Yes, founders typically begin to pay themselves a salary once their startup successfully raises capital through funding rounds. Initially, founders often draw little to no salary, especially during the very early stages when capital is scarce. However, securing investment allows them to start taking a salary, which is crucial for their personal sustainability and ability to dedicate full-time effort to the business.
How Founder Salaries Evolve with Funding Rounds
A founder's salary generally increases progressively with each successive funding round. This escalation reflects the company's growth, increased valuation, and greater financial stability.
Here's a general progression of founder salaries based on funding stages:
| Funding Round | Average Founder Salary Range |
|---|---|
| Pre-Seed | Around $50,000 |
| Seed | Around $100,000 |
| Series A | $150,000 or more |
As a startup matures and moves from early-stage funding (like pre-seed and seed) to later stages (Series A, B, etc.), the financial capacity to compensate founders more competitively improves. This also helps align founder compensation with market standards for experienced executives leading growing companies.
Key Factors Influencing Founder Compensation
While funding rounds are a primary trigger for founder salaries, several other factors influence the exact amount founders pay themselves:
- Company Stage and Growth: More mature companies with proven traction and higher valuations can justify higher salaries.
- Industry and Location: Salaries can vary significantly across different industries (e.g., tech vs. biotech) and geographical locations (e.g., Silicon Valley vs. lower cost-of-living areas).
- Investor Expectations: Investors often have a say in founder salaries. They typically prefer founders to be paid enough to focus without personal financial stress but not so much that it depletes the company's runway too quickly. A common rule of thumb is that founder salaries should be reasonable enough to extend the company's cash runway.
- Company Valuation and Runway: Higher valuations can support higher salaries, but founders must always balance their pay with the need to conserve cash and extend the company's operational runway.
- Team Size and Salaries of Other Employees: Founder salaries should generally be proportionate to what other senior employees or executives at the company are earning.
- Personal Financial Needs: While not the sole determinant, founders' personal financial obligations can sometimes factor into initial salary discussions, especially at the pre-seed or seed stage.
Practical Insights for Founders
- Be Transparent with Investors: Discuss salary expectations openly with potential investors during due diligence. This builds trust and ensures alignment on financial planning.
- Prioritize Runway: Especially in the early stages, founders often choose to take a lower salary than they might be "worth" on paper to maximize the company's cash runway and increase the chances of hitting key milestones.
- Consider Equity vs. Salary: Founders typically hold significant equity in their companies. Often, they prioritize building company value (which benefits their equity) over maximizing their immediate cash salary, particularly in the beginning.
- Review Regularly: As the company grows and raises more capital, it's wise to review and adjust founder salaries periodically to reflect company progress and market rates.
In conclusion, while founders might start with minimal pay, securing funding rounds is a pivotal moment that enables them to draw a salary, which then typically increases as the company advances through subsequent funding stages.
