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After receiving the first big check, the startup needs to distribute funds properly: understand how much to pay employees and how much to leave for existence. One of the main questions is how much does a startup CEO make?
That’s why we have reached out to our clients who have already passed the startup stage to ask this question. After producing good research and them, we came up with some fascinating answers that we want to share with you today! We hope this article will assist any other young or early startup who is slowly developing and trying to desperately understand: “How much does a startup CEO should make?”
What’s Driving the Salary Growth?
According to various sources, most of them indicate that in 2019 and 2020, the salary that most to the startup CEO has been raised by 10%. And that it mostly depends on the funding rounds that these entrepreneurs are constantly raising.
Simultaneously, the rise of investment funding has been mostly seen in seed rounds, which means that the biggest driver of salary growth came from tech companies. In the past three years, CEOs of various tech startups had an average salary of $118,000, which came up to $135,000 in 2019. IF mentioning Startup CEOs who are primarily focused on the healthcare industry, we saw that the salaries remained pretty much unchanged during previous and current years, coming in at $147,000 in 2019. The same trend has stayed in touch with a fintech startup, reaching $129,000.
Male vs. Female Startup CEOs: Are Men Paid More?
It’s no wonder that there are many debates and discussions on the topic of salary between men and women. Especially when it comes to startups, this topic becomes more active and engaging, as there seems to be a slight salary gap.
So, when it comes to startup CEO salary, there is a definite difference. YOu see, when comparing two gender salaries who are running relatively same startup organizations, the difference is around $5,000, where $138,000 per year is set for CEO women and $143,000 per year is for men.
You might ask us that this is a very crucial difference in salary. While it is true, when we look at it more retrospectively, the results are pretty astonishing. According to our clients’ sources, this difference is explained that the female CEOs are predominantly running earlier-stage startups. If we look closely at Seed and Series A startup CEO salaries, the difference in pay between men and women is practically non-existent.
What do startup CEOs get paid?
If you’re asking this question directly and want no take-backs or any other statements, then the bold answer is $130,000 per year. The data we gathered from our clients indicates that the average annual salary for a CEO of a seed or venture-backed company is somewhere$130,000. It is also essential to understand that we considered only those companies that are majorly sponsored and funded by various investors. Simultaneously, the average funding statement was set somewhere between $7 and $8 million in venture and seed financing.
How much does a startup CEO make, according to investors
According to Brad Feld, a venture capitalist at Foundry Group, founders typically earn $100,000 to $250,000 a year, with bonuses of up to $100,000. Meanwhile, founders serving as CEOs often have a cut of up to 20%, and when working as CTOs, a cut of up to 10%.
There are exceptions to all the rules. Venture capitalist Peter Thiel doesn’t invest in startups where the CEO makes more than $150,000 a year. He notes that the lower the CEO’s salary, the better the company grows. New York-based business angel David Rose believes that a funder must get approval from the company’s board and investors before paying himself anything. For example, for a startup that has raised $5 million, Rose advises paying a funder no more than $150,000 a year.
Foundry Group venture capitalist Seth Levin voiced the rule: “Companies that have raised $1 million or less should pay the CEO between $75,000 and $125,000 a year. If the investment is up to $2.5 million, the CEO’s salary should be $125,000. The more investment a startup attracts, the more its funder can afford.” Storm Ventures partner Jason Lemkin, a former CEO and co-founder of the electronic signature service EchoSign, bought by Adobe, shares this opinion. According to him, the CEO of a company should not be in a situation where he has to worry about making money because it negatively affects its growth and harms it.
A CEO startup salary from other sources
If you’re a startup founder, how much should you pay yourself? Compass has shared its research on the salaries of founders around the world.
The average salary for startups worldwide ranges from $30,208 in India to $72,363 in Australia. In Silicon Valley, 75% of the founders allocate less than $75k a year for their salary, while 66% allocate less than $50k a year. It is worth noting that the average wage in the states is approximately $73,000, while a developer in San Francisco, on average, receives $110,480 per year.
In Australia, the average salary in the IT sector is $104,738. Being the “highest-paid” ($72,363 a year), Australian founders earn less than the average Australian – $85,785. Peter Thiel (co-founder of PayPal, managing partner at Founders Fund) believes that a low CEO salary is the best predictor of success.
Most companies set salaries for founders at less than $50,000 a year. However, there are somewhere founders who make more than $175K. By the way, Peter Thiel is not the only one who attributes startup success to the size of founders’ salaries. The official Compass blog has posted a graph that shows the correlation between a startup’s success and its founders’ wages. We can conclude that companies, where the founders make more than $175k a year, are far from the most successful.
Does the stage of the product affect the salaries of its founders? Not really. Founders tend to keep their wages below $45k a year until they get into the rapid growth phase. But even then, the average startup salary — with a mature product — of $70,109 is not higher than the average U.S. salary. You could say that startups in Silicon Valley are setting themselves relatively low wages when considering the high cost of living in cities like San Francisco.
The most dedicated startupers (worldwide) turned out to be in India. The average salary of a funder in India is $30,208. It should be noted that an Indian developer gets around $10k a year on average, and the average salary of an IT project manager in India is $18660. The average salary of a funder in India is more than an employee in the IT sector usually gets.
How does a startup’s funding impact CEO salary?
It was estimated that for each $1 million raised in funding, every startup CEO could roughly be increased by $4,000 to $5,000 in annual salary. Some CEOs who didn’t have much capital of their own to run their startups and push up until the first funding rounds tend to reduce their costs to preserve cash significantly. While other startup CEOs who have high annual salaries are most likely running their companies that have recently raised capital or are performing very well with their sales growth revenues.
Conclusion
All in all, we saw that the primary driving source of income for an aspiring entrepreneur is the amount of investment he is raising during the seed or pre-seed stages. There are some situations where the industry trends allow one to raise more funds, thus increasing the overall annual CEO salary. One thing hiding beneath the CEO salary’s surface is spending your budget for your startup needs correctly.
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