I think this study should ask founders their age. It has a huge impact, probably more than any factor they did ask.
I started my first startup at 20. We were bootstrapped, so we started at $0 salaries, and didn’t pay ourselves more than 1k/month for a few years. We all lived together somewhere cheap to keep rent low.
Now I have a family and stuff… it would be very hard to go back to living like that. So the range of salary options practically available to me is totally different, regardless of where (in the US) I live, how much I raise, etc.
Strongly agree that this is a valuable data point. I’d suggest another way of getting at the same thing would be to ask about previous salary; this correlates with age but only somewhat.
Did the $1M salary founders get paid $1M at Google previously? I’d expect there is a quite strong correlation here since it’s much easier to justify to your board/equity in that case.
And just because you’re 50, that doesn’t mean you made it past Senior. Similarly, you could get to Staff+ before 30 if you are exceptional.
Additional potential questions: Does your spouse or coparent have an income? Do you have a mortgage and what is the monthly amount? Do you support an elderly parent?
I’m married with two children, and my spouse effectively[1] doesn’t earn an income. I’d consider running a startup, but my life situation requires that I have a reasonably steady annual income of ~$125k.
That doesn’t mean I have a lower risk tolerance, or at least not exactly. It means I have a higher risk floor that I had fifteen years ago.
[1]: they have a small business that I’d reasonably say is their life’s work. Because of my income they don’t have to make it a steadily profitable business and can therefore reinvest the profit it produces. It’s a business serving children and is parts of the burgeoning local arts community. It’s very helpful to be able to waive fees and offer small scholarships for children in our area, where the median family annual income is <$30k. It’s also been a blessing to be able to hire teenage students from time to time; more than once that’s turned an extracurricular activity that the kid is passionate about from a cost to a small source of income for a family of very limited means./
Overall, I see a pattern that could be explained by slightly different perspectives. A VC-backed founder likely sees themselves working for someone else - "My work will benefit the investors, so I will get paid for that work." Whereas the bootstrapper is very obviously working for themself - "I'll take what I've earned or need and no more".
That's also where you get into that bump at the end. If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free.
edit: accidentally swapped the headers on first post
Simpler explanation – salaries of VC-backed founders have to be approved by the board, which consists of these same VCs. Bootstrapped founders can pay themselves whatever they want.
> If my bootstrapped company is earning 10M/yr, you bet I'm taking 1M+ salary guilt-free.
Wouldn’t you prefer to take minimum salary and the rest as dividends? Seems like that would be the more tax advantaged approach and fully within your ability to do as majority owner.
Once your company is earning $10M/year, you should probably be using debt instruments instead, and paying yourself enough salary to cover the interest. That gives you a real tax rate on your cash earnings under 10% (and capped at the LTCG rate) if you can get a decent valuation.
You can use anything as collateral for a loan, even business equity. It’s how wealthy people get liquidity without selling assets.
A HELOC loan would be a pedestrian example of this. You put house equity up as collateral to get money without selling the house. Fail to pay, bank sells house. When using your business as collateral, bank sells business.
How would this translate to salary? Are you saying you'd get a loan on your portion of the equity at full value and the company would only pay you the interest required to cover that loan?
Something like that yes. Mind you some jurisdictions have laws around “reasonable salary” so always important to check these things with a professional first.
For a more fun take: Watch WeCrash and notice how the protagonist magics 100mil for personal use after raising the huge Softbank round … and what happens to that liquidity when an IPO doesn’t materialize.
Alas I’ve never been wealthy enough to see how this works in practice. At my level (can borrow about 4 months worth of living cost) you do have to pay it off eventually, you just get quite favorable interest rates in the meantime.
Also, HELOCs have very high interest rates due to the illiquidity of the underlying asset. If you have a large private company that has some interest from private equity investors, you can get a much lower rate. ELOCs on huge blocks of the S&P 500 (essentially large margin loans) can have rates that are almost at the fed funds rate.
I would imagine with the very high failure rate of startups, loans based on company equity, especially for small, non-public non-liquid companies must have sky-high rates.
You probably can't get an ELOC against common stock in a series A startup. You can definitely get an ELOC at a pretty decent rate against preferred stock in a startup that is at series D and has 100 employees.
The question isn't what the company is worth or how likely it is to fail, the question is what demand there is for the shares. If an asset is in high demand, and is relatively easy to sell (like company shares), you can get an ELOC against it at a great rate.
They won't give you 100% of the valuation of the company in the form of an ELOC (you may only be able to pull out 10-20c/$1 of startup equity you have), but they will give you a good rate.
I think what people often blissfully miss about founder comp is that the business literally supports the founder's entire life. Everything is a business expense. Pay yourself 50k as a little bonus and run almost everything through the business, because if you don't survive, neither does the business. You think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year living humbly? Think again. IDK, I always thought this part of the narrative was rather misleading.
EDIT: I'm not a tax person, obviously people aren't being illegal and dishonest. It's just smart to write off everything possible in a founder's life as a business expense. Maybe housing or this or that doesn't qualify where you live? Great that's what the minimal salary is for. Everything else goes on the company card.
2nd EDIT: I don't really understand why everyone is so cagey whenever this topic comes up. This isn't news. The IRS isn't reading this saying "gosh darn they figured out a new loophole". The laws are clearly spelled out, it's up to you to apply them to your situation. Remember, tax evasion is illegal. But minimizing tax liability is 100% okay and literally the name of the game. Otherwise, we wouldn't have tax breaks in the first place.
That's...not how it works. You can expense cell phone bills and lunches, sure, but VCs aren't paying for your fancy apartment.
> EDIT: I'm not a tax person
Most non-tech discussions on forums like this one should start and end with this disclaimer. Watching people here regularly talk about topics like law, "money laundering", write-offs and tax shelters is as hilarious and disconnected from reality as a hacking scene from CSI.
Ultimately, VCs are paying for your fancy apartment. They're just paying more the more expensive your personal life is. I wouldn't dismiss the obviously aligned incentives here that encourage minimization of capital expenditure for business entities, especially in the USA.
I'm making no moral or legal judgements, just commenting based on what I've encountered and witnessed. I'm not a founder and never consulted anybody with legal qualifications regarding this matter either in any specific instance. But, in my anecdotal experience, there is a rather broad spectrum of contexts and interpretations on how to do what's best for you and the business in your specific situation. On the flip side, it's not a big conspiracy, in the USA we heavily subsidize the pursuit of new enterprise. And the law reflects that. Smart people and successful businesses minimize their tax liability.
I don't understand your point. Of course at the end of the day VCs are paying for everything in the sense that they funded you, but there's a clear distinction between personal expenses (which come out of your salary) and business expenses (which you charge your business CC on).
Of course you wouldn't have fancy VC dinner on your personal dime but if you're meeting VCs to raise a round, talking to a potential customer, etc., those are legitimate business expenses.
No VC is going to be paying for your rent or your car lease, which is what you implied above. That's patently false.
You say it’s patently false and yet here I am saying I’ve seen startups own houses and cars. Maybe your and their tax accountants would disagree, but that’s a different topic.
My point is simply that the low founder salaries are not because the founders are being particularly frugal or living humbly. The low salaries exist simply to pay for the things that the business’ accountant can’t expense. In every respect, the founder lives their business.
It is my understanding that tax law does not prevent a business from providing whatever compensation they want to- but certain compensation is taxable to the recipient as income. So if a business pays $10,000 per month for the founder/ceo/whatever's rent, that is still an expense to the business. But, the recipient has to pay tax on that 10,000 as if it were income. At least on whatever portion of it is not devoted to the business (If the apartment has an office in it that is used exclusively for the business, the cost of the office square footage is deductible).
So as long as the benefit is reported on the founders taxes and taxes are paid, it would not be tax fraud.
It all really depends on your situation and context. Does your company have an office yet? If not it's probably the founder's residence. I've heard of apartments listed as offices in very early days. It's not about committing fraud, it's about working with what you've got. But for sure paying founders a low salary and running everything through the business is a tax-conscious strategy to minimize overall expenses.
The IRS does not really agree. Home office expenses got quite a bit stricter a few years ago, and even before that expensing your entire apartment because you worked out of it was probably not technically allowed.
Note that if someone get caught doing this, the IRS can and will open other additional tax years for examination.
The statute of limitations is currently 3 years from when the return is filed, 6 years if the deficiency (between the reported amount and the tax calculated due by the IRS) is 25% or more and the disparity is unintentional or the result of good faith efforts by the taxpayer to report their liability.
However, if a deficiency is deliberate, there is no statute of limitations on how far back the IRS can go to audit the tax year and assess penalties (and possibly also refer to the DOJ for criminal charges).
The home office thing is a personal deduction that an individual can claim. I'm talking about scenarios more akin to "the founder sleeps in the company office".
Where the "company office" just happens to be a (from GP comment we are all replying to) "fancy SF and NYC apartment" in a residential building?
I mean, I'm not a lawyer or CPA, and I'd advise any HN readers to consult such before deciding on a tax strategy based on HN thread. Because, also, yeah, no.
Honestly, if you are sleeping in an actual office as your primary residence, you probably technically have to include the fair market value as income on your personal taxes, but if you're really on a couch in an office building maybe you can get away with it (until the landlord of the office building kicks you out because it's not zoned for or up to code for residential and thus illegal for them to rent to you for that purpose). If it's a residential apartment... sounds like out and out tax fraud to me. I am not a lawyer and this is not legal or tax advice.
I mean I've actually seen founders living out of work/life spaces. Not the WeWork type. The type where a large commercial or industrial building is converted into a "co-working-living" space. Not a lawyer either so I have no idea if it's legal to the letter of the law, but it exists.
I have never heard of a "co-working-living space", so you know things I don't!
Sounds like a different thing than just trying to deduct 100% of your apartment as a business expense because you don't have an office yet though. Which is what I thought we were talking about from the GP. Like, maybe lots of people are doing that, but maybe lots of people are committing tax fraud, the IRS instructions are not too fuzzy here.
I never said 100%. I am not sure if I put off the wrong vibe by accidentally insinuating that founders are lavishly burning money or something. That’s not my intention. My point is that 50k/yr is not enough to live in SF or NYC. Something is filling the gap.
The logistics aren't really the point. No I don’t know how exactly founders do their taxes. But I do know that when you work 24/7, a lot of things look like business expenses.
My guess would be what's filling the gap is pre-existing savings/family money.
My point is just that the IRS has standards for what you can deduct or treat as a business expense (rather than wages), and it is not "when you work 24/7 a lot of things look like business expenses".
Not paying for your own apartment and instead treating it like a business expense still sounds like tax fraud to me, whether or not the business has it's own office yet.
The rules around home offices are very strict — it has to be a physical space that is used exclusively for work purposes. Even if it's a guest bedroom that is used mostly for work, but also occasional guests, then it doesn't qualify. That doesn't mean you'd necessarily get caught, but it does mean that it is not allowed.
And if you tried to claim your entire residence, that would definitely not fly, and would be much more likely to be found out by tax authorities.
Yes: there's a weird temporary limitation on this until 2025.
The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home.
2. The IRS also allows deductions for a home office. The rules about this are pretty strict, but again, there are gray areas here about what counts as an office.
And by "tons of gray areas" you actually mean "a laser-sharp line between what is allowed and what is not."
A founder using the company to pay for their own housing is subject to income tax on the value of the housing provided. Full stop. There are no defensible situations that will survive a tax audit in which the founder gets away with using the startup to pay for their housing without getting taxed on it.
And the IRS no longer allows a deduction for home offices for employees, and won't allow this deduction again until 2025. The home office deduction is strictly for those running a separate business out of their home, and may only be used to offset income reported on the return from that separate business.
This is how fake news happens. I really wish we all took a bit more time to research things before we publish them, because I guarantee you there will be more people today running around and sharing this exact same fake news about founders living in apartments paid for by their startups.
I've also seen cases where pretty well-funded startups (and, honestly, not just startups, I've also seen this with large public companies) have tons of expenses flow through a founder's/upper level exec's personal credit card. The expenses are all legit, but this results in at minimum multi tens of thousands of dollars in credit card bonus points accruing to the exec.
Will let you decide how ethical that is (or not). After all, many/most companies allow their employees to keep points earned for business travel. But it's one thing for an employee to keep bonus points for expenses they themselves incurred, which is very different, I think, than putting tons of corporate-wide business expenses through one person's card.
As a counterpoint, the founder is effectively providing financing via revolving credit line to the co in this scenario (which the consumer bank issuing the card might not appreciate, but that’s another topic). You mention well funded startups but it’s also common among small businesses for the owner to use personal credit cards (at their own risk) when the business is having cash flow issues.
Agree completely here! When we were getting everything up and running, we were making decisions about which SaaS platforms were worth our money. Having the company pay for something personally never once crossed my mind.
Yeah I interviewed at a recruiting startup and the founder was writing off his brand new sports BMW and at the time I was like omg that's so cool and now I'm like omg that's so shady
Yeah no, this is bullshit and won't pass tax inspection. I founded and exited a company and yes I did live humbly until we actually managed a significant raise. Even then I still took a low salary. I only expensed things that were actually company related.
Writing off parts of your rent as a founder or business owner is perfectly ok with the IRS. Such a space needs to have "regular and exclusive use" for running your business and be your principle place of business (i.e. you do not maintain an office outside of your home).
In my experience CPAs consider it reasonable to take the square footage of the dedicated office area and divide it by the total square footage of your home and deduct that much from your rent.
> You think founders are paying out of pocket for their fancy SF and NYC apartments at 50k per year living humbly? Think again. IDK, I always thought this part of the narrative was rather misleading.
In what situation would a founder have a company with meaningful investor backing and not use that money to pay for an office for employees and instead use it to pay for their rent?
The tone and insinuation of your message is that founders pay themselves $50k/year but then splurge excessively using company funds on "fancy SF and NYC apartments" (which, depending on how fancy you mean, could go for $10-2k/month), which would almost certainly qualify as both tax fraud and fraud against the company. Your edit doesn't really do anything to alleviate the messaging, because you basically say (a) founders often commit fraud (b) ok maybe not, but I'm not erasing my earlier statement.
FWIW when I started a company in SF in 2012, my cofounders and I did indeed pay ourselves $50k/year and pretty much 100% of that money after taxes went to rent and living costs (maybe saved $5k/year, I wasn't keeping track that closely). This was after paying ourselves $0 for a while of course. We did not live in fancy apartments or use a penny of company funds to expense rent or any other personal living costs. In fact, even after we raised $35m for our company, we still only paid ourselves $90k for another couple years.
I this true? Wouldn't the IRS have something to say about apartments being classified as a business expense when it is used as housing in addition to "office space?"
One thing that can fly under the radar is when a founder uses their personal credit card for things like social media ad spend, and then gets reimbursed by the company. It's a very easy way to rack up tens to hundreds of thousands of dollars on a credit card which equals tons of points for things like travel, electronics purchases, gift cards, etc.
In the short-term this might work, but if you're trying to build a company that grows, then it doesn't work so well, because other people you hire will ... want the same thing.
If you expense your cell phone bill every month, then it's reasonable for other employees to expect the same, if they're also using it for work.
Better to get the board to sign off on a slightly higher salary to offset these expenses, IMO.
I was at a YC startup in the mid 2010s for around 4 years. The most funding we got was a series B round but nothing more after.
Near the end, I had a happy hour or dinner with one of the co-founders. He told me that if he had to choose again (giving up his engineering job vs. starting up the company), he doesn't know if he would choose the start-up route again.
Just some food for thought. It's great playing the CEO or the founder and betting on yourself but at the end of the day, the financial trade-offs could be life changing (especially given the salary/stock options provided by top tech companies).
Does anyone know if it shares how the answers were solicited?
Every survey of this size has substantial sampling bias (which doesn't invalidate the result, just helps us to more rationally interpret it).
---
[edit] there's some color at the bottom, though I'm still curious to know more.
> The 2022 Founder Salary Survey was conducted over a five-week period starting in May 2022, during which we reached out to founders through our extended networks and elsewhere online.
> We received a total of 516 responses.
> Over 60% of our responses were from either remote Founders or Founders in the San Francisco Bay Area.
Leaning on a network is a good way to scale up quickly, although it's probably the principle limiting factor on the scope of conclusions, drawn from this report.
"How much do Founders, who are 0-1 degrees of separation from a company that uses Pilot, pay themselves?" is still a pretty interesting thing to read.
As a non-start-up person who'd really not likely ever do it but looks at graphs all day as a job, it does seem like the long tail makes sense, although it's hard to tell if 500 (plus a survey) is a representative sample. It seems like the usual thing for power distributions, you'll have a long tail with flying high salaries which is what most people think of when they think of founders (the architype of a walking hype and reality-disortion field emitting white man wearing a poloshirt), but you'll have a nice chunk near the bottom of the distribution which is "everyone else" who likely won't make a big exit. Don't the vast majority of start-ups fail? That description is the quintessential description of "success" for any variable with a power-law distribution.
Looks like nearly half of the founders surveyed are running companies with 5 or less employees. I wonder if this skews the average way down for the whole sample set. For example, if you look at the salaries reported by founders of companies with teams >25 the average salary is much higher.
Highest salary in the $1M-2.9M funding bucket is $750k. Surely that company must be pretty profitable, I can't imagine allocating that high a percentage of your funding to the CEO salary if you're not? It's also in the 6-10 FTE bucket.
Would love to see difference between “already comfortable” founders vs the rest. Comfortable ones more likely to minimize personal taxes and roll the dice on equity.
Also, any breakout for startup subtypes? (SAAS, fintech, web3, health tech, AI/ML etc.)
This is not strictly true. A company can pay dividends if it's profitable at any point in time. Whether it's publicly traded doesn't matter. Whether it's a good idea or not is another question.
I know, but having data on it helps. I am curious how many of these funded companies actually generate profits for their founders and how soon. It may be that despite large investments returns are slim, meaning many such startups are a waste of time.
As a startup founder myself, I wish I had the luxury of paying myself a modest salary, but until the revenues support it that is how it goes. Even if I had a bunch of VC money, I would definitely feel guilty about paying myself a ton of money. I would still have a huge chunk of founder's stock, so I would pay myself well below market rates.
If I were an outside investor in my startup, I would demand this. If a founder was living high off my dime I would be very worried that they would cut and run the moment the gravy train dried up. Startups run better when all the players have significant 'skin in the game'.
I think maybe this data needed to be cleaned a bit more before being analyzed. For example, in the "Breakdown of Salaries by Funding Level", in the 0 - 99.9k bracket, the "average" salary is 115k and the highest is 360k. I must be missing something basic; is the salary value computed from a monthly value, and the company will either raise more or close down within a period less than a year (having paid out less than the stated salary figure)? If so, it seems a bit disingenuous.
In what world does it make sense for a founder to pay themselves $1m/year in salary? One situation I could imagine is if they have a money-printing machine and outright own the business, then that would make sense. It's hard to imagine any other scenarios where that would be reasonable.
Do founders set their own salaries? Do they need to be approved by a board/VCs? Do investors have heuristics to help decide if a given founder's salary is appropriate, and not exploitative to boost a founder's lifestyle before a business is truly viable?
There are other sources of this exact same info, and this source is far more on the lean side then anything I’ve ever seen. It’s not something I can share because the subscription is not mine, but I am sure others can back me up on this.
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