Good News: Most Entrepreneurs Pay Themselves Reasonable Salaries

Business Insider
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May 28 2014 3:45 PM

A Non-Depressing Story About Executive Pay

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We didn't always make lots of money.

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This post originally appeared on Business Insider.

How much do startup founders pay themselves? And how much should they pay themselves if they raise money from investors?

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Career research company 80,000 Hours estimates that founders going through the Y Combinator accelerator program pay themselves about $50,000. If they go on to raise more money, that salary can double. If the startup flops, $50,000 could be the highest salary a founder makes.

"During the Y Combinator program, they use only a one-off seed investment from Y Combinator of $120,000 to pay living and business expenses," 8,000 Hours' Ryan Carey writes. The investment is expected to cover everything, including a small salary for the founder. "If they go on to receive angel investment [they] can pay themselves about $50,000 per year. With venture capital funding, this tends to increase to about $100,000 per year."

The most successful Y Combinator founders can make much, much more. Carey estimates that the founding teams of Dropbox and Airbnb are worth $6 billion combined, for example.

Carey's salary estimates for early-stage startups up with a Quora post on a similar topic. A founder who raised $500,000 used the Q&A site to ask, "Is a $100K salary too much for an angel/VC-backed startup co-founder?"

Foundry Group's Brad Feld thought a six-figure salary was too high for an early entrepreneur. Another person agreed, stating that while $100,000 is below what an engineer should make, it's "certainly above market for a seed-funded startup."  

"Salary should be sufficient to not create hardship—no sense in losing productivity because you can barely eat," this person concluded.

The general consensus seemed to be that a $50-$75,000 salary was reasonable. "$50K/year is plenty. Some families live on that," says VC Sean Owen.

David Rose agrees. "In my experience, that fact pattern (a pair of founders, $500K seed round) would typically see them each taking $50-$75K, at least until they either start generating revenue, or raise a larger round."

When you're profitable, you can start paying yourself a more impressive salary.

"An adviser once told me to keep the total annual figure (including taxes) under $100k per year until you're profitable, and VCs have seemed to accept this," another says.

Here's the most voted up response by Michael Wolfe, a four-time entrepreneur:

Alyson Shontell is a senior reporter at Business Insider. Follow her on Twitter.

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