Got Investors? Now, How to Handle Your Salary Whether your investors are friends and family or VCs, here's a guideline on how to pay yourself as your startup grows.

By Catherine Clifford

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

How Much To Pay Yourself In the Startup Stages

Most entrepreneurs depend on outside investment in the startup phase. Knowing what is reasonable to pay yourself when you are running on somebody else's bankroll is a sensitive matter. Here are salary guidelines to consider for the different stages of your business.

Before outside investment: When you're just launching, prepare to forgo a salary. "If they can live on peanut butter and jelly sandwiches or baloney sandwiches until the big promise comes in and they can make their gazillion dollars, all the better for them," says Harry Schum, senior consultant with Compensation Resources, Inc., a human resource consulting company headquartered in Upper Saddle River, N.J.

To get through this period, you should have saved up enough cash to cover living expenses for between 18 and 24 months, adds Lori Hoberman, chairwoman of law firm Chadbourne & Parke LLP's emerging companies/venture capital practice in New York.

Angel investors or friends and family pitch in: At a certain point, you'll need funding, perhaps to build a website or a product prototype, and those initial investment dollars usually come from either friends and family or an angel investor.

A typical salary to draw during this stage is between $40,000 and $70,000 a year, says Hoberman. Ideally, keep living off savings during this time, but if that's not an option then only take a salary to cover basic expenses, she adds.

Related: 3 Online Tools To Find Funding

Institutional investment dollars hit the bank: As you need larger amounts of capital, it's more likely a venture capital firm will enter the picture, offering funding for a portion of the company. While you should still keep monthly expenses to a minimum, a reasonable salary is expected at this point, especially since you've gone without one for some time. "Don't be a piggy about it. Figure out what you need. Build in a little bit of cushion," says Hoberman. When presenting a business plan to a VC, under the expected expenses, list your preferred salary.

For example, a founder of a venture-funded tech startup in New York could be paid between $100,000 and $150,000 a year, says Hoberman. By the time the first round is over, the salary could go up to $200,000. If there's a second round of funding, it rises again to between $225,000 and $250,000. Keep in mind, these estimates are for New York, where the cost of living is very steep compared to other regions of the country. And in Silicon Valley, where the entrepreneurship culture is focused more on stock ownership than financial compensation, Hoberman says the salaries will be slightly lower, too.

Related: Want to Raise Money With Crowdfunding? Consider These Tips

Of course, as a company continues to grow, your salary is more dependent on projected revenue and what portion of the company you still own, says Schum. To see what other, similarly positioned entrepreneurs are making, check out the Securities and Exchange Commission filings of companies in your industry that recently went public, says Schum. The SEC filings disclose how the top five executives are paid in the company.

When did you start drawing a salary? Share your approach and respond to other readers in the comments below.

Related: Six Mistakes Entrepreneurs Make When Seeking Venture Capital

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business News

Woman Goes Viral After Recording Her Disastrous Call With HR After Being Let Go: 'They Tried to Gaslight You'

Brittany Pietsch posted a nine-minute-long clip of her firing from Cloudflare on TikTok, and it went viral. The company's CEO responded on X — and also went viral.

Starting a Business

I Was a 25-Year-Old Nurse When I Started a Side Hustle to Combat Anxiety. It Made $1 Million in 7 Months — Then Sold for a Life-Changing Amount.

Sarah Michelle Boes knew there had to be a better way to prepare for her stress-inducing nurse practitioner's exam — so she created it.

Business News

MacKenzie Scott Donates $640 Million to Non-Profits After Elon Musk's 'Ex-Wife' Comment on X

The winning applicants span 38 states, Washington, D.C., and Puerto Rico.

Thought Leaders

Want to Attract Success? Don't Do These 9 Things

We are constantly told what to do if we want success — but what about the habits to avoid?

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.