At what point do founders get allowed a market salary?

The right answer is: as soon as the company can afford it.

Taking a market salary when cash is very tight is, at best, penny wise and pound foolish. If you own 20%-30%–50% of a company, the last thing you want to do is take a single dollar out when the company truly needs it.

But a time will come when it doesn’t matter. When there’s enough revenue, THEN it’s OK. When taking that salary doesn’t really impact the runway of the start-up.

Make sure you pay yourself a market salary then. ASAP. It’s super important. Because it de-stresses things.

As an investor, the last thing I want is the CEO worrying about her salary. So as a rough rule, (x) as soon as we’ve raised > $4m, or (y) as soon as we are past $1m in ARR growing quickly and the burn is low, the CEO should have a “low market” salary at least. That’s one of the best uses of the $4m+.

But if the company has raised “only” $250k, $500k … even “only” $1.5m … and/or if the company isn’t past $1m in ARR and growing quickly … the CEO / founders taking a “market” salary is a flag.

A flag that he puts a few nickels in his own pocket (even if it’s just to make rent) … over the value of his equity.

Because every dollar that comes out at this phase damages the theoretical value of that high equity stake. Every dollar is precious. It’s one more engineer. It’s one more marketing campaign. And perhaps most importantly, 1 or 2 or 5 months more of runway.

That’s a company I usually don’t see doing something big.

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Published on May 26, 2017

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