The Truth About Startup Founders' Salaries

Summary

The video script delves into the financial intricacies of startup founders' salaries, highlighting the common practice of 'ramen profitability' where founders live frugally to reinvest in their companies. It discusses the impact of funding rounds on salary increases, the salary addiction trap, and the gender pay gap. The video emphasizes that while salaries may not lead to wealth, equity and potential exits such as IPOs or acquisitions can. It also stresses the importance of managing financial stress and uncertainty, suggesting strategies like mindfulness and scenario planning to navigate the startup journey successfully.

Takeaways

• 🚀 Startup founders often begin with 'ramen noodle salaries', living frugally to reinvest in their companies.
• 💰 Founder salaries can be a taboo topic, but understanding them is crucial for investors and the startup ecosystem.
• 🌱 As startups grow and raise more funding, founders may increase their salaries, but it's still typically modest compared to corporate salaries.
• 💸 The 'salary addiction trap' refers to the challenge of balancing startup work with higher-paying short-term commitments.
• 🌐 Location and industry can significantly impact founder salaries, with variations observed between different regions and sectors.
• 👥 Factors like gender, family situation, and the number of co-founders can also affect how much founders pay themselves.
• 💡 Some founders choose not to take a salary, relying on savings or other means to support themselves while growing their business.
• 🔄 'Secondaries', or selling a small portion of equity before an exit, can provide financial relief and reduce stress for founders.
• 📈 Founders can become wealthy through IPOs or acquisitions, where their wealth is tied to their equity in the company.
• 🛠️ Tools like Jun Doo can help startups understand user engagement and make data-driven decisions to reduce uncertainty.
• 🌈 Building emotional resilience and support networks is essential for founders to navigate the ups and downs of the startup journey.

Q & A

Why do startup founders often not discuss their personal salaries despite being open about their company's funding?

Startup founders may choose not to discuss their personal salaries because it's a private matter and the focus is typically on the company's growth and success. Additionally, the low salaries, especially in the early stages, reflect the founders' commitment to reinvesting resources back into the venture.

What does 'ramen profitability' mean in the context of startups?

Ramen profitability refers to a startup's ability to generate enough revenue to cover the founders' basic living expenses, akin to surviving on a diet of ramen noodles, which is a metaphor for living frugally. It indicates the founders' dedication to reinvesting as much as possible back into the company for growth.

How does a low salary for founders align with the interests of equity holders?

A low founder salary aligns with equity holders' interests by showing commitment to the company's success over personal gain. It sets a precedent for frugality and efficient use of funds, which can lead to better financial management and increased chances of success for the company.

What is the 'salary addiction trap' that some founders fall into?

The 'salary addiction trap' occurs when founders, who are also engaged in short-term, high-paying activities, start comparing the immediate financial rewards of these activities to the slow progress and limited income from their startup. This can lead to a focus shift away from the startup and potentially result in abandoning a promising idea.

When do startup founders typically start to receive higher salaries?

Startup founders can expect to receive higher salaries once they have raised significant funding, typically after a Series A round. The exact amount can vary based on factors like the company's valuation, location, industry, and the founders' personal circumstances.

What are some factors that influence founder salary除了公司融资和位置之外?

除了公司融资和位置之外，影响创始人薪水的因素包括公司的行业（例如，医疗保健和生物技术行业的创始人薪水平均比其他行业的创始人高20%），创始人的性别（女性创始人的薪水通常比男性低约25%），以及创始人的家庭状况（如有无孩子等）。

How can founders without salaries manage their financial situation?

Founders without salaries often rely on their savings, and for multiple-time founders, this strategy can work well as they may have set aside significant funds. However, for those without substantial savings, this can lead to financial strain and the need to consider other options, such as company expenses coverage or taking on part-time work.

What is the impact of taking no salary on a founder's mental and emotional well-being?

Not taking a salary can add significant pressure on founders, especially if they lack substantial savings. The constant worry about finances can lead to stress and burnout, which can negatively impact their ability to focus on and grow their startup.

What advice do experienced founders give regarding salary negotiation?

Experienced founders advise pretending you're hiring yourself as an employee and determining a fair salary that allows you to perform your best without being distracted by financial stress. It's important to balance the need for personal financial stability with the company's growth objectives.

How do founders become wealthy despite modest annual salaries in VC-backed companies?

Founders in VC-backed companies become wealthy not through annual salaries, but through equity in their company. Wealth is generated during an exit event such as an IPO or acquisition, or by selling a portion of their equity in secondary sales before an exit.

What are some strategies founders can use to manage financial uncertainty?

Strategies to manage financial uncertainty include closely monitoring spending, being smart about fundraising, having a plan B for additional funding, and maintaining open communication with the team about financial realities. Embracing a learning mindset and building resilience through practices like mindfulness can also help navigate uncertainty.

How can founders maintain emotional well-being during the intense journey of building a startup?

Founders can maintain emotional well-being by creating a support system of like-minded individuals, engaging in resilience-building practices, seeking coaching, participating in founders' groups, journaling, and sharing experiences publicly. Reducing social pressure by explaining the situation to friends and family can also alleviate stress.

Outlines

00:00

🤔 The Mystery of Founders' Salaries

This paragraph delves into the curious phenomenon of startup founders being open about the significant funding their companies receive, yet remaining tight-lipped about their personal earnings. It introduces the story of Alex, who trades the security of a regular job for the uncertainty of launching a startup. The discussion highlights the common situation where founders live on minimal salaries, or 'ramen profitability', to reinvest in their venture. The narrative emphasizes the dedication and risk-taking of founders who opt for low salaries to ensure the growth and success of their startups, and how this aligns with the interests of equity holders. The paragraph also touches on the changing dynamics of founder salaries over the years and the factors influencing these changes.

05:00

💰 Understanding Founders' Salary Ranges

This section provides insight into the typical salary ranges for startup founders based on various factors such as funding stages, geographical location, and industry sectors. It reveals the average annual salaries in the US and EU, and how these figures can vary significantly with the amount of capital raised. The paragraph also discusses the gender pay gap, with female founders often earning less than their male counterparts. Additionally, it considers other influencing factors like family situations and the number of co-founders. The discussion extends to the concept of 'salary addiction trap', where the lure of short-term, high-paying jobs can detract from long-term commitment to a startup idea.

10:01

🚀 Balancing Act: Founders' Financial Stability and Growth

This paragraph examines the delicate balance founders must maintain between their personal financial needs and the growth of their startups. It explores the implications of drawing a salary versus living off savings or company expenses, especially in the early stages of a startup. The narrative contrasts the approaches of different founders, from those who opt not to take a salary at all, to those who later regret not taking a market-competitive salary. The advice from experienced founders is highlighted, emphasizing the importance of ensuring financial stability to focus on building a successful startup. The paragraph also touches on the cash burn aspect of salaries, explaining why heavy compensation for founders is often discouraged in the early stages of a startup.

15:02

🌟 The Path to Wealth for Founders

This section discusses the potential pathways for founders to achieve financial success beyond their regular salaries. It highlights the importance of IPOs and secondary sales as significant sources of wealth for founders. The paragraph provides examples of successful founders who became rich through these exit strategies, such as the cases of Facebook, Airbnb, and Captain Train. It also shares advice on the conditions under which founders might consider selling a portion of their equity before an exit, balancing the need for financial relief with the potential for future gains. The narrative concludes by acknowledging the emotional and psychological challenges founders face throughout their startup journey, offering strategies for managing uncertainty and building resilience.

Keywords

💡Startup Founders

Startup Founders are individuals who establish and lead new businesses, often taking on significant risk and uncertainty in pursuit of their entrepreneurial vision. In the context of the video, these founders are navigating the financial challenges and decisions related to their personal compensation while building their companies. They may choose to take low salaries or no salary at all, demonstrating commitment and resource allocation towards company growth.

💡Ramen Profitability

Ramen profitability is a term used to describe a startup's ability to generate enough revenue to cover the founders' basic living expenses, typically very modest amounts, with the remainder being reinvested into the company for growth. This concept is linked to the idea that founders who take low salaries show a strong commitment to their venture and are willing to prioritize company growth over personal financial comfort.

💡VC Funding

Venture Capital (VC) funding refers to the financial investments made by venture capital firms or investors in startups or early-stage companies with high growth potential. These investments often come with the expectation of significant returns and may include conditions or milestones that the startup must meet. In the video, VC funding is discussed as a critical stage where founders may be able to negotiate higher salaries for themselves.

💡Salary Addiction Trap

The 'salary addiction trap' is a concept that describes a situation where founders working on startups in parallel with higher-paying, short-term activities become discouraged by the slow progress of their startup and the low or no salary they are earning. This can lead to a preference for the immediate financial rewards of other jobs, potentially causing founders to abandon their startups. It serves as a warning about the challenges of balancing financial stability with the pursuit of a long-term entrepreneurial dream.

💡Equity

Equity in the context of startups refers to the ownership interest in the company held by its shareholders, including founders, employees, and investors. It represents a share of the company's assets and profits and is often used as a form of compensation for founders and employees, especially in lieu of higher salaries. Equity can become quite valuable if the company performs well and increases in worth.

💡IPO

An Initial Public Offering (IPO) is the process by which a private company goes public by offering its shares to the general public for the first time. This is a significant milestone for startups as it often leads to a substantial financial gain for founders and early investors who hold equity in the company. An IPO can be a key pathway for founders to realize the value of their hard work and dedication.

💡Runway

In the startup world, 'runway' refers to the amount of time a company can continue its operations before running out of cash or needing additional funding. It is a critical metric for founders to monitor and manage, as it directly impacts the company's survival and growth prospects. A longer runway provides more time to achieve business goals and secure further investment.

💡Emotional Wealth

Emotional wealth pertains to the psychological and emotional well-being of individuals, particularly in the context of managing stress, uncertainty, and the ups and downs associated with entrepreneurship. For startup founders, maintaining emotional wealth is crucial for navigating the challenges of building a business and ensuring long-term success.

💡Compensation

Compensation in the business context refers to the salaries, wages, bonuses, and other benefits provided to employees, including founders, for their work. For startup founders, deciding on compensation is a complex issue that involves balancing personal financial needs with the company's growth objectives and the expectations of investors.

💡Secondaries

Secondary sales, or 'secondaries,' refer to the process where shareholders, including startup founders, sell a portion of their equity stake in a company before it goes public or is acquired. This can provide liquidity for the founders and other early investors, allowing them to cash in on some of their investment before a full exit.

💡Bootstrapping

Bootstrapping is a term used to describe the process of building a company with minimal resources, often by the founders' own efforts and without external funding. This approach requires founders to be resourceful and may involve personal sacrifices, such as living with low salaries or using personal savings to support the business.

Highlights

Startup founders often don't discuss their personal earnings despite being open about their company's funding.

Founders may choose to live on a 'ramen noodle salary', barely covering basic needs to invest more in their startup.

Low founder salaries can be a predictor of startup success, showing commitment and resourcefulness.

Founders may face a 'salary addiction trap', struggling to balance startup efforts with higher immediate earnings from other jobs.

Once a Series A round is raised, founders may begin to compensate themselves more fairly.

Founder salaries can be influenced by factors such as company funding, location, industry, and gender.

Some founders choose not to take a salary, relying on savings or other means to support themselves during the early stages.

Founders can become wealthy through IPOs, secondary sales of equity, or acquisitions, rather than just their annual salary.

The conditions for selling equity in a secondary sale include high valuation, significant revenue, and a small percentage sold.

Embracing uncertainty is key in the startup journey, with strategies like mindfulness and scenario planning.

Managing a startup's runway involves monitoring spending, being smart about investments, and having a backup plan for funding.

Founders can reduce uncertainty by understanding their customers and market, using tools like Jun Doo for product analysis.

Building emotional resilience and a support system is crucial for founders to handle the intense ups and downs of entrepreneurship.

Founders often start with minimal earnings, living off 'ramen profitability', and only experience significant financial gains through exits or equity sales.

The journey of a founder involves navigating financial constraints and emotional challenges to achieve eventual success.

Founders should have open discussions with their team about the financial situation to foster understanding and collaboration.

Reducing social pressure and having a strong emotional foundation can make a significant difference in a founder's ability to start and grow a business.

Transcripts

imagine you're scrolling online and you

see startup fers celebrating because

they just got a bunch of money for their

company it looks awesome but then you

notice there is something they don't

talk much about how much money the

founders actually make it's like there's

a secret that no one is talking about

even though everything else is out in

the open why do startups Founders share

all about the big money their company

gets but keep it quiet about their own

financials let's find it together let's

talk about Alex who swapped a CO of his

gig for the white ride of launching a

startup is living behind the world of

predictable paychecks for a venture

where salary is a big question mark this

isn't just about cutting back on fancy

coffees or skipping vacations it's about

chasing a dream which is so big that

it's scary today we're getting real

about what startup Thunders from VCB

startups like Alex or myself are making

in this video I'm going to confront

funer salary benchmarks you can find

online with salaries from Founders that

I interviewed including mine will study

Founders who became Rich to understand

how they did it and we're also going to

see how funders survive through these

financials up and down let's dive into

the truth behind funders

salaries when thinking of founder pay

the first thing that comes to mind is

the ramen noodle salary essentially this

means that the company can grow because

the founders are putting all of their

resources into the Venture they pay

themselves no salaries or at least the

bare minimum which in this case is

enough to cover the cost of ramen

noodles Paul Graham calls this Ramen

profitability is said a startup can

become Ramen profitable after 2 months

even though its revenues are only 3,000

bucks a month because the only employees

are a couple of 25 years old Founders

who can live on practically nothing

throughout the journey to become Ramen

profitable a low salary or no salary

shows that the founders are committed to

their startup and are risking it all

rather than taking a salary they're

using the funds to keep growing and

hitting Milestones entrepreneur and

venture capitalist Peter t once said

that the best predictor of a startup

success is a low CEO pay he also says

that the founders salaries create a

precedent the COO salary sets a cap for

everyone else if it is set at the eye

level you end up burning a whole lot

more money it aligns his interest with

the equity holders but beyond that it

goes to whether the mission of the

company is to build something new or

just collect paychecks there are few

obuse advantages to companies that are

ramen profitable they get better terms

when fundraising they're disciplined

enough to keep expenses low they keep a

good moral and they have a strong

ability to focus on the product and

services rather than fundraising but

let's take this advice with a bit of

distance old fashion investors may still

have this idea that Founders should stve

themselves and that their funding should

be used to grow the company only modern

investors understand that star Founders

cannot focus on the business if they

cannot make rent

even as a preced Founder you shouldn't

hesitate to have a healthy conversation

around salary with your investors so

what happens if you do need a salary you

can't live on Ramen forever and it's an

expensive world out there typically once

the seid round is raised Founders are

then able to compensate

themsel let's say you hit the my Stones

yes have great Matrix ate a lot of

noodles decided to take the pass of

being VC backed and ultimately raise the

preed red round

now you can afford to pay yourself but

should you do it if so how much should

you pay yourself how much do other

Founders pay themselves before we move

to salaries I want to touch on what I

call the salary addiction trap the

salary addiction trap is when fresh

Founders work on startups in parallel to

short-term rewarding activities and

start to compare them for one hour

invested in their dream startup almost

nothing happens it's like pushing a

boulder up ill but when working on

activities with short-term results like

a full-time job or Contracting they can

make up to 200 bucks an hour as they

pursue multiple activities in parallel

the progress on the startup ID slows

down as things get harder on one end and

easier on the other end a vicious cycle

kicks in and the boulder becomes bigger

and bigger eventually the fresh Founders

who may be working on a great idea will

drop it while all it needed was more

work this in a nutshell is the salary

addiction trap I'm not saying that all

startups ideas are worth pursuing and

leaving a job for but rather that

without intense dedication most

successful startups wouldn't exist today

and it is precisely to have that trap

that most Founders pay themselves

salaries Founders salaries went up in

the last couple of years but Founders at

raise aren't supposed to get rich on

their annual salary in a VCB company

your company valuation is anticipated

and you have to grow within it at this

stage most Founders don't assume that

they made it nor that they should have

the salary of a senior employee a tech

company let's say they consider their

salaries as a way to keep them

financially stable and get some space to

focus on their company so how much money

is that in the US the short answer is

around $75k per year above 100K raised

150k doll above 5 million raise in the

EU it's lower below 50k EUR below 1

million and 150k only happens when 50

millions are raised these numbers came

from a bunch of amazing Founders were

kind in enough to share their salaries

and funny enough it aligns with my

salary which are recently shared

publicly funer salaries do not only

depend on the company funding and

location they can also depend on the

company industry Healthcare and biotech

Founders pays 20% higher on average than

Tas funders for instance the gender of

the founder sadly gender inequalities is

true also in funer salaries and women

Founders pay themselves nearly 25% less

than their male counterparts or the

founders family situation having kids or

not but also has an influence typically

10K for each kid that you have other

factors might include the number of

co-founders that are part of the company

so when you're coming up with your

salary you might be mindful of all these

criterias hey real quick that product

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used June to increase by 20% the amount

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love then check out dun Doo I'm leaving

a link in the description I hope you

guys enjoy the rest of the video take

care some Founders don't give themselves

any salaries this is becoming more

common because of the current

environment or by choice this is almost

systematically the case for Founders

when they start this is what Grant from

t.tv or Umberto from rose.com two VCB

companies by some prestigious investors

told me it was also the case for Josh

from refal Rock a bootstrap company but

when they're later in their Journeys

Founders who don't pays have to rely on

their savings this works well for

multitime Founders who put significant

savings on the side and can use that as

a lever to delute less and this is why

you see so many Founders that bootstrap

their business when it's the second or

the third business they start for those

without big savings and experience it

can feel like you're paying double the

price this is what Grant from TAA shared

with me he said that they should have

taken a salary earlier he and his

co-founders burn through their savings

plus later they had moments where a bit

of extra cash would have made things

more comfortable both working like crazy

and burning your savings is often a past

to frustration the other possibility is

to put your expenses on your company's

account depending on the country and the

lows there it may be more or less

possible like in the US you may pay

expense part of your apartment dedicated

to work if you're company's remote but

this is always Limited in some instances

overall I've seen the no salary path

adding more pressure on Founders if you

don't have significant savings and if

you raise capital I would always

recommend paying yourself what you need

to be confortable so that you can focus

on doing a great job at your startup if

you're worried about paying bills next

month that's not healthy the warning I

reive the most from Founders is

regretting paying thems under the market

for instance Mike from grain a Founder I

love shared that I regret paying myself

so much on the market for so long

burning through savings to get the

company of the ground only added to my

risk of burnout to Define your salary

Rajiv the CEO of product tant shared a

nice framing with me he said pretend

you're hiring yourself as an employee

how much would you pay that employee so

that they can do the best work and

aren't distracted by Financial stress

both are really great advice now let's

see a very different approach to

salaries salaries are the biggest cash

burn for a startup this is the most

rational reason why it is not advised to

funders to comp compensate thems heavily

at the early stages the higher salaries

the funders take the fewer available

resources there are for growth but let's

be honest some people made building a

startup a lifestyle they raise millions

they get four years plus of Runway they

execute for two eventually they pivot

for the next Trend nft AI you name it or

they shut down the company Return part

of the cash they raise and raise from

another investor I've seen situations

where s s funders have a total

compensations of 200k do per year plus

or pay expense for the apartment for 10K

plus per month some people are just good

at raising cash straing too far above

these salaries can act as a red flag to

investors particularly in the early

stage but in the end it's a negotiation

so if you want a high salary and your

board is comfortable with that there are

all kind of

possibilities right so if Founders pay

themselves between 50k in the beginning

and 150 after 3 or four years in how do

they become rich the first answer is

IPOs you will make bank if and when you

company exits based on how much Equity

you still have at that point the medium

payday at IPO in the US sits at

268 Millions the second way is

secondaries if your startup is doing

well it's common for Founders to sell a

small slice of their Equity before an

exit this is what we call secondaries

and it's increasingly common post series

a in most situations secondaries are a

useful tool to elevate Financial stress

from the founders especially as IPO now

takes 10 years to happen and investors

can be happy about them too at what

condition can the founder exercise

secondaries Brian aligan the co-founder

of Ops spot shared his rule of thumb if

the valuation is more than $100 million

and the company is doing 8 to 10

millions in revenue or more and the

founder sells less than 5% of the Ying

then this is probably a good idea if it

makes things less stressful for the

funders that's better for everyone if

the funders is selling more than 5%

that's where we some if you think you're

building a unicorn why would you sell

more than 5% of your shares at a tenth

of the exit price I wanted to share

Brian's advice cuz I feel it's a good

Baseline but I wouldn't do funders a

favor saying it's the norm not every

funders wait for that condition to exit

secondaries I've seen Founders exiting a

million each at a series a for instance

if your company is valued at

and stocks made its Founders Kevin cyrm

and Mike kriger extremely wealthy cyrm

held about a 40% stake and crigger about

10% the value of their Facebook stock

increased significantly as Facebook

stocks price Rose over the years Tony

fadel's Nest was acquired by Google for

3.2 billion while already lucrative the

deals value for fadle and his team also

came in the form of Google stocks which

appreciated in value over time in Europe

the French company Captain train sold in

March 2016 to the British competitor

train line for 180 million half in cash

half in shares it is said that the

founders of Captain train made four

times more money from the train line

stocks than from the cash they took when

selling their

company throughout your journey from

Ramen profitability then raising rounds

you're going to experience a lot of

uncertainty the possibilities upward are

endless with IPOs or Acquisitions and

the checkpoints are possible with

secondaries but how do you navigate that

Journey how do you go through situations

that can take a significant toll on you

like having no salary low salary or just

having a significant salary cut the key

is to realize that uncertainty is part

of the startup Journey Ben or ofit

captures this Essence by urging Founders

to embrace the struggle to navigate

uncertainty more comfortably you can

link into resilience building practices

like mindfulness or scenario planning

but both help maintain foruse and

prepare for various outcomes you may

Embrace a learning mindset too where

every setback is viewed as a lesson this

can help to transform uncertainty from a

source of stress to a catalyst for your

growth the next piece is to navigate

your Runway think of your startups

Runway as the amount of time you can

keep things running before you need more

cash it's like a clock ticking down

showing your urgent it is to make your

business work or find new money to get

confy with this it's all about three

things one is to keep a close eye on

your spending and knowing where every

dollar goes the second one is being

smart about your money and the last one

that helps is to have a plan B for money

like finding more investors just in case

being open with your team about how much

cash you've got left can help everyone

understand the situation and work

together to make that money last it can

also reduce the pressure on YouTube and

of course the best way to deal with

uncertainty is simply to address it

funders can cut done on uncertainty by

really getting to know their customers

and the market making sure the product

or Services hit the mark measuring

things is among the best way to reduce

uncertainty and startups can typically

use a tool like Jun Doo to understand

what their users like about the product

and make decisions accordingly

throughout this roller coaster emotions

will be all around a guarantee but you

can manage your emotional wealth by

creating a support system of like-minded

individuals who understand the roller

coaster you're going through a couple of

things that work for me get a coach to

engage in Founders group or journaling

or sharing experiences publicly like

this exact video reducing social

pressure is also crucial this could work

by explaining to friends and family the

importance of their support during tough

times it's about finding people who will

be there during the low not just the

eyes and who can offer constructive

feedback if you off track the Journey of

a Founder often involves going back to

square one and that's okay it's part of

the process to about eventual success

and having a strong emotional Foundation

makes all the

difference at the start many Founders

barely pays enough to live on kind of

like living on instant noodles this is

to keep the business running with

whatever little money they have once

they get some investment they can start

paying themsel a bit better but it's

still not crazy money it's all about

keeping the business growing and not

splurging on thems the real chance to

eat the jackpot comes if the company

gets sold goes public or by selling

secondaries on top of figuring out money

stuff founders also have to deal with

tons of ups and downs making the journey

pretty intense it's not just about the

cash it's about keeping your head

straight so when you hear about a

startup getting a bunch of money

remember it's not all going straight

into the founders pocket they're

probably still figuring out how to make

it all work just like the rest of us if

you enjoyed this video please don't

hesitate to subscribe to my new channel

I'm doing my best to post a video Once

once a week also a special thank you to

all the founders who reped to my

research questions and made this video

possible take care and see you

bye