[Andrewski]

I think a smart "founder" saves his Porsche buying until after the company is actually profitable.

A $50k salary for a founder is about the limit until the company is actually raking in some dough, unless the goal is to feel important and drive that sucker into the ground.

[coffeemug]

Me and my cofounder both pay ourselves $65k/year. We live very comfortably, afford most things we want, and while we do have to worry about money on occasion, it's a very comfortable salary. Another $15k/year or so would help alleviate that, but really isn't necessary.

A bigger problem is that talent is very expensive. A top-notch engineer just out of college costs about $120k/year when you factor in insurance and other expenses (this number will likely go up even more). A senior engineer can easily cost $150k - $180k/year. That's not counting recruiting costs, which are about a third of first year's salary (You can find recruiters that will work for 15-25% but they won't get you any good engineers). Between a team of five, and other expenses, a startup that raises $500k is incredibly underfunded. People say startups are getting cheaper, but the primary expense is talent, and talent is getting more expensive. So startups are getting more expensive too. A superb team of five (with two founders) costs about $700k/year, so IMO raising less than a million at the least is irresponsible.

[joshu]

50k is often not survivable. Especially in SV, where everything is expensive.

I agree that if it is possible you should do that. I'm drawing zero salary right now myself.

But more importantly - strong talent is expensive.

[btmorex]

50k is easily survivable in SV as long as you don't have a spouse and kids to support. I'm really having trouble understanding how you need more. Are you doing all your shopping at Whole Foods or something? Eating out 2 times a day? Where does all that money go?

[tptacek]

This is the calling card of a very boring argument. $50k ($40k after taxes in California filing single) is $20k after the median single bedroom apartment rent in Santa Clara county, leaving you with $1600 headroom every month. This is comfortable if you have very, very few expenses.

It is obviously possible to cite a life plan that will navigate you through an arbitrarily low comp plan. Just sleep on a couch and eat rice and beans, you can make a go of it at $20,000/yr!

[joshu]

Right.

Founders are very highly compensated in equity, so asking that they take a lower salary is a reasonable argument, but may not be practically possible. (People with mortgages shouldn't start up? etc)

The main issue is that strong talent can get better prices elsewhere, so you either have to give them a huge chunk of equity, or reasonable salaries.

I think people here are talking about startups that 1) can be bootstrapped in a year 2) by two or three college kids 3) with little significant technology other than RoR and mySQL or whatever. I avoid investing in startups like this because honestly I don't think they have great chances of having exits.

[netcan]

It sounds like at early stages founder salaries are an issue. Does the number of founders and their salary needs have much of an impact on early valuations?

Say startup A has 3 founders willing to take $100k gross. They hire 2 $100k employees 100k expenses. Startup B is a single founder with a mortgage that needs $100k and hires 4 $100k employees and $100k expenses to get the same amount of work done.

Startup A has 1 year runway on 400k. Startup B has 1 year runway on $600k. Would this be reflected in valuation?

[anamax]

> 50k ($40k after taxes in California filing single) is $20k after the median single bedroom apartment rent in Santa Clara county

$20k/year for rent? (When I was renting, I never paid median.)

$20k/year more than a $300k/30 year mortgage plus insurance. (Property tax adds another $4k or so in SJ.)

And yes, a $300k mortgage is possible in SV - older founders could have bought a while back and I suspect that some folks are paying about that now.

[tptacek]

I'm not sure what your point is. I have a ~$300k/30 mortgage, and I'm not paying less than I would for a 1 bedroom apartment in San Jose.

Even if I could, though, so what? Again: you can live in SV on $19,500/yr. People do it. That doesn't make $19,500 a reasonable comp package.

In discussions like this, people tend to talk as if there are two alternative comp plans: either (a) the package where founders build their own futons out of cinderblocks and shipping pallets, or (c) market salary.

There is, believe it or not, (b): significantly lower than market --- which for a startup founder in SV is probably north of $120k/yr --- and significantly higher than subsistence. The (b) comp plan is the rate that would allow a startup founder to:

(1) Rent (or make mortgage payments on) the same home they had prior to starting the company

(2) Continue making car payments on the car they bought last year

(3) Maintain all previous insurance levels

(4) Maintain phone, cable, and Internet

(5) Cut meals out by 50-75% but keep the grocery list approximately the same

Every one of these items is negotiable, but so is having a private sleeping space. If you want all of them, though, you're paying substantially north of $50k/yr in SV. I'd think $75k is closer to the mark.

The median income in SV is $85k ($96k if you're tech). People judge the quality of their lifestyle based on their peers. It's hard to argue that you'd feel just find with $40k after tax.

I'm getting sucked into what I admit is a very boring discussion, I know. I just wanted to make the (a) (b) (c) point.

[anamax]

> I have a ~$300k/30 mortgage, and I'm not paying less than I would for a 1 bedroom apartment in San Jose.

That may be true, but we agree that you could pay less.

"reasonable comp package" is meaningless. There's market and there's desired, but we're talking about what a founder could live on in SV.

Many people can live on something just north of what a grad student lives on. Some can't.

The former have more options than the latter. Most people can arrange to not have car payments. Some can share expenses with a partner.

Some people may choose to maintain a $100k lifestyle instead of founding a company because the latter would require them to live on $3-40k. (I lived on less while I was unemployed.) Others won't.

My point is that it's doable and I don't think that it's a huge sacrifice. Other people will disagree. As a result, some of them won't be founders. That's okay as long as they understand the consequences of their choice and that it is a choice.

BTW - SJ's $86k/$96k median household income is for households. Most SJ households are dual earner and they're not renting two one bedroom apartments.

[btmorex]

You're right. It is a boring argument. Every time I get into it, I realize that most people don't even know what saving money is. Saving money != spending like an average person so I don't know why you would quote the median apartment price. Obviously, you would try to find a cheaper one.

[tptacek]

Without getting into value judgements about financial planning: what you don't want your comp plan to force founders to do is move to a new apartment (unless subsistence wages is part of your strategy).

[ramanujan]

Don't see why this follows. Many job offers require relocation. And YC itself requires relocation (for 3 months) to the Valley, with the expectation of subsistence wages.

In other words, grandparent has a very important point. In the context of all the stresses associated with startup life, moving to a new apartment (or city), cutting costs, and living on ramen is not even on the top 10 list.

Now, for someone like joshu who has a track record, fine, they don't have to live frugally their second time out of the gate.

On the other hand, if you have an exit that size, why raise money at all? Why not self-fund the whole shebang? If you think VC $ "legitimizes" it, ok, maybe give a traditional investor a small piece...but not much more than that.

Bottom line is that people who are able and willing to live on ramen can turn $700k into years of runway -- and are enriched for the kinds of people who can build a profitable cost-conscious business.

[joshu]

And if you want to hire someone?

[klbarry]

My girlfriend and I are surviving easily in NY on about 24,000 a month total, and the valley probably isn't too much more expensive. I also eat delivery fairly often and am not particularly careful with money.

[tptacek]

Presumably, you meant $2,400/month.

The average studio apartment in Manhattan is $1900, leaving you with $500 at the end of each month to cover every conceivable expense. MTA to-from work alone ate $180 of that between the two of you.

[joshu]

When I lived in NYC you could have a nice, inexpensive apartment in Astoria or Williamsburg for much less than that.

When I did delicious, one of my employees could get to our office in manhattan from wburg faster than I could from the Upper West Side, too...

[idlewords]

Back then it was possible to rent cheap in NYC without having to worry about bedbugs. I don't think I'd be willing to rent in w-burg again without paying for an inspection on any place I was serious about.

[maxawaytoolong]

You cannot find a nice, inexpensive apartment in Astoria or Williamsburg for much less than $1900 anymore. Williamsburg is way overpriced now. Better luck in Astoria but honestly you have to go pretty deep into Queens or Brooklyn for any combination of "nice and inexpensive." It's not going to be a very hip neighborhood.

[Andrewski]

Of course, eating out twice a day, whole foods, the finest wines every night, and of course the Porsche 911 for him, and the Cayenne for her so she can get the kids to soccer practice.

Seriously, how much do people spend on the kids? Also, we have this thing called the Internet now, you don't have to live in SV to start a tech company.

[ojbyrne]

Or you live in the Bay Area or NYC and hope to avoid poverty.

[yummyfajitas]

If your startup lives in NYC, you can avoid poverty quite easily on $50k/year. NJ is about 20-30 min away. Rent is lower, food is cheaper, and you don't need to pay 2-3% of your income to MTA ticket booth agents taking home more money than you do [1].

Where you live is a choice, and living in Manhattan is choosing luxury.

[1] Or assorted other overpaid NYC workers.

[michaelchisari]

Maybe there's a case that, at least in the early stages, startups shouldn't be based in the Bay Area or NYC?

[cvg]

50K may have worked in 2000, but we have 10 years of inflation since then. I think 65K is more in line with the times.