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Is Your Startup’s Founder Paying Themselves Too Much?

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Golden_Dollar_SignWe’re all familiar with some of the stereotypes of 20-something founders at mega-financed, VC backed startups. Too often parties, fast cars, and fancy restaurants come into the picture.

We all know that’s not really accurate, though. In fact, last week we talked about how a majority of founders pay themselves less than $50,000 a year. Especially in places like the Valley and New York, that doesn’t go very far.

Location isn’t the only factor that affects salary, though. What about age, experience, and family responsibilities?

Oh, yeah, and revenue. How exactly does the “R” word affect founder salaries?

It turns out, according to Compass, monthly revenue is the most important factor in determining a founder’s salary. Until a company breaks $10k a month, most founders are still in the less than $50k range. When monthly revenue tops $1 million, founders seem to be more willing to increase their salaries above $100k a year.

The correlation really seems pretty obvious. If founders are fighting for every monthly penny, they’re less likely to want to pay themselves higher salaries. Company growth comes first. However, there’s obviously a point at which the company can grow AND the founders can pay themselves a living wage. That’s what we like to call the sweet spot.

startup revenue

 

Revenue was a big factor in founder’s salaries, but it wasn’t the only one.

Older founders pay themselves 71% more than younger founders, even though that is still just slightly more than $60k a year. Hardly raking it in or anything.

While it’s unfair to make blanket statements, it’s probably fair to say that younger founders can generally live on less. They usually don’t have kids or mortgage payments, and for the youngest set are still on Mom and Dad’s insurance. On the flip side, founders over 50 are likely to have savings or other sources of income and can therefore afford to take a smaller salary.

founders salary

Both Compass studies come from self-reported data, so some of it is to be taken with a grain of salt. For example, they found that 78% of founders are under 40. That’s not really a full picture of startups, as Darmesh Shah points out.

Neither Compass study controlled for VC funding, either. It’s safe to say a series A company will be paying its founders more than a bootstrapped one will be.

What these studies do,though, is give us a baseline for founder salaries. That helps us have perspective on some of the rigors and sacrifices starting a company requires.

It also reminds us that the rich technobrat is probably a figment of our collective imaginations.

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