May 23, 2019 | 12:08 PM

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19.07.2013Should Startup Founders Go Hungry?

There is a common notion in the startup world that founders of venture-funded companies should take tiny salaries

Eli Portnoy, Forbes.com

There is a common notion in the startup world, and one perpetuated by investors and boards, that founders of venture-funded companies should take tiny salaries. In my opinion, this practice is destructive and unnecessary.

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I have lived this first-hand, witnessed it at other companies, and even believed it myself. I have been told that taking even 50% of my prior salary would be “a turnoff and send the wrong message.” I have heard from other fellow founders that they have been encouraged to sacrifice on salary to show their commitment. This pressure doesn’t just come from investors and boards, but even from other founders who write about it and take it as a source of pride that real founders have to live below the poverty line.

I myself advocated for a lower salary at ThinkNear and asked my co-founder and early employees to do the same. I was wrong.

Cutting founder salaries is shortsighted and a very unhealthy practice in our ecosystem. I want to be clear that I am not advocating for excessive compensation at startups. However, I do believe entrepreneurs should be paid close to market and allowed to focus on their business without worrying about their personal life and ability to provide for their family.

Lets explore the ways that a low salary can be harmful and helpful.

The reasons why low founder salaries are bad:

Entrepreneurs have the monumental task of building something valuable from nothing. This is an all-encompassing pursuit. A low salary pulls a founders attention from the business and forces them to think about how they are going to make ends meet and how each passing day impacts their savings/debt. As an investor, I would much rather pay a healthy salary and ensure that my founders are able to devote 100% of their time, dedication and maniacal focus on building the business.

Investors care deeply about hitting a homerun, much more so than a bunch of base hits. This is not a bad thing and is driven by fund dynamics. However, by not paying appropriate salaries investors encourage and sometimes force founders to consider early acquisitions that leave upside on the table, but provide instant liquidity and a way to avoid further months of hellish living.

Low salaries can be inhumane and cause a lot of pain to founders and their family. I have lived through this and it is not fun.

The reasons people believe low salaries are justified:

An often cited rationale for compressed compensation is that it provides the company with more runway. However, this is a really ineffective way to cut burn. Take a company that raised $1m. If they pay the two co-founders $150k instead of $100k each, that’s an incremental ~$120k (including additional taxes and benefits) in salaries over an entire year. That’s 10% of the raise. Hardly meaningful in the context of burn, but hugely impactful to the entrepreneurs. Besides, wouldn’t it be much easier to just get board members to travel coach and not stay in $350 hotels. Side rant: if its so important for GPs to make good use of LP money, why are the VC’s allowed to take huge salaries and charge 2%?

Another common benefit articulated for low founder salaries, is that it demonstrates dedication and commitment to the business. In other words, it weeds out “the weak” or those doing it for the wrong reasons. I never fully understood this because a) investors should be able to identify founders who are not committed without forcing low salaries, and b) I would think that they want to have the most talented folks running their investments, why do they want their founders to be masochists too?

A final reason I have heard is that by emphasizing that most of the entrepreneurs compensation is in equity it provides the right incentive to build long-term value. However, this is still the case if you pay someone market or not. The equity of a founder is disproportionately larger than even market salary, and therefore the incentive isn’t really being diluted. Whether a guy or gal makes $60k or $160k, the upside of the equity dwarfs those salary numbers and ensures proper motivation.


The myth of the startup founder suffering through poverty and horrid economic conditions should not be encouraged. If the company has raised money and has sufficient cash it should pay founders market salaries and allow them to focus on what really matters; the business. This is the humane approach as well as the best use of investor money.

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