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RTC #35: What VCs think about founder salaries
Consider this ONE advice to not endanger an investment
Stephan Freudl
August 13, 2024
👋 Welcome to ‘Road-To-Capital’ your weekly companion on venture capital and startup financing. This newsletter is about understanding how venture capital investors think and act. Follow me for deep dives, exclusive expert talks, and the latest headlines and insights to stay ahead of the curve.
Hi everyone, here is today’s issue at a glance:
Weekly top links → Top 10 fundraising resources
State of venture capital → VCs reserving their dry powder for the big bets
Understanding VCs → This is the founder salary VCs expect from you
“VC Terms” and “Startup Lies” → 😂😂😂
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📢 My favorite links of the week
👉 Top 10 fundraising resources for startup founders (Link)
- My favorite this week
👉 H1 2024 VC rounds: flat and down rounds hit a decade-high (Link)
👉 VC passes on investing in a startup but “cheers from the sidelines” (Link)
👉 How do you write your monthly investor update? (Link)
👉 VC-backed companies grow faster than bootstrapped companies. (Link)
👉 Best advice: “Figure out what comes easy to you, then go hard at it” (Link)
👉 IPOs: Why list in Europe if you can list in the US? (Link)
📖 Report of the week
AI startups steal the show, grabbing over a third of all funding
Investors remain highly selective with their dealmaking, they’re reserving their dry powder for fewer, bigger deals in areas with strong growth potential like AI
Most active investors
SOSV (35 companies)
Andreessen Horowitz (33 companies)
General Catalyst (31 companies)
Lightspeed Venture Partners (28 companies)
Founder salary is a tricky topic.
Many ideas are flying around regarding venture-backed startups:
75% of the market salary until EUR 5-10m funding.
100%+ market salary above EUR 10m funding.
“Very low” (Peter Thiel).
“The lower the CEO salary, the more likely it is to succeed.”
Don't pay yourself anything at the beginning.
But don’t make not paying yourself a long-term strategy.
The famous “Ramen Profitability”.
The thing is, there are also many different situations.
Just imagine the two (very different) scenarios:
Scenario 1: An (AI) startup raising EUR 15m in their latest seed round.
➡️ From a capital availability perspective, founder salaries do not so matter as much at this point
Scenario 2: A tech startup raising EUR 0.5m in their first pre-seed round.
➡️ In this situation, every EUR counts, as it directly affects the burn rate
At first glance, these are two very different situations, which likely require different approaches—up to a point
There is one thing that Jason Lemkin (CEO & Founder of SaaStr, currently investing $150m with SaaStr fund) shared.
When asked about his view on founder salaries, he said:
“If the founders are the highest compensated people in the start-up, at least pre-Scale (e.g., pre $10m ARR) … and perhaps even always … something is wrong. Incentives are not aligned here.”
This resonates with me, and if asked for ONE piece of advice to give to founders, it would align with what Jason shared.
As a founder, if you are truly committed:
👉 Do not be the highest-paid staff in your firm
👉 Always have at least one person, like a great engineer, head of sales, or the first exceptional hire who wasn’t a founder but is still great.
👉 This person should make more than you. Always.
Other than that?
As long as it looks fair, doesn’t harm the company’s runway, and keeps the founders focused (meaning they can cover their ongoing personal expenses and living costs) - I am OK.
Do you want to dive deeper into the topic of founder salaries?
All things financial for early-stage startups
They go deep on founders' salaries
💬 “VC Terms” and “Startup Lies”
“VC Terms”
👉 “I have a strong network” => I cold email industry experts and hope they respond.
👉 “I spent time as an operator” => I interned at a now-failed fintech startup & got hammered every weekday.
👉 “I’m an investor” => I have zero decision-making power & spent last night writing a 19-page investment memo my GP didn’t read.
😂😂😂
“Startup Lies”
“Forbes 30 under 30” => I paid a PR firm $50,000 so my mum could be proud of me.
“We have a disruptive business model." => We're not making any money yet.
"We're seeing strong traction in the market." => My friends and family finally signed up.
😂😂😂
Thank you for reading today’s issue. If you enjoyed it, leave a like or comment, and share it with your friends. Follow me on LinkedIn to never miss updates again.
Have a great week,
Stephan 👋
Issue #35 | 13 August
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