Deciding whether or not a startup founder should draw a salary in the early years remains one of the most delicate and strategic decisions for entrepreneurs. On the one hand, founders need financial stability to focus entirely on growing their business; on the other, every dollar counts in the startup world, and conserving cash for product development or scaling can be critical to survival.
Balancing personal financial needs with the company’s long-term vision is a challenging task, and it raises an important question: When is the right time for a founder to start taking a salary, and how much should that salary be?
As the era of pervasive AI enables businesses to push the boundaries of what they can do, we asked the machine intelligence for a breakdown of founder salaries:
Early Years (Pre-revenue/Seed Stage)
In the early years of a startup, especially before raising significant funding or generating revenue, founders often take a minimal salary or no salary at all. Here’s how it’s generally determined:
Company Cash Flow: If the startup isn’t making revenue yet or has minimal funding, founders might take little or no salary to conserve resources and show commitment.
Investor Expectations: If the startup has raised venture capital, investors typically expect founders to take modest salaries so that most of the capital goes into product development and growth. Investor norms can help guide founder salaries with a common range of $50,000 – $100,000 annually, depending on the funding stage and geographic location.
Personal Financial Needs: Founders often take just enough to cover their basic living expenses, especially if they are bootstrapping or at an early funding stage. The idea is to keep as much cash as possible within the business.
Equity Focus: Most of the compensation at this stage is in the form of equity. Founders are typically more interested in long-term upside rather than immediate salary.
The annual salary benchmark at the pre-seed/bootstrapped and seed stages are:
Pre-seed/Bootstrapped: $0 – $50,000
Seed Stage: $50,000 – $100,000
Later Years (Growth/Series A and Beyond)
As the company grows, becomes profitable, or secures larger funding rounds, the founder’s salary can increase. However, it’s still generally lower than the CEO salary in a more mature company based on:
Profitability and Cash Flow: If the company becomes profitable or has a healthy cash reserve after multiple funding rounds, founders can afford to take higher salaries.
Market Norms for Compensation: By this stage, the founder’s salary is likely to align more closely with market norms for CEO compensation in that industry, though it may still be below the salaries of CEOs in large companies with range of $100,000 – $250,000 annually, depending on the stage and the region.
Performance-Based Compensation: As the company grows, founder compensation may include performance-based bonuses tied to key performance indicators (KPIs), such as revenue growth or profitability milestones.
Equity Dilution: Founders will likely have less equity than they did in the early years due to dilution from raising capital, but the equity is worth much more as the company grows.
The annual salary breakup beyond the seed stage is:
Series A: $100,000 – $150,000
Series B and beyond: $150,000 – $250,000+
Meanwhile, a study by market intelligence company PrivateCircle earlier this year on unicorn founders’ salaries, covering 114 companies valued at $1 billion or more, noted Rs 1.5 crore (around $180k) in overall median remuneration. The median salary of female unicorn founders was Rs 1 crore (around $120k) while male counterparts had a median income of Rs 1.8 crore (around $215k).