When you’re a startup founder, the question of how much to pay yourself is not always straightforward.
For Jeff Gardner, founder of personal finance tool Praxeo, figuring out what was “reasonable” was nigh on impossible in the beginning.
“Everything I searched for online seemed either out of date or wildly biassed towards the 20-something founder in San Francisco,” explains Gardner, who is based in Lombardy, Italy.
“I knew I'd have to take a salary (I have three kids so living on ramen isn't really an option). In the end, I just asked a bunch of other founder friends and a few investors to get a ballpark idea, gave myself a healthy pay cut from my last full time role as an employee, and called it good.”
Gardner isn’t the only founder to have relied on advice from peers, plus a bit of winging it.
Andrey Vinitsky, founder of Graphy, a data visualisation platform, said the advice he received from other founders and investors about salaries was to “pay yourself just enough to not think about money.”
I mean, how much is that? Like, what's the standard?
“But that’s kind of counterintuitive,” adds Vinitsky. “I mean, how much is that? Like, what's the standard? It was so hard for us to figure it out.”
A founder salary database
To find out what could be the “standard” compensation for founders, Seedcamp, the European seed-stage VC, collected data of the salaries of 185 founders from pre-seed to Series A companies. The respondents interviewed are based in the UK, Europe and North America.
“We wanted to create an unbiased peer data set to help founders benchmark themselves against other founders so that when going to investors, like an employee would when negotiating a salary increase, they can empower their position,” says Alex Lewis, talent manager at Seedcamp.
How (and how not) to run a startup.
“This survey is also important for challenging old myths about what it is to be an entrepreneur. It’s important for founders to know that if they can fundraise, they can also pay themselves a decent salary to live off while building their dreams, regardless of background or individual circumstances."
Find the full survey results here — or read on for our top takeaways.
The factor which most impacts founder salaries is funding round
As can be expected, founder salaries increase as their company goes on to raise more funding.
Based on this data set, salaries from pre-seed to seed increase by 28%. From seed to Series A, they increase by 35%.
Reshma Sohoni, cofounder and partner of Seedcamp, says that the “safest” salaries she would expect to see as an investor would be under €100k at pre-seed, €100k or just over at seed, and then north of €150k at Series A. Anything above that would be a “red flag.”
However, the idea that salary increases with company stage isn’t always the reality for some founders, says Julius Bachmann, an executive coach based in Berlin focused on entrepreneurs.
Many founders succumb to the age-old narrative — which is sometimes pushed by investors concerned about their bottom line — that when you start a company, you earn nothing and then eventually have a “big, big turnout.”
“Founders are too focused on ramen profitability — a term which basically means ‘can this company be profitable if you only eat ramen, and basically not look after yourself?,” says Bachmann. “But it’s not the kind of mindset that is sustainable.”
Regarding equity, a single founder’s shares decrease as their company raises consecutive rounds of funding. At pre-seed, founder equity is approximately 38.65%. This decreases by 9% at seed to 27.18%, and then another 9% at Series A to 18.52% (founders tend to give away 20-25% of their equity per round.)
Sohoni says that while she would encourage early-stage founders to hold onto a good portion of equity as it can be “incredibly lucrative” down the line, she’d “rather founders get a healthy salary, rather than equity release too early in the company’s journey towards IPO.”
“In the end, a decent salary allows you to focus on work, support your family, and take care of the fundamentals in your life,” she adds.
Founder compensation is higher in the UK than in the rest of Europe
Founder salaries are typically higher in the UK than in Europe.
UK founders at pre-seed are roughly earning £15k more than founders in Europe.
Similarly, UK founders at seed are roughly earning £15k more than founders in Europe.
Sohoni thinks this is relative to the cost of living. In London, for example, where much of the UK’s startup activity is concentrated, the cost of living is very high so founders tend to pay themselves more.
A founder in cheaper countries like the Czech Republic or Moldova, however, might not need to pay themselves as much.
“It’s also to do with the founder’s entry point. I think some of the founders in the UK, for example, have a business background — perhaps in big banks where they’re used to the compensation being higher — so they would pay themselves more.”
Sohoni adds that the increasing presence of US VCs in Europe has had a positive impact on founder compensation.
Equity across ecosystems is relatively level.
The impact of number of cofounders on salary shows no clear trend
This is an interesting one.
Solo founders earn significantly more than founders with cofounders at pre-seed. Yet at seed, solo founders earn significantly less than companies with two or three cofounders.
At Series A, average solo founder salaries differ only slightly from salaries from companies with two cofounders.
Traditional indicators of founder success don’t impact average annual salary
Company revenue is one of them.
While there is an evident correlation between company revenue and average founder salary at the end of the chart, the variance between this is huge.
Between pre-seed and Series A, the proportionate increase of salary when prepared to increase in revenue is low (though this doesn’t factor in cash incentives such as bonuses or dividend payments.)
Sohoni thinks that this is largely to do with the fact that this is “early revenue” for founders.
“At pre-seed or seed, you haven’t really reached a steady state of capital yet. Over time, you can see the amount you’re making on a recurring basis — but the first 12-18 months are such an unstable time period.”
She adds that founders are, at these stages, “keen to deliver continued growth of revenue” and tend to be more cautious with what they spend money on.”
The average number of employees didn’t seem to impact founder salaries too much either.
The graph shows that, while there is a general increase in salary for founders with more employees, it doesn’t appear to be a reliable metric for founders to use when setting salaries.
Sohoni says that founder and employee salaries are often not correlated. “In some cases, founders might pay employees, but not pay themselves since they have equity.”
A changing narrative?
Setting a standard for founder compensation is difficult, says Bachmann, as every founder will have different needs.
“If you’re a 20-something that has recently graduated from university and has started a company — and is living in a flat share and earning €2,500, that works. But if you’re 55 and you're paying down a mortgage and you have three kids, that's a very different situation.”
A related problem is the narrative that has built around being an entrepreneur.
“Talking about a safe level of income in the startup scene has traditionally been taboo, because it alludes to you not being motivated to dream big and create the biggest company possible,” says Bachmann.
If we're creating founders who are structurally uncomfortable, then we're not creating a sustainable ecosystem.
“But the thing is, if we're creating founders who are structurally uncomfortable, then we're not creating a sustainable ecosystem. Because then people don't want to be repeat founders.”
Bachmann has hope, however, for Gen Z founders. He’s spoken to many who are not willing to compromise on having a good, stable lifestyle and are pushing back against VCs.
“They’re coming in and saying “I’m not starting this company to be rich, but if you're trying to limit my salary because you want me to be hungry, then we're done. And I think that’s going to come up more and more between investors and founders in the future.”
Miriam is Sifted’s Germany correspondent. She also covers future of work, coauthors Sifted’s Startup Life newsletter, and tweets from @mparts_