I’ll never forget one of my investors, “Raul”, asking me how much I was going to pay myself after we closed our $12 million round of funding. I told Raul I was going to pay myself $200,000, well below the market rate of $250,000 at the time. This was significantly more than the zero salary I made for the company’s first two years of life.
Yet Raul said to me, “Sounds a little rich to me.” The reality is it didn’t matter what I was going pay to myself, Raul was going tell me it was too much.
You want your funding to last you long enough to get to your next set of milestones.
I’ll explain how I got my number later, but my goal was to make sure our funding lasted us at least two years, worst case (it lasted for close to three years). That would be long enough for us to get to our next set of milestones.
Your payroll is likely going to be your biggest expense when you’re starting out. So, it’s going to be the biggest influence of how long your cash lasts.
You’re not the only one who will sacrifice a high salary at the start. Your best talent will too.
“Here’s what we can afford to pay you,” I said to Greg, one of the best Analog IC design engineers in our industry.
Greg was making $400K/year working part time at Maxim Integrated Products. I had known and worked with Greg, so I knew getting him to join our company would be a huge win for us.
However, I knew we couldn’t afford to pay him anywhere near $400K/year. In fact, even paying Greg $200K would blow up our salary structure.
So, I told him we would pay him $180K/year and give him 0.8% stock options. It was at the top of our salary range for a senior engineer.
Greg happily accepted the offer. Over the life of the company, Greg contributed not only great designs, but he mentored many of the company’s engineers.
So, how should you think about your salary as a the founding CEO?