Nice little subtle marketing from Graphy there. In the first paragraph he's just a random CEO giving a quote, then you click through to the survey and turns out it's by SeedCamp powered by Graphy. Oh and then it turns out that Graphy is one of the companies that SeedCamp seeded.
Putting that aside, I think big chunks of this article are trying to draw conclusions from tiny datasets that might not stand up. For example, the chart showing "Average Number of Employees By Annual Salary" is very clearly just a line connecting the individual data points, that should be a scatter plot with a trend line most likely, and what it shows is that most of the companies consist of only the founding team. Or the bar chart of number of founders vs CEO salary - I think they've sliced that data into so many buckets (4 buckets, 3 groups, N=200) that probably the variance between the groups is just noise.
I know that sinking feeling you're feeling after discovering a successful competitor but you can totally crush Graphy. Just make sure to differentiate.
Even if not, you could eat a large piece of the pie.
PlotPanel looks quite nice for a launch, congrats!
(Graphy looks decent too)
For those who work with Python it is hard to beat plotly.js for front end because it transfers almost directly to whatever plots you are doing in your notebooks. Extremely customizable and also powerful.
Well one downside to Plotly is that it is quite heavy about 3-4MB. Couldn't figure out a way to separate different graph types.
Having done this 5x times now. My advice is the same I got from one of my first VCs @FirstRound...
Pay yourself as much as you need to not be distracted by anything that would slow you down. It is different for different founders and for whatever stage they are at in life. But if you are a founder with a family, that is gonna be different from a founder fresh out of college.
Obviously you want to spend as little as possible, but not to the detriment of you lacking focus and dedication because you can't pay your rent.
I was recently offered a founding role. The cofounder is 14 years younger than I. I have a family of 5, she is single and living on a very light income. Her advisers were telling her founders should pay themselves an amount that was approximately 1/3 of my current take-home. The divide in stage of life and accumulated responsibility was just too great to overcome and we parted ways.
The missing piece of this scenario is your current take-home. If you're pulling in $600K at a BigCo then it's not really reasonable to expect an early founder role to match that compensation and give you substantial (10-20% or more) equity in a new startup. Giving a founder $200K in the early days should be enough to let them focus on the startup and not worry about finances. If someone is in a personal position where something like $200K/year would cause great financial stress, they're probably not a good fit for a high-risk startup founding position anyway.
OTOH, if you were making $200K and the startup insisted you drop to $70K/year, that's just short-sighted on their part. Especially in this generous funding environment it doesn't make any sense to squeeze founders with tiny salaries.
The life stage and family differences are indeed a big gap, but I think the career stage differences would have also been insurmountable. Once you're a decade or two into a career and you have a comfortable position at a big company, it's really difficult to shift back into scrappy startup founder mode.
To be clear: There's absolutely nothing wrong with taking well-paid roles at big companies. It's actually a great option, and it's fantastic that we can get paid so much without taking on the risks of a startup. There's not really a right or wrong answer in this job decision.
This seem so penny wise, pound foolish to me. Assuming the long-term value difference between a great founder and a mediocre one can be tens or hundreds of millions of dollars, it really makes sense to spend the extra few hundred thousand on the best cofounder available.
It probably wouldn't have worked out well anyway. Your cofounder would have been upset the first time you spent time with your kids instead of working. Founders need to be in roughly the same life stage for things to work out, or if not, have a very strong understanding of what the other person's work life balance is. Or at least the one without kids needs to have very involved hobbies to spend time on when you spend time with your kids!
I would say that setting aside a tiny bit on top of “pay your rent” for savings is necessary. It doesn’t have to be a ton but you shouldn’t be in trouble if the company doesn’t work out. Startups can take years to play out and you need a safety cushion afterwards, some basic level of financial security
This! 100%. Last startup when I was promoted to an e-staff level I said "here is what I need not to have to think about anything but making us a success."
I have a new startup, and I picked the lowest number that makes me not worry about the bills.
In this competitive market, you are likely paying them market plus equity for top talent. EU is less competitive, but you should be paying market or below market if you are augmenting with extra equity.
On the investment side, seeing early founders pay themselves similarly to their employees or slightly less was usually a good sign that the founder was truly in it for the long term. You don’t really want founders scraping by on ramen noodles and becoming financially desperate.
Seeing founders pay themselves exorbitantly was not a great sign, though. If someone is truly building a company into something they believe to be very valuable, the salary shouldn’t matter very much beyond helping them not worry about bills while they grow the company.
That’s all kind of obvious and well known. What I didn’t know was how the unscrupulous founders also know this very well and instead come up with creative ways to pay themselves outside of salary numbers. One founder liked to pay himself $100,000 consulting fees after fundraises to “reimburse” his work done before the raise at what he believed to be “below market rate”. It’s the kind of thing that won’t show up on cursory due diligence, but will poison later rounds when investors dig into finances and realize the CEO or other cofounders have been quietly extracting extra money for themselves. In one case it damaged a startup I was fond of enough that it cost the CEO potentially millions in equity in a later acquisition that failed.
Agreed. As an occasional starter of things, if I really believe in my company, then all things considered, I'd rather have a surplus dollar in the company, as that's where I think my highest long-term ROI is. Early on, founders taking lots of cash out would be a negative sign for me. The $100k because-I-can fee strikes me as repulsively WeWork-esque.
On the other hand, I've been reading lately about the vast acceleration in the pace of investor money since last I did a venture-backed startup. [1] To me this looks somewhat like the diet of a pâté goose: more to the benefit of the feeders than the goose itself. If my investors are in it for a quick flip, I would have to question how much I should be long-term focused.
The "proper" way to take money off the table is for the founders to sell some of their own equity in a secondary sale. This way it's all above board, done in plain view of the investors (who might buy the equity themselves), and most importantly isn't extracting cash out of the startup.
Investors invest in companies to give them runway and for hiring. If the founder is extracting that money back out of the company to line their own pockets (beyond a reasonable salary) then it doesn't help the company at all. Founders should be selling their equity, not withdrawing from the company's bank accounts.
Someone refused to acquire a company for (presumably) tens of millions of dollars because a founder took a below market salary and then made up for it after a funding round with a 100k payment?
How did discovering this affect the acquirer's investment thesis? Presumably they felt like the company's growth potential and revenue was sufficient to invest many millions to own it, but then this changed their evaluation?
Not that I think it's best practices for a founder to do this with investor money, but it sounds like a just-so story.
I'm guessing there was more to it than this. It seems like VC's always have a perfect anecdotal narrative of why it's in everyone's best interest to do things that make the VC firm more money.
Although it wasn't a single $100K payment. It was a pattern of bragging about "taking a $1 salary in the early days" while doing essentially the opposite on the books.
When investing you can't due diligence everything. When you find a couple instances of the CEO telling you one thing but then doing something else and using accounting tricks hide it, it raises red flags. It's rarely ever just a single lapse of judgment like that.
> Someone refused to acquire a company for (presumably) tens of millions of dollars because a founder took a below market salary and then made up for it after a funding round with a 100k payment?
Yes. It goes to the CEO's honesty and character. When you find something like this in due diligence, you start wondering what you haven't found.
> If someone is truly building a company into something they believe to be very valuable, the salary shouldn’t matter very much beyond helping them not worry about bills while they grow the company.
I don’t get that. If someone is truly sitting on a lottery ticket they believe to be valuable, salary still matters very much, because there’s significant irreducible risk that it doesn’t pay out. From a strictly financial perspective, it’s the same reason people don’t go all in on one company in the stock market, but rather diversify their portfolios: People maximize risk adjusted values rather than just expected values.
So this is not a 0-1 game. Most of the risk in a startup (if you dont take VC) is getting to 5K MRR - 10K MRR. Once there, the existential risk should be reduced to zero.
If you take VC, than there is always an existential risk, since you are relying on new money being available for the next round.
Also, you diversify in the stock market mainly due to information uncertainty. I.e. you do not have any control on different risks (economy, company corruption, etc.).
However, in a startup you have much more control on the company future (again, if you DONT take VC money).
If you take VC money, than the company is basically a privately traded company, and you assume all the risks of a public company.
People diversify portfolios out of ignorance, not prudence. If you don’t have any special knowledge that lets you favor one company over another, then you might as well pick a bunch of them. But if you know one company is a good bet for specific reasons, it makes sense to lean your portfolio heavily on it. That is how you get so rich.
My experience is that founders can have it all as long as they can articulate what the exit strategy is.
But I dismiss anyone in it for the long term anyway, so I'm actually screening against that and instead of trying to figure out how they're lying about being in their new corporate forever home. Don't get married to positions. Different strategy.
> On the investment side, seeing early founders pay themselves similarly to their employees or slightly less was usually a good sign that the founder was truly in it for the long term.
I don’t know. Just seems like accounting to me. They take a small salary but own 80% of the company you’re helping build for the same salary but 0.03% ownership.
Outside of cofounders and founding employees (who, by definition, joined before the company was funded and worth more), the total employee option pool might be around 5% of the company in an early startup. Note that it will grow in later rounds, but dilution will reduce the share of early employees in those rounds.
If you hire 100 employees and split that 5% equally then you get 0.05% per employee. What else would you propose? If you tried to give everyone something like 0.5% then the first 100 employees would have to own 50% of the company. Doesn’t really work.
The earliest employees who join when company size is less than 10 people or so, as well as key early hires like valuable VPs will end up with higher equity, but once a company reaches a point of paying market rate compensation then a 0.05% equity stake isn't really unfair.
It's not just accounting, it speaks directly to the incentives of the founders & execs and their commitment to the long term success and growth of the company.
- would love to see distribution rather average, as average is easily skewed by outliers
- salary Vs exit (bust, acquisition or public)
- salary Vs employee. I was listening an episode of How I Built This by Guy Raz. The founder of Goodreads is paying himself about the same level as highest salary employee. I find it a good reference
I made the mistake of paying myself too much after fundraising round and then too little in order to extend runway. Nothing is more stressful when you have less than three months of runway left and you have absolutely no saving and have a family and mortgage.
For my next startup, I will try to bootstrap as much as I can first, and then pay myself a livable salary so that I'm not distracted by looking for others sources of income / radically downgrading my lifestyle.
How does the average founder in a four-founder startup hold 31.79% of equity after the pre-seed round? (from the "Impact of the number of co-founders on equity" graph). Am I reading that wrong, or is their sample too small or heavily skewed?
I noticed this too. I think the charitable way to read this is: "The average survey respondant who is part of a 4-founder startup" and that the survey was biased towards responses from founders with larger equity stakes in their companies.
From the data it looks like they get more or less an average market salary for e.g. architect, team lead, project manager position. What really surprised me was the equity that they keep until series A (below 20%). I expected something at least around 35% for a successful startup that even makes it to series A.
> What really surprised me was the equity that they keep until series A (below 20%). I expected something at least around 35% for a successful startup that even makes it to series A.
Keep in mind that it’s common to have at least one cofounder. Some times more. Start with 3 cofounders and an equal split and already nobody can have more than 33% of the company.
The term “Series A” has also become kind of diluted away by a growing list of earlier rounds: Angel, pre-seed, seed, etc. It’s getting kind of funny to see how much fundraising a company can do before “Series A” these days.
Equity is a tough topic to think about because everyone expects to have a lot, but numerically a startup with multiple cofounders and multiple investment rounds and an employee option pool and equity for early hires will end up with a lot of entries on the cap table. It becomes difficult for any one person to have >20% equity very quickly in most cases.
At startups I often had to explain this to early but post-investment hires who expected 10% or more equity for themselves on top of market rate salaries. Unfortunately the equity gets spread across a lot of different parties.
From what I've seen anything over 5% is usually ridiculous. At least for startups on a track to a billion $ valuation, most startups of this caliber (or that see themselves as being of this caliber, key point) will be in situations where each cofounder has 1-2% at most and the rest is kept aside for later rounds, employees, eventually going public, etc. Your mileage may vary, but that is what I've seen.
In my case, I got a clued-up response from my lawyers, as to what I should pay myself from my in-profit startup, that is accepted by the German government and fair to the shareholders of my/our company. That was helpful. I think it is fair to be fair and on the right side of morality, ethics, and the law.
I can try. In Germany, as a soul proprietor, one can pay himself as much as is available in terms of revenue, minus taxes and costs of doing business. As a private shared company, which is my case, it's a bit different. The compensation of the CEO (myself) needs to be fair to the shareholders and the founders and somehow scientifically balanced (also in terms of what is perceived to be the "correct" compensation for such a role or endeavour, which includes having to answer to everything, government, customers, employees, all the things basically come together from case history and you get a number which is the "seal" for the role. It's interesting, to say the least. I happen to think it actually works.
Readit News
Putting that aside, I think big chunks of this article are trying to draw conclusions from tiny datasets that might not stand up. For example, the chart showing "Average Number of Employees By Annual Salary" is very clearly just a line connecting the individual data points, that should be a scatter plot with a trend line most likely, and what it shows is that most of the companies consist of only the founding team. Or the bar chart of number of founders vs CEO salary - I think they've sliced that data into so many buckets (4 buckets, 3 groups, N=200) that probably the variance between the groups is just noise.
Even if not, you could eat a large piece of the pie.
For those who work with Python it is hard to beat plotly.js for front end because it transfers almost directly to whatever plots you are doing in your notebooks. Extremely customizable and also powerful.
Well one downside to Plotly is that it is quite heavy about 3-4MB. Couldn't figure out a way to separate different graph types.
eg. there are no companies that raised an A and have 10+ ARR in EU
Pay yourself as much as you need to not be distracted by anything that would slow you down. It is different for different founders and for whatever stage they are at in life. But if you are a founder with a family, that is gonna be different from a founder fresh out of college.
Obviously you want to spend as little as possible, but not to the detriment of you lacking focus and dedication because you can't pay your rent.
OTOH, if you were making $200K and the startup insisted you drop to $70K/year, that's just short-sighted on their part. Especially in this generous funding environment it doesn't make any sense to squeeze founders with tiny salaries.
The life stage and family differences are indeed a big gap, but I think the career stage differences would have also been insurmountable. Once you're a decade or two into a career and you have a comfortable position at a big company, it's really difficult to shift back into scrappy startup founder mode.
To be clear: There's absolutely nothing wrong with taking well-paid roles at big companies. It's actually a great option, and it's fantastic that we can get paid so much without taking on the risks of a startup. There's not really a right or wrong answer in this job decision.
One in fact said they wouldn’t fund us if we pay ourselves way too little because then we would be massively distracted to create anything valuable.
I have a new startup, and I picked the lowest number that makes me not worry about the bills.
I'd say this goes equally for your employees, no? Pay them enough to take money off the table
Seeing founders pay themselves exorbitantly was not a great sign, though. If someone is truly building a company into something they believe to be very valuable, the salary shouldn’t matter very much beyond helping them not worry about bills while they grow the company.
That’s all kind of obvious and well known. What I didn’t know was how the unscrupulous founders also know this very well and instead come up with creative ways to pay themselves outside of salary numbers. One founder liked to pay himself $100,000 consulting fees after fundraises to “reimburse” his work done before the raise at what he believed to be “below market rate”. It’s the kind of thing that won’t show up on cursory due diligence, but will poison later rounds when investors dig into finances and realize the CEO or other cofounders have been quietly extracting extra money for themselves. In one case it damaged a startup I was fond of enough that it cost the CEO potentially millions in equity in a later acquisition that failed.
On the other hand, I've been reading lately about the vast acceleration in the pace of investor money since last I did a venture-backed startup. [1] To me this looks somewhat like the diet of a pâté goose: more to the benefit of the feeders than the goose itself. If my investors are in it for a quick flip, I would have to question how much I should be long-term focused.
[1] Scroll down to "fast is in fashion" here: https://pivotal.substack.com/p/minsky-moments-in-venture-cap...
Investors invest in companies to give them runway and for hiring. If the founder is extracting that money back out of the company to line their own pockets (beyond a reasonable salary) then it doesn't help the company at all. Founders should be selling their equity, not withdrawing from the company's bank accounts.
How did discovering this affect the acquirer's investment thesis? Presumably they felt like the company's growth potential and revenue was sufficient to invest many millions to own it, but then this changed their evaluation?
Not that I think it's best practices for a founder to do this with investor money, but it sounds like a just-so story.
I'm guessing there was more to it than this. It seems like VC's always have a perfect anecdotal narrative of why it's in everyone's best interest to do things that make the VC firm more money.
Although it wasn't a single $100K payment. It was a pattern of bragging about "taking a $1 salary in the early days" while doing essentially the opposite on the books.
When investing you can't due diligence everything. When you find a couple instances of the CEO telling you one thing but then doing something else and using accounting tricks hide it, it raises red flags. It's rarely ever just a single lapse of judgment like that.
Yes. It goes to the CEO's honesty and character. When you find something like this in due diligence, you start wondering what you haven't found.
This is somewhat similar to https://www.insider.com/van-halen-brown-m-ms-contract-2016-9
Deleted Comment
I don’t get that. If someone is truly sitting on a lottery ticket they believe to be valuable, salary still matters very much, because there’s significant irreducible risk that it doesn’t pay out. From a strictly financial perspective, it’s the same reason people don’t go all in on one company in the stock market, but rather diversify their portfolios: People maximize risk adjusted values rather than just expected values.
If you take VC, than there is always an existential risk, since you are relying on new money being available for the next round.
Also, you diversify in the stock market mainly due to information uncertainty. I.e. you do not have any control on different risks (economy, company corruption, etc.).
However, in a startup you have much more control on the company future (again, if you DONT take VC money).
If you take VC money, than the company is basically a privately traded company, and you assume all the risks of a public company.
But I dismiss anyone in it for the long term anyway, so I'm actually screening against that and instead of trying to figure out how they're lying about being in their new corporate forever home. Don't get married to positions. Different strategy.
I don’t know. Just seems like accounting to me. They take a small salary but own 80% of the company you’re helping build for the same salary but 0.03% ownership.
If you hire 100 employees and split that 5% equally then you get 0.05% per employee. What else would you propose? If you tried to give everyone something like 0.5% then the first 100 employees would have to own 50% of the company. Doesn’t really work.
The earliest employees who join when company size is less than 10 people or so, as well as key early hires like valuable VPs will end up with higher equity, but once a company reaches a point of paying market rate compensation then a 0.05% equity stake isn't really unfair.
- would love to see distribution rather average, as average is easily skewed by outliers
- salary Vs exit (bust, acquisition or public)
- salary Vs employee. I was listening an episode of How I Built This by Guy Raz. The founder of Goodreads is paying himself about the same level as highest salary employee. I find it a good reference
For my next startup, I will try to bootstrap as much as I can first, and then pay myself a livable salary so that I'm not distracted by looking for others sources of income / radically downgrading my lifestyle.
How does the average founder in a 4-founder startup hold more than 1/4 of the equity at all? Something is wrong with this stat.
Keep in mind that it’s common to have at least one cofounder. Some times more. Start with 3 cofounders and an equal split and already nobody can have more than 33% of the company.
The term “Series A” has also become kind of diluted away by a growing list of earlier rounds: Angel, pre-seed, seed, etc. It’s getting kind of funny to see how much fundraising a company can do before “Series A” these days.
Equity is a tough topic to think about because everyone expects to have a lot, but numerically a startup with multiple cofounders and multiple investment rounds and an employee option pool and equity for early hires will end up with a lot of entries on the cap table. It becomes difficult for any one person to have >20% equity very quickly in most cases.
At startups I often had to explain this to early but post-investment hires who expected 10% or more equity for themselves on top of market rate salaries. Unfortunately the equity gets spread across a lot of different parties.
Is it because they are not creating anything truly unique with great market pull?