're not looking at this as a true co-
| founder role. A co-founder would want to focus on equity
| and take something like $150K/year so the company could
| hire 1-2 additional engineers with the other $300K/year.
|
| If this sounds weird or unfair, then you're probably not
| a good fit for a co-founder role. And that's fine! For
| most people, taking the $450K-$600K big tech is the
| better choice. Not everyone is cut out for the risk-
| taking of a co-founder role.
| andrew_ wrote:
| > If someone is demanding a $450K/year base compensation
| as a co-founder
|
| I see no mention of numbers aside from fractions in my
| comment. This is truly jumping the shark in order to form
| an argument.
|
| > A co-founder would want to focus on equity and take
| something like $150K/year so the company could hire 1-2
| additional engineers with the other $300K/year.
|
| This is a rather bold assertion and you're stating it
| with the tone of authority and general application across
| the entire spectrum of what makes a startup, in any
| sector, of any flavor. You're also applying your own
| personal bias as a statement on a very personal situation
| offered anecdotally. Both are neither fair nor wise.
|
| Startups come in a million flavors. What a person's
| responsibilities to their family are does not equate to
| not being "cut out for the risk-taking," as risks
| themselves are of great variety, nor does a co-founder
| need to focus on equity alone. I'm fortunate to have a
| wide network of colleagues that include co-founders that
| are in the game for long-term viability and stability to
| provide equitable income for themselves and their
| families, and their employees, as well as a return to
| investors. It's clear that your view is one through the
| lens of "to the moon on the back of a unicorn," where in
| fact there are many different long-term strategies. I
| personally find the unicorn startup path distasteful and
| disingenuous, as there's such an incredible rate of
| failure. Modesty and consistent, steady growth are now
| highly underrated.
|
| Overall your message echoes that of the proposed co-
| founder I mentioned in my original post, and is
| antithetical with my views on business and startups in
| general. To those who may be reading the parent above,
| know that there are many successful startups that don't
| subscribe to the same philosophy.
| SmellTheGlove wrote:
| > If someone is demanding a $450K/year base compensation
| as a co-founder, they're not looking at this as a true
| co-founder role. A co-founder would want to focus on
| equity and take something like $150K/year so the company
| could hire 1-2 additional engineers with the other
| $300K/year.
|
| I think we're both making some assumptions around what GP
| was offered, but I would agree with you that asking for
| $450k as a cofounder is unreasonable. But I'd say that
| for someone closer to middle age with a family, $200k
| isn't unreasonable. The idea is that you want the
| cofounder to focus on the company, so you remove the
| financial distraction.
|
| > Not everyone is cut out for the risk-taking of a co-
| founder role.
|
| Sure, but that's not what I'm talking about here. I'm
| saying that you should not expect your co-founder and
| their kids to live on ramen. If you want the experience
| they offer, you gotta pay their bills. It's not about
| extravagance, it's just the cost of mitigating the same
| risk that the 20-something cofounder faces and mitigates
| with their own salary. It just costs more to do it with
| someone who is a little further along in life.
| Kletiom wrote:
| Something like 150k.
|
| In which world are any of your numbers realistic for a
| founder position?
|
| I mean we talk startups. Most startups not even get 500k
| in a seeding round ever
| PragmaticPulp wrote:
| The missing piece of this scenario is your current take-home.
| If you're pulling in $600K at a BigCo then it's not really
| reasonable to expect an _early_ founder role to match that
| compensation _and_ give you substantial (10-20% or more)
| equity in a new startup. Giving a founder $200K in the early
| days should be enough to let them focus on the startup and
| not worry about finances. If someone is in a personal
| position where something like $200K /year would cause great
| financial stress, they're probably not a good fit for a high-
| risk startup founding position anyway.
|
| OTOH, if you were making $200K and the startup insisted you
| drop to $70K/year, that's just short-sighted on their part.
| Especially in this generous funding environment it doesn't
| make any sense to squeeze founders with tiny salaries.
|
| The life stage and family differences are indeed a big gap,
| but I think the career stage differences would have also been
| insurmountable. Once you're a decade or two into a career and
| you have a comfortable position at a big company, it's really
| difficult to shift back into scrappy startup founder mode.
|
| To be clear: There's absolutely nothing wrong with taking
| well-paid roles at big companies. It's actually a great
| option, and it's fantastic that we can get paid so much
| without taking on the risks of a startup. There's not really
| a right or wrong answer in this job decision.
| robocat wrote:
| I suspect most founders do not account for their
| opportunity cost correctly.
|
| For example: two founders, one innovator at $150k current
| wages, and one tech at $350k. They work earning $0 each,
| spending their savings for one year, and then get a seed
| round of $1 million. Even though they have invested $500k
| equivalent at the highest risk they will only get common
| shares in their first round, so their cash-equivalent
| investment is usually highly undervalued. The standard VC
| return is looking for 30x return over 10 years (from their
| one successful investment out of 10 companies). The
| standard VC returns represent the best approximation to
| investment risk. However founders have higher variance (one
| company) and they don't get preferential shares, so
| founders need _far_ more than 30x return (much greater than
| $15 million) to even break even on their risk because they
| are highly leveraged due to common shares. Only 5% of VC
| funds even achieve fair returns, so founders are even more
| fucked than you might think.
|
| Edit: although wages are less in most countries, I expect
| the risk for founders is actually higher. Investment
| amounts are smaller, less chance of outstanding company
| success, and investors seem to really screw up the
| companies they invest in (from my experience in NZ watching
| other companies that took VC or seed investment).
| PragmaticPulp wrote:
| Even with $10-$100 million range exits, typical founders
| are doing more than okay.
|
| Assuming founders are still in charge, they're often
| given substantial bonuses ($1-2mm or more) if an
| acquisition would make their equity worthless. This is
| done to align their incentives with getting the
| acquisition done, otherwise they'll hold out.
|
| Also, founders tend to pay themselves market rate once
| the company has grown significantly. In your scenario
| they wouldn't take the reduced $150K salary forever.
|
| The bigger risk is to employees of startups. They don't
| get the generous acquisition bonuses of other companies.
|
| That said, founders of any startup that makes a mark are
| usually in high demand. Even if they fail, they can point
| to a lot of experience that few others have.
| jedberg wrote:
| It probably wouldn't have worked out well anyway. Your
| cofounder would have been upset the first time you spent time
| with your kids instead of working. Founders need to be in
| roughly the same life stage for things to work out, or if
| not, have a very strong understanding of what the other
| person's work life balance is. Or at least the one without
| kids needs to have very involved hobbies to spend time on
| when you spend time with your kids!
| robotresearcher wrote:
| Eric Schmidt, Larry & Sergey are a counterexample.
|
| (But a runaway success is a poor model for expected
| outcome.)
| jedberg wrote:
| How are they a counterexample? Larry and Sergey were both
| grad students in the same place in life. Eric was hired
| after they had funding and profits and was not a
| cofounder.
| robotresearcher wrote:
| Ah, thanks for the correction. I didn't recall there was
| 4 years between startup and Schmidt joining.
|
| He says in the linked interview there were ~150 employees
| when he joined.
|
| https://www.freshworks.com/hrms/eric-schmidt-talks-about-
| wha...
| Rd6n6 wrote:
| I would say that setting aside a tiny bit on top of "pay your
| rent" for savings is necessary. It doesn't have to be a ton but
| you shouldn't be in trouble if the company doesn't work out.
| Startups can take years to play out and you need a safety
| cushion afterwards, some basic level of financial security
| jxm262 wrote:
| never heard this before, but that makes perfect sense. thanks
| for sharing
| vishnugupta wrote:
| Multiple angel investors told us something similar.
|
| One in fact said they wouldn't fund us if we pay ourselves way
| too little because then we would be massively distracted to
| create anything valuable.
| Nition wrote:
| The article phrases it as "pay yourself just enough to not
| think about money."
| myrandomcomment wrote:
| This! 100%. Last startup when I was promoted to an e-staff
| level I said "here is what I need not to have to think about
| anything but making us a success."
|
| I have a new startup, and I picked the lowest number that makes
| me not worry about the bills.
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