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I was reading about startup founder salaries the other day and wanted to check I have understood it properly, because most of what I find is either US advice in dollars or a blanket “pay yourself as little as possible” with no explanation. Here is what I have pieced together, and I would appreciate anyone correcting me.
Founder pay seems to depend heavily on the stage. At pre-seed, many founders take little or nothing, while after a seed round the common pattern appears to be a modest salary well below market rate, often somewhere in the region of £30,000 to £60,000 depending on location and how much was raised. The reasoning looks to be that every pound paid out shortens the runway, and investors tend to be wary of founders who draw large salaries before there is revenue. At the same time, paying too little can cause real personal strain, especially for founders with a mortgage or a family, and may lead to burnout or a founder leaving.
The UK tax side is where I get confused. Many directors take a low salary up to the National Insurance threshold and then draw dividends, which seemed more tax-efficient in the past, but I understand the dividend allowance has been cut and the rates have risen, so I am unsure how much that still helps. There is also the question of the minimum wage, since a director who is also an employee may need to be paid at least the National Living Wage, and I keep seeing mixed advice on whether that applies. Pension contributions, director’s loan accounts and employer National Insurance all seem to add further complications, and I am not sure how SEIS or EIS investors view founder pay when assessing a company.
My question is how founders decide what to pay themselves, and whether it is better to set the salary before a raise or negotiate it with investors as part of the round. I would also like to know how people handle unequal pay between co-founders, when it is sensible to move to a market salary, and whether low founder pay ever came up as a concern during due diligence. I have read something similar to this on Entrepreneur Plus, so I would like to hear from anyone who has been through it, what they found hardest, and what they would do differently.
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