“The lower the CEO salary, the more likely it is to succeed.
The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money. It aligns his interest with the equity holders. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks.
In practice we have found that if you only ask one question, ask that.”
If a startup CEO’s post-Series A salary is too high, he or she may not have a true sense of urgency to implement and/or create shareholder wealth.
This doesn’t mean a startup CEO must continue to make Costco runs for ramen noodles. But if the startup’s CEO gets a huge salary, the startup CEO could likely view his or her equity stake as “house money” (i.e., even if the startup fails, the CEO won’t feel too bad because he still received got a hefty salary).
Furthermore, a demand for a high startup salary can signal that you don’t believe all those things in your investor pitch.
Ryan RobertsPartner
Ryan Roberts is a startup and venture capital attorney and partner at Roberts Zimmerman PLLC with more than two decades of experience advising high‑growth startups and venture capital investors. He is the author of Acceleration: What All Entrepreneurs Must Know About Startup Law and StartupLawyer.com
