As a startup founder, you must understand that entrepreneurship is not a bed of roses. It is 50 hours of workweeks, endless sacrifices, and years of no income from a business that demands numerous resources. Because of this, a startup founder’s salary has become the center of many debates.
Is it wise to pay yourself when your startup demands this many resources?
Many people believe that founders must take risks and that their rewards should depend on whether their company is profitable. However, we should also acknowledge the hard work and effort that founders put into their ventures, regardless of the financial outcome. Uncertainty is crucial in entrepreneurship, and constant pay may damage the whole idea.
There’s some truth in all this. Even though start-up founders are not entitled to a salary, everyone on your payroll should be paid. So, if a founder or cofounder works as their startup’s CEO, COO, CTO, CMO, or in any other role, they deserve remuneration for their services.
If you have only contributed money or ideation assistance, you do not have the right to a salary. Instead, you should receive payment later in the form of a dividend.However, you receive compensation when you are also an employee in your company. Besides ensuring accountability in the future, this means that you don’t get inclined to drop midway because of not being able to make both ends meet or because your ‘paying’ job makes it difficult to manage the startup.
On the whole, startup founders have been busy this year
enjoying the spoils of their hard labor: According to a new report by the startup-focused accounting firm Pilot, their median salary has increased by 15%. Conversely, there was a significant change in the proportion of founders who paid themselves absolutely nothing. It grew by 30%, from 5.5% of respondents to 7%.
LET’S DIVE INTO FOUNDER PAY
In 2023, 750 founders participated in Pilot’s survey, enough to provide a snapshot of real-world data.
Including the cohort earning zero, the average founder’s salary was $121,000 per year, and the median was $115,000. At the top end was one outlier who’d scraped together $755,000, but 40% of founders said they paid themselves less than $100,000.
Meanwhile, the average fundraising amount that startups raised in 2023 also increased by nearly 50%, from $8.1 million to $12 million. This, is offset by a considerable increase in bootstrapped startups, with a 180% growth in 2023.
Boostrapped capital Vs. VC-Backed
Pilot used this to break down founder pay by the amount of capital raised. In general, venture capital-backed founders made higher salaries than bootstrapped. While a quarter of both groups earned between $50,000 and $100,000 annually, just 4% of the VC-backed crowd was paid $0. But then 29% of the VC-backed group made between $100,000 and $150,000, while just 9% of the bootstrapped group pocketed that amount.
VC-backed or not, their salaries still aren’t exceptionally high. It shouldn’t surprise anyone that nobody’s making money at early-stage startups. Data also suggests this mentality may end up baked into the cake. On a list of the most fairly paid CEOs from Fast Company’s report, 11 of the top 15 were founders.
So, what happens to pay as startups grow? 40% of respondents were from companies with five people or fewer, while 16% employed more than 25 full-time employees. The median founder salary for small startups was $93,000, while the median for more than 50 employees was $200,000. The highest salary for fewer than five was $500,000, and the highest for more than 50 was $400,000.
It seems there’s a good chance your founder salary will go withe the company, especially if you start at zero.