Almost all of the seed stage founders I work with pay themselves a very meager salary post seed round. It’s rarely a discussion – there are limited resources, a lot of pressure to hit meaningful milestones, and the founders usually just elect to pay themselves a mid-5-digit salary that is enough to survive and not much else.
But then, some subset of these companies go on to raise a series A of, let’s say, $4-$7M. At that point, broaching the subject of CEO comp becomes a little awkward. As a founder, you don’t want to signal that you are suddenly in it for the cash comp – you are not. Clearly, your equity is the most important thing.
At the same time, you shouldn’t be expected to be paying yourself $40K/year and barely scraping by (or burning money for your family). Building valuable companies takes time, and both you and your investors don’t want you to be doing unnatural things to ensure you have the means for a satisfactory lifestyle.
So, what are some guidelines around this? Let me offer a couple.
- First, for the most part, founding CEO’s continue to be mostly incentivized by their ownership in their own company. Given the opportunity, they’d rather pay a rock-star hire $20K more than have $20K more salary themselves. So I hesitate to give strict salary ranges. I will say that for the most part, the target series A salary is a level where the founder can feel financially comfortable and not much more.
- Because of this lens, the appropriate compensation varies by the circumstances of the founder. Their current financial obligations, family situation, living situation, etc. come into play with the definition of what “financially comfortable” might mean. But it’s not typically a wildly broad range.
- Equity ownership is something to consider as well. If there are many co-founders on a team, slightly higher salaries could be justified.
- I’m not a huge fan of performance bonuses at this stage. I think equity is the most aligned incentive for a founder and CEO. Also, at such a raw stage, it’s dangerous to draw a line in the sand about what targets one needs to hit to have a successful year. It can lead to unnatural behavior. I wouldn’t say this is the case all the time, but it’s generally more appropriate later in the life of a company.
- When you factor all this in, I think you see a range of CEO salaries between $90K-$150K. And most often, the range is more like $110-$125K. It ends up being a pretty tight range, because most CEO’s of early stage companies are incentivized most by the desire to build a big, meaningful company. This probably goes without saying, but this also means that the CEO is not going to be the most highly paid employee in the company on a cash basis.
- Founders should feel no shame in bumping their salaries to a level like this when they raise their series A. I think it’s appropriate and expected by VC’s.