“How much should I pay myself?” is one of many sticky questions that arise when founding and scaling a company. A new report from accounting provider Pilot shows how 500 startup founders are answering that question.
Know that 46% of founders are making less than six figures. That range was more common among bootstrapped founders, 69% of whom reported paying themselves less than $100,000, compared to 42% of founders who had raised VC funding.
Don’t be a martyr. Three percent of VC-backed founders and 18% of bootstrapped founders reported paying themselves a $0 salary. But founders should pay themselves a living wage that covers their expenses, whether they’re single and living with roommates or paying a mortgage and supporting a family.
- “It can be sort of a flex: How little can you take?” said Joe Du Bey, co-founder and CEO of Eden, a people success software maker.
- That mentality can hurt founders who don’t have as much of a safety net, have families to support, or are paying off student loans, Du Bey said, noting that it “was not on the menu for me to take zero” early on because he had just finished his MBA and had student debt.
- Startup fundraising adviser and former Y Combinator partner Aaron Harris said he’s seen some founders go into debt from not paying themselves, despite raising millions in funding. “No one forced them to do that,” Harris said. “They just sort of had the impression that, ‘I’ve heard I’ve got to starve to win,’ or something like that.”
- Paying yourself too little can create mental stress or distraction, said Susan Alban, operating partner and chief people officer at the early-stage VC firm Renegade Partners. “If it is, that’s a really important wake-up call,” Alban said.
Get help from your board. “Having a board makes this way easier,” Du Bey said. “If we didn’t have a board, I would probably feel weird about it, honestly.”
- Paying yourself can feel “like you’re taking money from your investors and putting it in your own pocket,” but boards can weigh in on salaries that make sense for founders and other executives, Du Bey said.
Remember that salary is only one component of founders’ long-term wealth. Only 2% of VC-backed founders and 6% of bootstrapped founders reported paying themselves $300,000 or more.
- Employees and non-founder executives will often make larger salaries than the founder, though there’s an argument for having other execs’ comp packages lean toward equity rather than cash.
- “Ideally you want your C-suite to have compensation that’s very heavily equity-based, so that their reward is directly tied to company performance,” said Matt Birnbaum, talent partner at Pear VC.
- At the same time, underpaying execs can hurt your ability to recruit talented leaders, which can mean “you’re going to end up wasting [investors’] money in a different way, not on salary, but on a subpar outcome,” Du Bey said.
- And don’t shy away from considering selling some of your shares at a funding round, Harris said. “If you ever talked to a financial adviser and you say 99% of my wealth is tied up in one thing, they’d tell you to diversify,” Harris said.