How you decide your salary for your startup after getting funding?


5

No Salary before funding but what about after you get funding?

I think Mint.com CEO mentioned in presentation about @30K salary he took initially. How do you come up with that number? How do VC/Angel approve that number?

The required amount can be different for Bachelor vs Married. Rent vs Mortgage payment etc. Also the expectation can be different for people who quit high paying jobs for a startup vs someone who just graduated.

Salary

asked Oct 28 '09 at 23:21
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Web Thinker
430 points

7 Answers


15

What we did in our startup was pick "official" salaries for the positions we were in as if we were profitable (i.e. like the fairly senior engineers we were at our old companies, but with a salary boost to reflect that we were also principals in the company). But since we had no money, we deferred the founders' salaries for a while, then after we got funding, we agreed to be paid 25%, and then later 50%, of our nominal salaries.

The great part of that was that after our company was acquired, the new bosses just assumed our nominal salaries were correct and paid us 100% of that rate, with no hassle. If we'd picked nominal salaries too high or too low, one side or the other would have demanded a protracted negotiation, which would've complicated the acquisition and transition to the parent company. So don't get goofy and say "my salary is $1,000,000 but I'm deferring it", and also don't just say "my salary is $1, aren't I cool." It's worth the effort to set a fair official salary even if the understanding is that it has to be deferred until you are profitable.

Aside: the original question mentioned different rates for bachelors vs married, rent vs own. Remember that those distinctions are generally illegal (in the US) to set salaries, so you probably don't want to get off on the wrong foot with that. It's ok for a startup founder (or employee) to say how much they can defer and how much they need now to live, but their nominal salaries should be set without any reference to life conditions that would generally not be allowed for employment or salary decisions.

answered Oct 30 '09 at 02:19
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Lgritz
361 points
  • Fantastic comment. I'm going to go do this now. :) – Josh Sam Bob 10 years ago

6

(Bear in mind, this comes from an entrepreneur who hasn't yet taken a salary from his start-up.)

You need to calculate two things:

  1. Of all the part-time workers on this project, which one would benefit the company the most if he/she went full-time? (rank everyone from most to least)
  2. Of all the part-time workers on this project, which one of them could afford to take a small salary for a year or two in order to work full-time?

When you look at those, and take into consideration the variables you mentioned, you'll start to see who might be a good person to go full-time instead of part-time. Then they will have to do some math on how much they need in order to survive, and they should take that and not a penny more.

Why $30,000 if they can take $50,000? Because that difference of $20k might mean a different lifestyle to them, but it might mean success or failure to the company. Think about what your company could do with $20,000... do you still think the employee should get that money?

answered Oct 29 '09 at 00:18
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Josh Sam Bob
1,578 points

6

As little as possible needed to survive. Everything else should go into the business. If you've got extra $s they should go into making your business an enormous success, not a fast car.

answered Oct 29 '09 at 03:29
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Neil Davidson
1,839 points
  • The VCs don't want to make me wealthy off of their money? – James Black 10 years ago
  • +1 Great advice! – Ricardo 9 years ago

1

How you come up with that number?

He said it was a minimum he could live on.

How VC/Angle approves that number?

You negotiate.

Required number can be different for Bachelor vs Married.

Right. Without knowning a particular situation, it's impossible to advise. In my opinion, salary is not hard to determine/negotiate, unless there is an equity share involved, which changes everything. Is it your case?
answered Oct 29 '09 at 03:23
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Oleg Kokorin
459 points

1

It should be something that will help you to live on without trouble but it shouldn't be too much.

If you insist for a high salary that means you don't believe in your own idea and your startup. Because if you were you knew you'll start make money within a year and salary wouldn't matter anyway.

Basically as little as possible but also don't go for too cheap because you don't want to think twice before buying a $15 book or that you don't have enough money to pay the bills, you got better things to think about like your start-up.

answered Oct 30 '09 at 21:55
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The Dictator
2,305 points

0

So let me ask this since this is a grey area for us as well. If we as a company need to go hire someone at the skill set that a founder has it would cost well into the 6 figures times 3-4. But to pay himself as a founder it would be inappropriate because he retains founder shares? Is it better to pay a hired gun this wage even if the founder may have a better grasp of what direction or methods are needed to advance the business?
I say this as we are raising funds for expansion but never really though of this as we view it as we are selling a piece of our company for expansion capital. In this equation we can simply pay ourselves(the founder group) from our monies, continue to grow the business. Of course a healthy percentage of the monies from the sale will be earmarked to growth but not 100% of it. Are we wrong in our thinking?

answered Nov 4 '10 at 08:44
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Xs Direct
275 points

0

Your investors won't complain that you pay yourself. Just don't be greedy, you're not meant to be saving money or going on holidays.

You won't have to negotiate your salary unless you fuck up spectacularly (eg: i'm gonna pay myself $100k!) investors will trust your judgement if you get that far into an investment deal.

answered Oct 30 '09 at 08:07
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Pclark
744 points

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