How much should an entrepreneur expect to earn in the first five years of the company?

This is a really great question. How much money does a founder really make in the early days?

There are no set answers as it all depends on what the company is about, how well it is doing and whether it managed to secure funding early on (and continue to secure funding over time). 

Generally, the founder probably should not expect to make any money at all during the first year or two (except for subsistence salary where necessary - and that is only if the founders secured angel funding).  Many founders bootstrap their first year or two out of their own savings and/or invest their own money as an angel investor in their own venture, and take no salary.  When money is short, generally founders pay their staff first and themselves last. I have known founders go on 50% pay to help tide the company over a tough patch.  It is difficult to make a living wage during those early years.

Once the company makes it past the angel and seed funding stages and is venture backed with a Series A round, then the founders will begin to be able to draw a reasonable salary. 

What's a reasonable salary?  Again, the answers vary, but BufferApp has published what their entire company makes as well as the formula with which they calculated the salaries of everyone from the CEO down.  The numbers are current as of 2013 and as you can see, the founders are trailing quite some distance behind top developers in the Silicon Valley working for companies like Google or Facebook.  Also, Inc. Magazine has a post that explores the full range of what founders might make including opinions from Brad Feld, Sean Owen and David Rose (all investors) stating that a 6-figure salary for an angel/seed stage founder is too high. Dharmesh Shah, co-founder of Hubspot, also has a post on the same topic where he provides a range of $60-150k for the founder's salary assuming a seed round of at least $900k.

The general common wisdom is that founders don't go into starting a company for the paycheck.  They go in for the passion and the promise of making something new from scratch and having impact.  Their upside comes from building successful ventures.  When the venture succeeds, value is created, and that's when the founders get rewarded. 

 

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