In the intricate dance of founding a startup and seeking outside capital, determining a reasonable salary for CEOs or founders becomes a crucial consideration. Typically, a CEO or founder’s salary ranges from $100,000 to $200,000, taking into account their experience and market value. In certain scenarios, the value can soar to $500,000 or more, especially if the individual brings a decade of seasoned leadership to the table. Investors, however, prefer CEOs to have “skin in the game”—a financial stake that fosters commitment and a sense of urgency.
“Like a salesperson, you never pay them enough in base salary to be totally happy or financially comfortable. Stock value should be the main long-term motivation.” – Unknown
Motivation, it seems, is intricately tied to financial structures. The base salary, though a vital component, is dwarfed by the potential upside of equity. Investors seek founders who are 100 percent committed, unburdened by personal financial concerns or distractions. It’s a delicate balance: offering enough to sustain founders’ livelihoods while keeping them hungry for the substantial rewards tied to their equity.
The Marathon of Building a Company: Founding a company is likened to a marathon, not a sprint. Commitment for a minimum of five years is expected from all founders, with the potential for substantial financial gain contingent on reasonable success. In the realm of venture capital opportunities, a $10 million to $20 million upside is considered par for the course. A robust stock option pool of 10% to 50% is set aside for the core team, offering a tangible stake in the company’s growth.
“I would never sell more than twenty percent to investors in a first-round series A.” – Unknown
Strategic Dilution: In the delicate balance of equity distribution, wisdom prevails. In a Series A round, founders typically avoid selling more than twenty percent to investors. This careful approach ensures that founders and their core team retain a significant 80% ownership. Seed funds ranging from $1 million to $3 million are secured to propel the real product into the market at scale, steering clear of a myopic focus solely on the Minimum Viable Product (MVP). A subsequent Series B round, while raising 2 to 4 times the capital, still entails selling only 30%, preserving a substantial 50% for founders and employees.
“Smart investors grant more options if the management team is diluted below 20% with 10% to a CEO Founder maintained.” – Unknown
Recognizing Value: Smart investors recognize the value of retaining key players. If the management team faces dilution below the 20% threshold, wise investors often grant additional options, with a special focus on preserving the CEO Founder’s stake at 10%. This becomes even more pronounced if the founder contributed early-stage capital — a strategic move that aligns investor and founder interests.
The Bootstrap Blueprint: A resounding truth echoes through the corridors of entrepreneurial success — every billionaire started by bootstrapping. Proof of concept and revenue precede institutional capital, adhering to the lean startup methodology. Founders, through sweat equity and personal funds, build a Minimum Viable Product (MVP), creating a practical path for most companies.
In the intricate tapestry of startup growth and scaling, the decisions around founder salaries and equity distribution play a pivotal role. Striking the right balance ensures not only the financial sustainability of founders but also the unwavering commitment essential for steering a startup through the marathon of building a successful company.
