It is common for salaries to stay below market rate even after an initial venture round?

I am employee #1 in a startup with some substantial equity in it.

Our startup was funded by angel money and I have worked from the beginning for a salary way below market rate. Now, venture round A is coming. I talked with a founder regarding my salary and he said that while my salary will go up, it will continue to be below market rate.

I understand that everything is negotiable and there are no two identical cases.
However, I would be interested to know whether it's a common deal or not (to continue working with a below-market rate after round A funding).

One more thing. I understand the rationale for reduced pay in early-stage startups. (It reduces cash burn rate and makes the startup's runway longer). I am not sure that I understand the rationale for venture-backed startups, though. The burn rate becomes way higher and reduced pay for founders/first couple of employees won't make a dent in the length of runway.

Venture Capital Salary Compensation

asked Mar 17 '13 at 02:55

User25504
16 points

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2 Answers

I think it is bad business to not provide at least market rate for a key employee - esp. as it relates to flight risk. The possibility of recouping the lost wages via stock options is uncertain while your fiscal burden is.

Perhaps there is a gap between what your both perceive is market rate. Seek a neutral source for validation, share the information with your manager and have an honest conversation.

answered Mar 17 '13 at 03:16

Jim Galley
9,952 points

Thanks. I don't think that the problem is gap in perceived market rate. We didn't discuss exact numbers, just as part of conversation regarding the salary, he said that it still will be below market rate (both for founders and several early employees with equities). Also, one one hand, flight risk is mitigated by equity (I am interested in success of this startup, so for me it doesn't make sense to jump the ship for small difference in the salary). On other hand, I feel that market rate salary is reasonably idea (especially, if a company already has enough cash for it). – User25504 12 years ago

Yes, it is common. But, in return, you should expect more in stock/stock options -- remember that you're trading less money now for potentially more money later. If that potential doesn't exist, then why receive less money now?

answered Mar 19 '13 at 01:37

Chris Fulmer
2,849 points

I received quite quite substantial equity in the beginning. And I don't think that I will get any more stocks/stock options. I would say that part of this equity was given me upfront (for future limited earnings). However, there was no clear cut, how long it should last. – User25504 12 years ago