Startup Entrepreneurs: Is It Time to Give Yourself A Raise?
As an investor, I hate to hear that the reason a startup team is raising money is to be able to pay themselves six figure salaries that they feel entitled to because of the blood, sweat, and tears they put into creating the business. The blood, sweat, and tears are part of the startup entrepreneur experience and the return on your investment happens at an exit or once you hit profitability. It does not happen when you raise capital to grow your business. Your investors want you to be able to eat while you build the company, but it should not be filet mignon in a mansion on their dime. According to a 2011 survey of 575 tech start-ups in North America, entrepreneurs take home much smaller paychecks than some of their employees. Founders who are CEOs are rarely the highest paid individuals at their companies. In fact, only 17% of founders receive the highest pay according to the survey. Founder CEOs usually do own larger equity stakes than hired executives do (by an average of 20%), but this is thanks to the blood, sweat, and tears investments that founder CEOs make at the beginning. This so-called founder discount exists because entrepreneurs often give up compensation for the sake of their companies. In addition, founders just have less leverage in salary negotiations because their boards know that they can’t reasonably leave over a minor salary dispute. Overall, when should you give yourself a raise? If you aren’t making a reasonable living wage and your company can manage the cash flow without sacrificing growth, the time is now.