The Truth About Startup Founders' Salaries
Summary
TLDRThe 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
🤔 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.
💰 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.
🚀 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.
🌟 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.
Mindmap
Keywords
💡Startup Founders
💡Ramen Profitability
💡VC Funding
💡Salary Addiction Trap
💡Equity
💡IPO
💡Runway
💡Emotional Wealth
💡Compensation
💡Secondaries
💡Bootstrapping
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
You're Building let me show you can 10x
the number of people using it imagine
you can figure out who stays in your
product or not and why and use that
information to improve in june. so we
have dozens of rmade analyzes to
understand why your customers stick
around like what are the features they
use or not all of that out of the box
with one line of code for instance
specify a design API product that helps
collect and distribute design tokens
used June to increase by 20% the amount
of sign up that stick around after two
weeks in the product it is simple they
added June figure out what Milestones
their most successful users were doing
and then promoted that pattern to others
within the product if you're serious
about building a product that people
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
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