Original post by Chris Sheehan via OnStartups
Back in 2008, Peter Thiel did an interview at TechCrunch50 in which he said one of the most important things he looks at before investing is how much the CEO is getting paid.
The lower the CEO salary, the more likely it is to succeed.
The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money. It [a low salary] aligns interest with the equity holders. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks.
In practice we have found that if you only ask one question, ask that.
What’s the average salary for CEOs from funded startups? Thiel was hesitant to answer, but eventually said $100-125k.
An interesting perspective. I’m not sure that it’s a leading predictor of success, but it certainly is a very important aspect at the seed stage because cash is so precious. The more a CEO pays herself, the less runway available to hit milestones.
- Stating the obvious, salary needs can vary widely. A founder with no mortgage, kids, etc will have different cash needs than a founder that has a minimum cash hurdle to clear (in the absence of being very wealthy)
- The amount raised in a seed round has an obvious impact. I know a couple of cases where if bigger seed rounds had been raised, the founders would probably have bumped up their salaries a little
- The percent equity owned by the CEO post the seed financing varies as a function of not just the size and terms of the seed round, but quite significantly, by the number of founders and how equity is divided up between them. While not a direct driver of cash salary, the amount of equity owned can have a psychological impact on salary expectations.
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