Bursts of Color - Founder Compensation
In a startup's early days, founders often skip detailed compensation planning, instead choosing round numbers and moving on. This is an admirable sentiment. But over the long term, founder compensation design can matter a lot to the company, so it's worth taking some time to think this through.
Following are some benchmarks and suggestions for founder compensation across three areas:
Salary
Equity Split
Vesting
Salary - Nobody's Getting Rich from a Startup Salary
I see a wide range of founder salaries at the Seed-stage, from roughly $60k to $200k, with $120k as most common. All co-founders usually take the same salary in the early years.
Early startup salaries aren’t enriching anyone, so keeping them low has clear advantages:
Company survival. For a company with 3 founders and $2m capital, $200k salaries mean you will spend 60% of your cash just paying yourselves for the next 2 years.
Trickle down effect. Founder salaries set a benchmark for the company; lower founder salaries typically lead to lower exec pay and a leaner expense approach.
As company revenue grows, founder salaries often evolve upwards towards the "market" wage they would earn at a different company. For example, when the company is >$10m net revenue, founders in expensive markets like SF and NY often have salaries of $250-300k.
Equity Split - Uneven Is Usually Better
While equal shares may sound good, founder contributions vary, so it’s best if the shares and voting reflect that reality.
For Two Co-Founders: Consider who will be the visionary leading long-term and who will be the first builder.
I suggest a 55/45 split if the founders are fairly equal in market value and seniority.
In other cases, where the CEO is bringing more of the value and asking a more junior co-founder to build the first product, splits of 70/30, 80/20 or 90/10 are common.
For 3+ Co-Founders: Ask what is the unique contribution of each new founder, and how critical is that relative to the CEO and CTO?
If possible, shoot for a split where the CEO still has more than half and thus controls the common vote - e.g., 51/39/10.
For instance, if a founding team includes a CEO, CTO, and a lawyer, the lawyer’s 10% stake, though smaller, may still be generous—often far more than outside counsel would receive.
As the number of founders increases, the uneven split becomes more important... and in most cases, it probably means some founders should have a small relative share. This can still be great for everyone. A relatively junior founder with 2-3% is still getting a lifetime opportunity and 10x the equity they would get as an employee just a few months later.
Vesting - Longer is Better
Startup employees typically vest their stock options evenly over four years, so this has become a default for many founding teams too. But founder stock is very different from employee options because:
Founder grants are much larger than even the most senior employee you'll ever hire and
Founder stock is a one-time thing. Employee option pools can be replenished, but there will probably never be more founder stock created.
A successful IPO usually requires 10+ years with a founder at the helm. However, as Jack notes, it’s common for co-founders #2 and #3 to step away around the 3- or 4-year mark, taking significant equity with them.
So counter-intuitively, longer vesting schedules protect the founders who are going to stick around and do the work. This is often partially addressed during a Series A financing, when the new lead investor asks all founders to restart the four-year clock for some portion of their grants. Alternatively, the founding CEO may be better off with a 6-, 7-, or even 8-year schedule for the original grants, paired with an acceleration provision to ensure everyone wins if the company is acquired or goes public earlier.