Ending Soon! Save 33% on All Access

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

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.

Business News

'Creators Left So Much Money on the Table': Kickstarter's CEO Reveals the Story Behind the Company's Biggest Changes in 15 Years

In an interview with Entrepreneur, Kickstarter CEO Everette Taylor explains the decision-making behind the changes, how he approaches leading Kickstarter, and his advice for future CEOs.

Business Ideas

87 Service Business Ideas to Start Today

Get started in this growing industry, with options that range from IT consulting to childcare.

Business Models

How to Become an AI-Centric Business (and Why It's Crucial for Long-Term Success)

Learn the essential steps to integrate AI at the core of your operations and stay competitive in an ever-evolving landscape.

Marketing

5 Steps to Preparing an Engaging Industry Presentation

You can make a great impression and generate interest with an exciting, informative presentation. Find out my five secrets to creating an industry presentation guaranteed to wow.