Our report last week on the salaries that startup founders pay themselves stirred up a lot of discussion here on The Next Web, Hacker News, Twitter and beyond. Now startup benchmarking firm Compass, the source of the original data, has provided us with further information that helps answer some of the questions you had about it.
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While most readers saw it as a good thing that founders of early-stage companies tended to pay themselves low salaries, some readers pointed out that the self-reported data lacked some important considerations. Age (young founders are more likely to be able to pay themselves low salaries), company revenue (not just funding raised) and team size were flagged as potential influences on why a founder may pay him- or herself a particular amount.
The findings below are from the same 11,160 users of Compass’ benchmarking tool as the previous report.
Startup revenue and founder salary
The closest tie between founder salary and another datapoint was found in revenue. This would indicate that founders are generally being sensible with their bank balance, watching their burn rate closely and not taking more out until there’s more coming in.
Founder age and salary
As many expected, the data shows that young founders often pay themselves low salaries. Average salary peaks for founders aged 41 to 50, perhaps due to that often being an age at which family life can be at its most expensive. After age 50 it dips, indicating that perhaps middle-aged entrepreneurs have often already made enough money in their lives to be comfortable.
Serial entrepreneurs vs first-time entrepreneurs
Do serial entrepreneurs pay themselves more than first-timers? The answer is yes – first and second-time entrepreneurs tend to pay themselves the lowest amounts. Note that this only refers to previous startups that raised more than $100,000.
While it’s impossible to say why this is, as with age, the skew towards entrepreneurs with lower experience levels participating in Compass’ data has contributed to the low average salary levels. As with the graph above, the experience levels here are ‘Number of previous startups where the founder was one of the first five team members, and the company raised more than $100,000’.
Founder salary and team size
In our previous report we noted how salary increased with product stage. The same is true with team size. $50,000 per year only tends to be passed once there are more than 10 people on payroll.
As you might expect by now, the majority of startups surveyed had small team sizes.
What about zero salaries?
A common response from entrepreneurs to our first report was “But I pay myself nothing.” That’s often an enviable position to be in, and it’s an important consideration when looking at this data. Sadly, Compass doesn’t have information about how many founders paid themselves nothing at all. However, in a Hacker News poll with 1,189 participants at the time of writing, roughly 39 percent of respondents paid themselves no salary at all. While the responses there aren’t directly comparable with Compass’ findings, they at least give a figure of some kind.
What should we make of all this?
It’s important to remember that this is self-reported data and not independently verified, and some qualitative followup to examine the reasons why different types of founders pay themselves different amounts would be useful. However, the Compass study covered here and in our previous report can tell us that the average tech entrepreneur is being careful with his or her own salary payouts, with exact amounts varying based on age,experience and team size.
Whether or not you agree with Peter Thiel’s 2008 suggestion that this means they’re more likely to be successful is up to you, but at least they appear to be putting long-term growth ahead of immediate riches, wherever they are in the world.
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