Expert opinion: How much should start-up founders pay themselves?

So you’re a hot young entrepreneur with what you hope will be a hot new start-up. You’ve toiled away for a few months, you’ve raised a bit of VC, and now you’re asking the question: How much should I pay myself?

Six figures? Just enough to live on? Nothing at all? We went to the experts to find out. 

Laura Reitel, programme director, Lightning Lab

"In the very early stages of a start-up while you’re establishing whether customers are willing to pay for what you have to offer, you generally don’t have a steady revenue stream. Hence, founders simply don’t have the money to pay themselves."

"Once you have some validation around your business model and are planning on raising capital, having a rational approach to founder compensation is a good way to send a positive signal to potential investors. Founder salaries should be sufficient to not create hardship; losing productivity because you can barely pay your bills isn’t good for founders nor investors. Founders of a typical early stage venture that has raised seed capital tend pay themselves $40-70k year each until they start generating revenue."

"It is also important to make sure that the salaries paid do not add unreasonable strains to the company's runway. Once you’re profitable and/or raise a larger financing round, you can start paying yourself a more impressive salary. However, even businesses that close Series A rounds should really invest in and focus on growing and scaling the company. It’s important to remember that the main upside for start-up founders comes from increasing the value of the company, i.e the equity they hold, not their pay packet."

Andy Hamilton, chief executive, Icehouse 

"It all depends. There are three answers to this. First, if they have not raised any external funding then they can pay themselves what they like as long as they meet their tax obligations!"

"Second, if they have raised funding, then it is really important to stage your expectations on paying yourself from nothing to minimal wages to pay the bills at least until you are either cash-flow positive or have raised a big run-way of cash."

"Third answer is that when you have raised an A Round you could expect to pay yourself more. What is not surprising in all of this – if you make the jump to global markets in your raising of funding, you could expect to get paid more. What is also important is not taking investors for a ride – to pay yourself $150k per annum when you are a seed startup is taking the piss, and I would suggest going to get a job, unless of course you are a serial entrepreneur with an awesome track record. Then you can claim your price!"

Latesha Randall, co-founder, Raglan Coconut Yogurt

"My answer would be that the best route (or at least the one we've taken with RCY) is to have a real job/side-venture that can support you while you grow the start-up, as ideally you don't pay yourself anything in the early stages."

"We didn't take a cent out of it for at least the first 10 months and even now we're still reinvesting profit back into the business. It's a bit crazy juggling our Good Agency projects and freelance gigs on the side but it has taken the pressure off the business to 'support itself'. So don't be in too much of a hurry to ditch your day job!"

Anna Guenther, founder, PledgeMe

"The answer is definitely 'something'. Start-up founders should make sure that they have income, and that they are paying anyone that does work for them. But there's no precise art to how much, and it doesn't always have to be direct from the start up. I read an interesting study recently that said 'entrepreneurs who kept their day jobs had 33% lower odds of failure than those who quit' (read in Originals by Adam Grant, study by Joseph Raffia and Jie Feng)."

"Often if you've created the company, and it's just starting out, you're paying everyone else better than you're paying yourself...."

Henry Oliver, editor, Idealog

"At the earliest of stages, people running start-ups would pay themselves as little as possible so capital is freed up for other things. But, as soon as there’s the flexibility to take some cash out, people running start-ups should pay themselves what they need to live a relatively normal life. There’s only so long someone can live uber-frugally, working like crazy. Personal sustainability is important. Burning out after 18 months doesn’t do anyone any good."

Dale Clareburt, co-founder and CEO, Weirdly

"That’s a really contentious question. We paid ourselves way below average salary when we started out, and now, 12 months later, we’re only paying ourselves three quarters of the time - we take a pay holiday every fourth month."

"But it’s a really hard question. It also comes down to fact that, if you’re paying yourself so little that you have to make money elsewhere, you’re going to be taking your eye off the business and that’s not going to work. Essentially, you want the founders to be paying themselves whatever they need to put 100% into the business and stay motivated. What do they need to survive and have a good standard of living? Not top dollar, necessarily. Top dollar for employees though – they need to be paid first. Whatever is making the business grow needs to be paid well and often that’s not necessarily the founders."

"But if the company is in a healthy state, what they pay themselves is what they pay themselves – as long as everyone else is taken care of."

Lance Wiggs, principal, Punakaiki Fund

"At the beginning - enough to live on, and the less you need is the less you dilute to investors."

"Over time it should creep up at each investment round towards market rates. Make sure that the company can easily pay it, and I've observed that founders are quick to cut their own salaries in lean times. Often quicker than these investors recommend."

"As investors we want to see founders have enough income so their personal life is not stressed, and accept that the amount paid needs to vary by life stage, and presence or not of family, mortgages and so on. It's all part of the investment decision - older founders might be more expensive but they are also more experienced."

Francis Valintine, founder and chair, The Mind Lab

"I don't believe there is a hard and fast rule as to how much a start-up founder should be paid. Investors (if any) will probably want the founder to have a decent amount of skin in the game - often in the form of a salary sacrifice. However other investors will want to support the founder to the level where the founder is able to focus on the business and not have to think about how they are going to fund everyday living costs."

"My view is the founder should be rewarded on the performance of the company and be reviewed at each major milestone. Therefore, their salary would typically be less than if they were in an established organisation, but they should receive enough to recognise they are a critical piece in the growth and success of the business."

"When I advise small start-ups I always recommend they have a year's living costs tucked away in case they are unable to draw a salary before they kick off their new business. I have seen many great business ideas fail because the founder has to return to employment to fund living costs before real revenues begin to come in."