Ask HN: Startup CEO Salary

https://news.ycombinator.com/item?id=4301220

by noinput • 14 years ago

24 63 14 years ago

news.ycombinator.com

I'm excited to say that for the first time I have a start up that may get a very decent round of funding ($250k+). The team is myself as a developer, a partner who has helped craft the product from the very beginning and the gentleman that we found who can easily lead us as the CEO. In attempt to sound very nonbiased our CEO is asking for a salary of 180 K per year starting, the other original partner is asking for 40 K per year and I have a solid developer position with another company therefore I don't need to take a dime. I understand that the CEO's position can very easily command a large salary however am I wrong to question his intent for asking that much as well as some level of founder stock?

Nothing formal has been signed so I'm looking for honest opinions from the HN community.

dotcoma3• 14 years ago

I'd do it for a third of that money (and stock) :)

noinput29• 14 years ago

we might be hiring.

dotcoma3• 14 years ago

Would be cool. But I'm in Europe (in Italy).

mswen• 14 years ago

1. Are you cash flow positive? 2. Growing very rapidly? 3. Needing to hire and manage staff to service fast growth?

Unless you can say yes to these questions I don't think you need a CEO. You may need a business development person if you are selling to enterprises or you may need a great digital marketer if it is a consumer play. Or you may need 1 or 2 customer support people but it is highly unlikely that at this stage, taking in $250K in funding, that your start-up needs a CEO.

I assume that you and the other product partner are the ones who have the vision and made the early sacrifices. If you bring someone in at this stage as CEO with that kind of salary it sounds like you are abdicating the visionary founder role.

Why not use some of that money to bring yourself on full-time so your focus is not split between your day job and this start-up?

One possible caveat to my advice. If this prospective CEO is willing and able to take on the front-line sales, service and support roles and actually do the work personally for awhile at a salary similar to the 40K that the product partner is willing to take then it might be a great addition to the team. Give a little larger equity slice but conserve your cash.

noinput29• 14 years ago

Thanks mswen, I value everything you just said more than you know. Very much appreciative of your response and insights.

Spoom• 14 years ago

Your CEO is asking for more than half the total amount of your seed funding in the first year. Now, I haven't been a CEO, but just from common sense that seems like way too much, way too soon. Does he really add that much value to the company that you're willing to potentially cut your runway in half?

noinput29• 14 years ago

I have not either, but agree with you, we don't think (at this stage) really anyone is worth taking that much of our bank account when it could (and probably would) not give us enough resources to finish our sellable product.

reubensutton• 14 years ago

An amount that high would really cut down your runway.

How would investors in your company feel about spending almost 75% of the investment on a single salary for your CEO?

dman• 14 years ago

What is his background? Will it help you land clients or traction?

Metatron• 14 years ago

If he's got other sources of income, and/or financial security he should be more than comfortable in taking a much lower wage and then 'topping up' with share dividends/bonuses. This way you've got more capital early on and the CEO's contribution will determine his pay.

noinput29• 14 years ago

That's the issue, he does not. He would start on this fulltime, but we fear he doesn't understand that Hustling with Angel $ to get to MVP != Hustling to close a Series B with positive cashflow. Case in point why we're unsure of intent.

paborden• 14 years ago

No way, jose.

If he wants that much, he should quit for wall street. At the very least, he shouldn't be working for a startup at your stage.

Frankly, if a potential startup CEO shot out that number ... at this stage in your business ... I'd start seriously questioning his abilities and expertise. That's crazy talk.

70K, max, I'd say, but be generous with options.

The bigger question is: why are you still working for another company?

noinput29• 14 years ago

re: why working. I'm an engineer for a company which I truly love working for. Until there's money in the bank of my own business which should not go to dev dollars, legal, etc., I have no problem working hard to keep it in there. That's the first reason. Second, is my position at my current job lends an open opportunity to possibly use the tech I built with my personal startup. Can't disclose yet but it's a great fit and I've been showing it to key people at the day job. So far it's looking good. In any case, I have a family of 3 with a new baby on the way, and burning a bridge is not in my agenda.

re: 70K, we've been trying to come up with numbers that seem fair, thanks for your recommendation and thoughts paborden.

bmelton• 14 years ago

Regarding licensing your tech to your existing company, do be very careful about that.

It's just as possible that the wrong person gets wind that one of their employees is trying to sell them code that might already belong to them and depending on your employment contracts, they may simply exert control over its ownership.

You should definitely speak to a lawyer about this, and possibly be willing to forego your current employer as your first sale.

yoseph• 14 years ago

$180k is an exorbitant figure. I would question his motives 100%.

A CEO at your stage should be someone who is deeply involved with building and selling the product/business (at this stage, your business is your product). What responsibilities do you envisage him having? Also, how much equity is he looking for?

noinput29• 14 years ago

Thanks yoseph. We (myself and other co-founder) agree that the goal shouldn't be taking money unless necessary. We envision him 1. leading the co as a Fulltime figure, 2. being available to take all meetings/travel if necessary where the others can't 3. utilize his rolodex to make as many connections as possible and 4. sell what we build.

The biggest issue is we don't have a sellable product yet, that's what the round is for. We want to take our POC and convert it to an MVP and possibly more.

In terms of equity, we were all honestly fine with taking 1/3 to start, however now this warrants a drastic re-visiting of that, which is why everyones thoughts here are so valuable to me.

dsr_• 14 years ago

In a startup, you do not put money towards salaries any bigger than absolutely necessary. You offer ownership and a salary that just pays the bills.

The CEO has to make tough financial calls.

If you think he's worth 180K to your company, then offer him 40K plus 140K deferred to the first year that the company makes 150K in profits -- and not payable if the company never gets there.

noinput29• 14 years ago

re: deferred, great idea as an option. Thank you.

jgilliam• 14 years ago

Anyone who thinks they should get a salary like that when you've only raised $250k should not be your CEO. Run away quickly. Don't even try to negotiate him down.

noinput29• 14 years ago

Appreciate it, thanks jgilliam

brlewis• 14 years ago

Any potential CEO who asks for that kind of salary from a startup that may raise $250k soon is politely saying "No, you can't afford me."

noinput29• 14 years ago

Fantastic POV. Thank you

dave_sullivan• 14 years ago

Agreed. You may be overestimating his value in general. Take that money and use it to quit your full time job so you can focus entirely on building your business.

I don't know enough about the specifics of your business to say much else, but in general, the only thing that matters is having a product people will open their wallets for. If your poc is turning heads but not opening wallets--why is that? Are you positive those wallets would open if you presented some kind of MVP or a polished product? Could you get a deposit now?

noinput29• 14 years ago

re: specifics, of course and thanks for understanding my position to not yet be able to announce/disclose it (seriously, it is close). The POC was for that purpose, a night/weekend project for me over the past year until I realized it had legs. It needs just a bit more love before I could make it B2C ready, which is why I feel it's close. I would like to think that we can start making sales soon, however his role is not as much in B2C, it's B2B sales, which is why it's frustrating he wants to sell an MVP that isn't ready yet.

tijs• 14 years ago

Where is your company based, 180K is probably too much wherever you would be but still; a startup in SF needs higher salaries than one in Austin (or Europe).

noinput29• 14 years ago

Los Angeles. Almost equally as expensive, but we still feel it's too much.

noinput29• 14 years ago

OP here, thanks for all your thoughts. Will be replying to threads as I see them come in.

varelse• 14 years ago

If you had $2.5M and the CEO provided a clear runway to profitability and $25M in funding on the way to acquisition/IPO at values 10-100x that, then he'd be worth every penny.

In your current situation, what value does this CEO bring? What is the next stage? It sounds like he just wants a paycheck and a pile of free lottery tickets oops I mean stock options to me.

noinput29• 14 years ago

re: lottery, ha, I need to use that! He brings quite a few key contacts, however of course they're just as risky for not pulling through as the next. We feel that where we are today, we're not ready for hard sales anyhow.

Currently we have our POC for demos, pitch, etc. Enough to turn heads but not open wallets. Next stage is immediate ramping up on dev to get MVP sorted and do an official beta launch + be prepped for hosting, legal, IP and doing things at the right time. My fear is we'll run out of cash before we can get to that point. Thanks for the note varelse.

trevelyan• 14 years ago

It sounds as if you're doing all the technical work and you're unsure of what your partner is contributing but feel obliged to bring him along for the ride. So you already have one person who is not working at capacity... why do you need to hire another one? Bringing on a third non-technical employee is just going to result in one more person telling you they can't land customer X until feature Y is ready.

Tons of people are rightly pointing out that this guy should be optimizing for equity rather than trying to strip-mine the business' savings account, so let me add something else that sounds really fishy to me about this setup: anyone with the experience or skill to serve as CEO in this sort of startup should have major concerns about (1) your lack of full-time involvement, and (2) the lack of clarity over what your co-founder is doing. The fact that these are not the most important issues in your discussions with this guy suggests he does not value his potential equity and will make an absolutely horrible CEO due to a gross inability to recognize and hedge against what are fairly obvious business risks.

Finally, if you believe he is potentially worth 180k for the customers he will introduce, he is probably worth a lot more. One way to figure out whether he thinks he can make sales is to offer him a much better package worth 250k, but make all of his earnings contingent on hitting real milestones which generate revenue for your company. This allows you to pay him out of growth instead of savings and steers the conversation away from an abstract discussion of "executive" salary levels and towards the more practical matter of (1) whether he can drive revenues, and (2) what he feels the product needs to have before he is comfortable leveraging his connections in service of the business.

raheemm• 14 years ago

Why is he asking for $180K the first year?

ColinWright• 14 years ago

To quote The Big Bang Theory:

    Ex-Roommate: Run away dude! 
    Leonard    : What? 
    Ex-Roommate: Run fast, Run far! 

        -- Series 3 Episode 22:
           "The Staircase Implementation"

Between them they are asking for effectively all of the cash to be spent in a year (or less - "incidentals" add up quickly) at the end of which they can just walk away?

How much runway do you need? Much, much more than you think, and if you're getting 250K+ then you certainly will need more than 12 months.

noinput29• 14 years ago

Good episode.

Correct on your math, my original co-founder who helped with the idea is only taking enough to focus full time. I don't need anything while I can manage, again to bank as much as possible. We're keeping costs to an absolute low to have as much dev $ as possible. My fear is obviously at that rate we'll be out of money before we can launch a product to sell. Thanks Colin!

veyron3• 14 years ago

You aren't giving enough details to make a reasoned decision.

What are the equity stakes? Does the CEO improve your chances of success far enough to compensate for the expense? If because of the CEO you can turn around and raise $250M, then yes the salary is justified. If he brings nothing, then its worthless.

noinput29• 14 years ago

I started vague as to not sound for/opposed to the question, so happy to reply here.

Originally we agreed on 1/3 splits as we all brought a key piece to the company. I was heading up dev, my other partner originally had the idea and provided great insight to what I was developing, and our third (person in question) got us face to face with our new advisor who is the one confident in raising us a seed round. We may or may not have gotten this far without him to date (in terms of the seed), however to be fair on all ends, we don't need a large seed to have an MVP. If we do accept it, it's absolutely because the seed players/funders will help us better position the company as well of course fund development.

veyron3• 14 years ago

Do you actually need significant capital investment to put out an MVP? If not it may make sense to get that out first and then discuss the seed.

jfoster• 14 years ago

Would you invest in a startup where the CEO salary was that much? It's not the right thing to do by your current investors, and in my opinion it would completely put off any potential future investors.

noinput29• 14 years ago

We feel the same. Our advisor (who is a very big player and believes in us, as well knows the potential CEO personally) is not opposed to it, but honestly agrees it's higher than he'd like. Ultimately it's up to the investors, you are right. We don't want to send them our projections and get laughed at.

Honestly, this thread is only re-enforcing that the other two of us are not crazy!

efsavage• 14 years ago

Unless this person is amazing, I'd say quit your job and be the CEO, and pay yourself what you need. You're dev productivity will suffer as you're distracted by business activities, but it will likely be no worse than your current plan of being part-time.

noinput29• 14 years ago

Interesting point. Personally I think the challenge would open my eyes to a different way of doing things, however my other co-founder could easily lead us until needed as well. What I don't want is to be distracted more than needed to accomplish dev goals, as without a product to sell, we're not going anywhere..

jhaniv• 14 years ago

Get away from this kind of "Gold Digger"...you can't afford a 180k CEO even when you raise 500k. Why is it so important to hire a CEO now? Just use your current resources until you get to a point where hiring a CEO makes sense.

You also should be careful from holding your day job - many employment contracts suggest that anything that you do while emplyeed can belong to your employer. (especially when you use your employer's HW/SW to create your own thing)

noinput29• 14 years ago

If we setup a an American Corp in the form our advisor recommended, we do need a CEO on paper, but of course that's just on paper.

I do have a unique agreement with my current employer where it's in my contract that they're fine with me working/venturing on the side as long as I'm not competing. In fact as soon as the basic POC worked I emailed the owners, legal, hr people as I fully disclose everything I do outside of the day job. There was no objection. My goal is actually to see if my employer can benefit from the tech, so far it may happen and I'm keeping a few fingers crossed.

Thank you for the thoughts jhaniv.

jonathanjaeger• 14 years ago

$50K sounds about right. This wreaks of trouble.

Brajeshwar• 14 years ago

From your post and description, this looks like a bad start. $180K CEO Salary for a company that got $250K fund is a bad sign, assuming this is seed-fund, your company have no revenue yet.

Coaxed him to stay around $100K and get another developer with the $80K.

noinput29• 14 years ago

Agree completely. Thanks Brajeshwar

randall• 14 years ago

In. Sane.

Make the CEO a generous founder w/ equity, and give him 40k like the developer. Equality in the early stages is especially important.

noinput29• 14 years ago

Appreciate the simple point you made, we agree we're trying to think through it with long-term in mind while not killing our goals for the short.

lorewarden• 14 years ago

Peter Thiel once said "The lower the CEO salary, the more likely it is to succeed". Reference: http://techcrunch.com/2008/09/08/peter-thiel-best-predictor-...

noinput29• 14 years ago

I saw that article as well when doing some homework on this. Thanks for the reaffirmation.

kstenerud• 14 years ago

When you take a lowered salary as a founder of a startup, what you're really doing is investing part of your true value (the salary you COULD command at a regular job) into the company. For example, if you are worth 180 and you take 40, you are in effect investing 140 per year into the company.

This is important to keep in mind during the early years at a startup, when cash is harder to come by. If the company dies after one year, you have lost whatever part of your 140k (pre-tax) investment that couldn't be recovered in the sale of the business. That is your risk. The reward comes if the company hits it out of the park, and you own a piece of the action.

Once you do a series A (if you decide to do so) or become cash flow positive, you can bring salaries up to normal levels. Until then, every founding member is effectively an investor.

What this CEO is saying is "I don't believe in this company enough to invest in it." Do you really want him at the helm?

noinput29• 14 years ago

That's a fantastic perspective. Thank you kstenerud

rsande19• 14 years ago

Yes you are 100%t right to question that. Anyone who understands the life style of a start-up should know that demanding a salary of that size is unreasonable. Especially when he wants founder stock. You guys should maintain the scrappy bootstrapping mentality. As Guy Kawasaki said "Focus instead, on affordabilit. Having inexperienced young people with lots of raw talent and a tone of energy."

mikeleeorg• 14 years ago

Another way to look at this is: what kind of signal does this send to future investors, assuming you want to raise future rounds?

Some, perhaps many investors will see this figure when they do their due diligence on your company. They will most likely question it, as it is uncommonly large for an early-stage pre-revenue startup. These investors will judge your CEO's decision-making abilities based on this information and could decide against an investment. I know a few angel investors who sure would walk away from this deal if they saw this salary.

noinput29• 14 years ago

Thanks for the insight and thinking about future rounds.

noinput29• 14 years ago

OP Here: For anyone who re-visits this thread, we kicked him to the curb. Thanks so much for all of your thoughts and insights. More so, thanks for re-assuring I'm not [completely] crazy.

Ask HN: Startup CEO Salary

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