Dear SaaStr: How does a CEO/founder/owner pick their salary?
I’ll share my stories.
In my first start-up, we raised $9m in our seed round — a large first round, but the times were different. The VCs set my salary without discussing or consulting with me (a different time, indeed). My prior salary as a VP before the company had been $150,000, and they raised it to $180,000, with a performance-tied bonus. On a monthly basis, that was a pretty small % of $9m for the guy that closed $6m in revenue in Year 1.
The second time, at Adobe Sign / EchoSign, we “only” raised $2.6m in our first round. There, each dollar mattered more … and also, I had a few nickels in the bank from the first one …
So the second time, when it was up to me, as CEO:
- My salary was $120k for the first 8-9 months or so.
- Then, I took $0 for another 18 months or so until we raised the next round because we almost ran out of money. 🙂
- Then once we raised $6m, we raised my salary from $0 to ~$150k.
- Finally, for our last little stretch before our acquisition, we raised it to $175k, once we were cash flow positive.
The “right” answer is probably the least practical when every single dollar matters. And then, probably, “low market” after that.
But later … once you have positive cash flow, and/or a large amount of capital in the bank … you need to de-stress things. You really do. It’s a 7-10+ year journey.
So at least then — take enough salary so it’s not a stress point. If it is — that’s bad for the company. And everyone.
And just one more guideline: as founders, try to make sure you aren’t the highest-paid executives in the startup. Your VP of Sales should make more than the founders, at a minimum (if they are doing a great job). Another VP perhaps, too. If you aren’t the highest-paid folks at the startup, you’re probably doing it right.
And finally … finally … get your Board to approve founder comp. Somehow, for some reason, founders stopped doing this a few years ago. Even though the bylaws, investor agreements, and more often require it. Get your annual salary approved. Otherwise, things are always sort of … ambiguous.
First 9 months: 0k
After YC money: 30k
After Seed: 92k
After $1M ARR: 120k
After Series A: 145k
After Series B: 182k
After we adjusted company to to 75%ile: 238k
After we hit 10M ARR: market rate https://t.co/Oti15syEaJ
— Jacob Eiting (@jeiting) September 29, 2023
When I invest in start-ups now, if they have revenue and it’s starting to take off … and they raise > $2.5m or so … this is one of the first questions I ask. Do you make enough?
Because I don’t want you sweating that. I’ll just invest another $100k if that’s the issue at that point.
But pre-Initial Traction, and/or if you don’t raise much … you have to manage your own salary like any other expense. And probably make it as small as possible.
A related post here:
(note: an updated SaaStr Classic answer)