Why are local start-ups some of the best paid in the world?
Australia’s high-tech start-up scene may be small fry compared with some countries, but we don’t appear to know it. Aussie start-ups remunerate themselves better than any of their fast-tech brethren anywhere – including Silicon Valley.
The stats come from Compass, a San Francisco-based start-up analytics company that collected salary data from 11,160 start-ups globally. The lowest-paid tech founders are in India, where the average CEO pay is $US30,208 a year. The highest paid are here – averaged at $US72,363 ($101,000).
In Silicon Valley, 75 per cent of founders pay themselves less than $US75,000 a year and 66 per cent pay themselves less than $US50,000.
What, indeed, should tech founders be paid? If the start-up has reached stage one, has some early seed money and backing from a fund or incubator, what’s considered reasonable?
Garry Visontay, general partner at Sydney Seed Fund, says its early-stage companies are generally paid about $70,000 including super – this relates to companies with $150,000 to $1 million of outside funding. When a business attracts more than $1 million of funding or becomes cash-flow positive, compensation would rise to about $100,000, Visontay says.
“Many of the start-up CEOs we have invested into don’t draw any salary from their business until their second funding round.”
Interestingly, he says bonuses are not in the mix. “The best bonus they can give themselves is increasing the value of the shareholding,” Visontay says.
What seems universally true is there are very few champagne-swilling private-jet owners in the start-up arena. This may have been true during the dotcom bubble, when founders were paid millions for inventing an online system to book holidays or pay parking tickets, but those days are long gone. The reactions from some of Australia’s best-known start-up players confirm this.
Eric Fink, who created the visual recognition technology app Snaploader, pays himself nothing, even after an initial funding round and two years of product development. As the former head of Hugo Boss in Australia, he was on $300,000 a year. For the first two years he eschewed a salary in order to pump money into the project. With his first round of investment, he paid himself about $100,000. “It helped my wife calm down,” Fink says.
Soon afterwards, he stopped paying himself again as funds tightened. If he achieves a hoped-for second round of funding of $500,000, he will allow himself about $90,000. “New investors want to see their money used to grow the business instead of the CEO’s salary,” Fink says. “Paying developers and any other costs incurred to grow the business will be the priority.”
Michael Nuciforo, co-founder of alternative parking space locator Parkhound, says a founder should not be on much more than $40,000-$50,000 a year in the early stages. Like Fink, he says investors aren’t keen on lofty executive remuneration. “But they do like the owner to take some salary so they are potentially more invested in the business and won’t run away,” Nuciforo says.
As for himself and partner Robert Crocitti, they have taken no salary in the 18 months since Parkhound’s inception. “As part of our first raising we will include a nominal salary – we may include around $300,000 in the budget for salary – x percent will go to myself and Robert and another x per cent will go to rest of the team.”
Ian Davidson, co-founder of GoFar, which has devised a fuel-saving smart meter for cars, says he does not receive a salary but partner Danny Adams does. “Funded start-ups usually have constraints, around $60,000 to $70,000. The more the CEO gets, the harder it is to enforce salary restraint on employees, but if we’re all in it together it’s easier,” Davidson says.
The Compass research found that most founders who kept salaries below $US45,000 a year did so for lengthy periods, until they hit “a high-growth product phase”. But even when the sales started to grow, the salary didn’t leverage up – on average it lifted to US$70,109 – hardly a king’s ransom.
William Strange, who founded Sports Performance Tracking, says most investors will want the head person to be well remunerated. “We initially went in trying to maximise our investment, but the venture capitalists and angels told me to request a higher wage so I am comfortable and well rewarded,” he says.
Nick Austin, CEO and founder of Divvy Parking, says founders should be paid from $120,000 up depending on experience, involvement and performance. “As the company grows and performance gains traction this should increase. Options are a good way of keeping things focused,” he says.
One of the better-paid founders questioned by Fairfax is entirely self-funded. Sharon Melamed, who founded B2B dating company Matchboard three years ago, started with $20,000 of her own capital and did not think she could pay herself for 12 months.
“It took just four months for Matchboard to recover the initial investment and shortly after, a salary of $7000 a month was manageable,” Melamed says.
“The business now has 1200 clients, posting 80 per cent growth in the last financial year alone. This has allowed me to strike a healthy balance between salary and lifestyle.”
Is Melamed now living it up big? Hardly. She has set aside funds to reinvest in her newest venture, FindaConsultant, which has been funded entirely from Matchboard’s profits. “As every entrepreneur knows, it’s about growing the business – it’s never been about the salary,” she says.