One Simple Rule On How Much To Pay Yourself Once You Raise Venture Capital

Q:  How do Venture Capital Firms really feel about founder salaries? I was told that a general rule of thumb is 75% of fair market value. I am considering taking on a well established, rather expensive co-founder.

Let me add just one thought to the discussion on founder salaries, once you are venture-backed.

There are lots of good ideas for all different situations:

• 75% of market for founders’ salaries.
• $10k a year.
• $10k a month.
• Market once you are well funded ($10m+), not until then.
• Etc. etc.

There are lots of good answers. And also — lots of different situations.

In my first start-up, we raised $9.2m in the seed round. So it really didn’t matter that much in that scenario. The second time, I funded the prototype myself ($0 salary) and then we raised a $2.6m seed and I took a small salary (no need to be $0 anymore, but anything large would decrease the runway). So different situations = different answers, up to a point.

One thing I have learned, though.

If the founders are the highest compensated people in the start-up, at least pre-Scale (e.g., pre $10m ARR) … and perhaps even always … something is wrong. Incentives are not aligned here.

If the founders are really going for it, there’s always one great engineer, a Stretch VP, even a sales rep, a marketing lead, someone, the first great hire that wasn’t quite a founder but still is great … that makes more than the founders. Always.

If the founders take the highest salaries though …

Then … usually … I’m out.

Other than that, as long as it’s appropriate, and doesn’t harm the runway of the company, most anything fair seems right to me.

So once you’ve raised a bit, if you make sure at least someone else on the team makes more than the founders … that great VP you just hired for example … you’ve probably found the right compensation level for you as CEO.