In a long-ranging discussion today at TechCrunch50, investor Peter Thiel (PayPal, Facebook, Slide) gave his thoughts on what is the best predictor of startup success. At the Founder’s Fund, one of the most important factors he likes to look at before deciding to invest in a startup is how much the CEO is paying himself. (This is also a factor that one of his investments, YouNoodle, looks at to value private startups). Says Thiel:
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.
In Startupland, everybody should be working towards the same goal: that big juicy exit. That’s the only payday any CEO should be worried about (even though more than half of them will never get it).
What’s the average salary for CEOs from funded startups? Thiel was hesitant to answer, but eventually said “$100-125k.”
lowpay makes you hungrier
but i didnt know peter was such a poor speaker i thought or expected him to be better
he seem rather nervous
I agree – at first, I thought he was some random startup kid – based on his presence, or lack thereof – poor speaker, not really personable/confident
All people in startups should be getting paid peanuts, so they stay hungry – and have a real sense of where their company is really positioned.
they should live proportionatley to their profitability; not to what amount of VC cash they have raised.
Low Pay?! Well, it has always worked for me… it really keeps you on the edge and makes you want more. But success should be celebrated too… So, I suppose in the early days, getting low pay makes sense… but it shouldn’t be too long… The goal is to make money!
–
We’d also launched our startup today, check us out at http://www.adexcel.com
AdExcel is “The Ning for Advertising Networks with more juice in Socialized Ads”..
Let us know what u think
Best,
Darren
Cofounder of AdExcel
Dear Darren
Stop spamming.
Love always,
Damon
Damon – Sincerely apologize for the “Spammy” comments…
Just realized it was a huge mistake but please let me assure you it won’t happen again and will definitely tone the “notices” down… It was our first day and we got overly excited… In the spirit of TC50, let’s wish the 52 startups and all the other startups in DemoPit and beyond – a great event.
Thanks again for your patience and support.
Oh Darren you are so sorry, we all see that after you go on and post some more spam on your failure of a web site:
http://www.tech...comment-2462848
http://www.tech...comment-2463194
http://www.tech...comment-2463185
http://www.tech...comment-2463216
Let me help you, with your spamming.
http://www.adexcel.com, owner loves to spam random users on web property he does not owe. Particularly he loves to throw one liners with 4 paragraphs of advertising telling people they launched the next Ning (wow!), when called on it AdExcel CEO apologizes a lot while he is already spamming in another thread.
AdExcel, if you do business with them, you are a moron.
See !? This will cure your 1) Lack of users 2) Lack of funding 3) Lack of good business plan 4) Lack of common sense and ethics.
Much love,
Aleksey
Oh, thank you for your patience guys, while I spam. Classic. What a moron.
It’s alright and I will absorb that karma.
Like I said, sorry for the inconvenience caused. No harm intended and shall restraint from repeating those mistakes. We all learn from our mistakes. Life is a journey of long learning experience.
Oh Aleksey!
You know what. I think the person who is a MORON and obviously being an A**HolE is YOU! Give that guy a break and I can’t stand it anymore.
They guy apologized and so let it be.
You have anger issues, then please take some therapy!
This might be helpful – I am sure Darren meant no harm…
http://www.read...t_your_comp.php
He is not nervous but a little awkward. But so what …
yes he is not an engaging speaker …but he is an investing genius. If you want some one to entertain you, but who invests in crappy companies, listen to Guy Kawasaki, all bull***t…
Why do you have such a problem with Guy Kawasaki? He is a genuine character, and very inspirational. If you are going to make such a bold comment, then back it up. Did he refuse to invest in you? Is that what happened?
Seemed pretty solid and considered to me
Don’t know why they haven’t linked to the video, but here it is if you missed it:
http://www.ustr...recorded/698620
Thanks for the link. It is awesome that TC is streamed!
Thanks Chris, really! Just saved me some digging.
Completely agree!
obviously brilliant
Hungry, not starving. People need to eat. Worrying about money is a terrible distraction.
I wonder if this also true of publicly traded companies.
We’ve seen outrageous pay packages at lot’s of banks, and look at how they are doing now.
Another note: Thiel and Fouders Fund have created the Series FF type of funding.
Series FF let’s founder’s take out equity before an IPO or sellout. Zuckerberg has taken out about $40MM and so did Powerset Founders. Link Below:
http://www.inc....sing-funds.html
I’ve always felt this way, and many CEO salaries are out of control with respect to their age and risk profile. My raises have always been initiated from my board.
One local VC firm did a CEO survey and the average CEO salary in the bay area was over 180K. These numbers included a majority of startups that are far from showing any signs of profitability.
Metrics and goal settings is also key to implement especially with regards to compensation; from the CEO all the way on down the chain.
Funny how some people don’t see business as business owners, but as daddy VC funding me to have an exit.
How about making a profitable business, that makes healthy amounts of cash (> $500k monthly), run it with smart but as little people as possible (2-5), and partners take whatever they need everymonth, no salaries, no hiring CEOs, then reinvesting when necessary for your growth strategy, and you just grow your business month after month, so no need to sell out cause you’re rich already.
That’s how you predict startup success. Healthy amounts of cash, very little expenses, no burocracy, good product that actually creates value for your customers, good word of mouth.
Eventually if you sell out, you SELL out bigtime, you don’t end up giving your company from the beginning to daddy VCs
ok…
i’ll bite. where are these (2-5) person companies, doing >$500K/month!!!!
if i’m doing a 5 $million/year run rate, with 4-5 people, what do i need a VC infusion for!!!!!
head out of the clouds for a sec here please!
Does anyone have a link to the Peter Thiel talk? Thanks in advance!
Umm, so whats the range he’d invest in? Or put another way, how much should a ceo/founder be asking/making?
Would love to know how much is too much? Are you talkinging about paying yourself 100,000 or 25,000?
Easily said for a multi-millionaire. What about the CEOs that need to take care of a family? Should the kids be eating ramen to keep daddy hungry for an exit? Does that make them the most likely to succeed or could personal financial stress be a little distracting? I understand the general logic here but is that really the question you’d ask if you only had one Peter?
if you can’t make it on $100K, then maybe the spouse should be working as well!!
if you’re eating raman noodles, and making 100K+, then somethings seriously wrong with your financial skills, and i suspect a VC would have issue about funding you anyway..
Not sure that’s entirely fair…. trying to support a family with a few kids in the the Bay Area or New York on $100 K a year is not easy. It’s possible, but not easy.
If the other half is working, then that only means higher childcare bills.
Peter references average CEO pay for funded companies is $100 K-$125 K. The upper bounds of that band become a little more manageable, but still certainly not easy, especially if you are making the leap from a “big company” job where you’re lifestyle is based on income multiples of that.
Where do you live? On $100K, with no children, in San Francisco, after taxes your making about $65K. Rent for a 1 bedroom apartment in San Francisco is about $1600 a month (if you’re lucky) or almost $20K which leaves you with about $45K to pay for additional health care – co-pays and uncovered costs, transportation, heating and electric, clothes and oh that pesky thing called food: to wit, ramen noodles. Certainly not Whole Paycheck…
Rent a place on the peninsula and take the train. 1 bedroom for $1,100 in South City. Monthly pass (1 zone) is $60 so, there you go, just saved you $6,000.
This is true to an extent, but what exactly is a low salary for CEOs? A low salary does not automatically mean a strong belief in the company mission. In fact, it could mean a lack in confidence.
A key question, then, for those in the know: What salaray is considered high, low, and reasonable, for a startup? What about for different funding levels: angel, Series A, etc
a) The point seems right BUT
b) What’s a low salary? AND
c) Is it the same for a 21 year old singleton and a 30 year old father of two. No.
well enough to meet whatever your specific basic needs are, and a little spending cash…but not enough where you could handout a Porsche to each your kids.
Why’s everyone so mad about the big juicy exit?
How about building a profitable business and paying yourself and your staff decent salaries, take it easy and move onto something else?
Why is it necessary for these pronouncements to be taken on faith?
With the billions involved, surely someone can take the time to test the accuracy of such claims based on actual data?
I think the problem is that nobody really knows the magic recipe for a successful startup, and so people grasp at straws like this.
Nonsense. I’d love to see an actual study of this vs. hearing it from someone like Thiel. You want someone who’s a breadwinner at home with mortgage, kids, and a great salary at another gig you have to be willing to pay for that talent.
There is an actual study out there – sponsored by VCs and I have a copy. Guess what? The average salary of CEOs of VC backed start-ups is $250K. Peter Thiel is full of it. Yeah for maybe the boot-strapping first year you make very little, but after you have a business and are financed you should be making more – when it’s an actual business.
Notice Thiel hesitated before giving a salary range – he knew the number he gave would become the standard for every pitch he gets over the next 5 years. Of course he’s going to low ball it.
I think it all depends on situation, its very distracting to see accomplished entrepreneur/investor types throwing out very generic cookie-cutter statements and the press running all over it. In some ways, we all tend to take such irresponsible statements and create frenzy around the startup community, and when u are at the bargaining table to negotiate package, u wonder why we are getting low-balled! People, get a clue and LISTEN, do what is best for you, the company and your family and negotiate the best package that makes for the role, risk, personal situation. Such herd mentality creates more issues for others doing the start-up game right!
In theory it sounds great, but it needs to be explained better. No one should make more than it costs to live – i.e., pay the mortage or reasonable rent, buy healthy food for him/herself and family (if there is one), and pay for other reasonable expenses. No 401K or anything like that. Retirement money will come from a good exit.
Paying less than it costs to live forces desperate, low probablility strategies and CEOs that are focused on other things besides moving the company forward.
Now, if he is talking about people who ALREADY have made it with another company and therefore can afford a very low or non-existent salary, then the there is a correlation between previously success enrepreneurs and future success. That’s a different story.
Like he says in “Think an Grow Rich”
“You have to be willing to burn your ships, that way you have no choice; either die or win the battle”
A startup is not one battle. “Burning your ships” makes no sense unless one battle will win the war.
Well I saw the video. I liked what he said about chess players (humans) versus machines and I.Qs.
The funny thing is facebook is really dead in 3-5 years. There is no model, it is a huge f—ing bubble if not sold early while it can get something. mark my words. There is a reason for the name/handle “Anti Matter”. Peter, hint, hint.
I totally agree with Peter on CEOs salaries. While many seek to have high salaries and eat up valuable venture resources I am cool with US$40,000 to US$70,000 tops. Why. With two start ups, that works out to US$80,000 to US$140,000 if you are good anyways, so why eat it all up?
I say prove your worth, make the millions then and only then you get paid. End of story.
I agree with low salaries for CEOs , but I do not think 100K to 120K is low for a start, that’s just bull. It should be 80K.
But as usual only the idiots with the right connections get funded, so in the long run it really does not matter. it is simply hit or miss.
Anti Matter, clearly you are not from the Valley or any major city in the US or high on something.
For the sake of this argument, I am going to completely ignore your “two start ups” statement, because it is really stupid.
Lets talk about your math.
US$40,000 = $3,300/month = If you are in some backwater potato farm in Idaho living in your mom’s basement.
The point Peter was making is that, the CEO sets an example for the pay rate of the whole company. Tell me, if the CEO is making $3,300 per month, what type of developers are you going to attract for less than $3,300? Good luck trying to find a (good) developer who will work for less than $6,000/month unless you are working for Mahalo.
Your logic on “make your millions then and only you get paid” is comical on many levels. You can’t make your millions with $40,000 per year developers.
CEO’s are supposed to be smart not stupid.
While AntiMatter’s comment is pretty dumb, I have no problem with a CEO getting a salary in the range talked about. But there’s also no reason that developers (presumably with a lot less equity than the CEO) can’t get paid more than the CEO.
Watch and see.
I agree with Owen. On my startup, we paid our first employees pretty well, while we, the founders “paid to work there”. And developers appreciate that and tend to bust their butts when they know that the founders are paying and STILL working hard.
$100K for the CEO? baah. Try negative 50K. That builds loyalty, character, and a drive toward profitability!
Mike D, thanks for showing the world how friggin stupid you are.
I take it your math was based on the fact that you answered your own question that I must not be based in Silicon Valley or a major US City.
Funny majority of replies from other posters make you look stupid it is not funny.
Lets say YCombinator or Launchbox built a demo for US$40K. They had ads covering US$10K a month and the site BEGAN exploding at millions of unique visitors per month. This new start up went to a VC for more cash to expand and also cover server cost.
This CEO realizes that majority of the funds needs to go towards expansion. Does he or she take a large chunk for his or her salary and the rest of the team, or sacrifice in the short run to grow the business to its max?
What would be your choice? Eat a fat pay check in the process or eat a small pay check in building your company to a valuable resource and profitability?
It is you who must not be in the USA. Nor a Native (born citizen from the USA) who knows the biz would argue like such an idiot on such a point based on the variables in play. Then again there are always an exception to the rule.
Crap with the extra US$40K per year left over 3 new start ups could have been started using the YCombinator model. Heck maybe even 10 start ups depending on the level of creative powers involved in the project. What a friggin waste.
Hell, slaves built the pyramids and they made NO money. Why not just use whips instead of paying people? Then the VCs could keep ALL the money!
One reason I am for universal health care is so that more people with good ideas can go out there and take more risks without having to give away chunks of their success to these worthless VCs. The more poor and desperate everybody is, the more everyone needs these guys’ piles of cash (and connections). These guys are how products get tainted. I’m still loving the Craigslist model.
You are not educated. Slaves never built the Pyramids. In fact the earliest writings on TAX stubs/receipts (yes Tax) showed payments for workers on the Pyramid.
While Europeans were just coming out of caves, and the Chinese just starting to walk properly the greatest minds ruled the world. What goes around comes around. A.I. will be from them not you.
And one short note ARABS cane to Egypt as robbers in 8AD.
You are not educated. Slaves never built the Pyramids. In fact the earliest writings on TAX stubs/receipts (yes Tax) showed payments for workers on the Pyramid.
While Europeans were just coming out of caves, and the Chinese just starting to walk properly the greatest minds ruled the world. What goes around comes around. A.I. will be from them not you.
And one short note ARABS came to Egypt as robbers in 8AD.
What about if you hire a CEO who was previously making a few hundred thousand annually, would $100K be excessive? I’m more curious than anything. Basically, wouldn’t 30K be too much of a pay cut?
Jippidy.com – Video Yellow Pages
Low salaries for CEOs of a pure technology start-up – eh maybe… but what about sophisticated ventures that rely on experience in a particular market – start-ups building financial tools or sophisticated advertising technology like behavioral targeting?
These founders are already working out in the field and I have a hard time believing they’re going to take a 30%-50% cut in pay just because their lender (VC) wants them to.
Haa ha! Little money never makes anybody happy! One should love what he does and one cant be in love with what makes him/her starve:-)
We need to look through his comments. What he is saying is that one model for successful CEO is he be ravenous and hungry and that the only alternative to success is death.
The corporate world is virus ridden with complacency, where employees look at the process and their paycheck, rather than the result (success-only success-nothing but success and no excuses for not success)
Puts a little fire under the ass – I like it.
To elaborate, I am a CEO who not only takes no pay, but also pays the bills, meaning that I have not given myself the option of the Luxury of failure.
“… and that the only alternative to success is death.”
I totally disagree with this stance. You want your motivation to be the chance of success, not the inevitability of failure. There’s a big difference between “keeping them hungry” and “scaring them to death”.
This show looks so awesome!
Now I want to attend the next one, and possibly present in a few years if I’m lucky.
It’s nice to see this being the discussion of Thiel’s talk today, but did anybody else spend too much time watching it online (like me) and wonder why the hell he was up there spending 85% of it talking about things completely unrelated to anything? His thoughts on the election? Who cares. His take on the energy crisis? he’s no subject matter expert last time I checked. The biggest takeaway of the half hour session was that CEO pay is the best predictor of a startup’s success? That’s neat and all, but is a pretty weak takeaway discussion point. For a guy that rarely does interviews, I was looking forward to hearing him speak on more relevant subjects, but alas he was tossed fodder for unrelated discussion. Ahh well guess when you’re rich you can do whatever you want.
I agree….Low CEO salary results in more savings for the company which inturn helps a startup command more worth in the market and also have good savings in case of sudden fall…
But those who are bootstrapped….they work for 0 salary(rather spend whatever they have) and still work for their passion…that’s what i call “true entrepreneurship”
It make sense:
1) as he says, sets an example for rest of company
2) high salary is most likely correlated with big ego and being out of touch
3) lower salary indicates awareness of burn rate
Is it a good sign that we don’t pay our CEO ?
Umm, did I miss a link to some actual data showing that he’s right or is everyone here taking his guess as a gospel?
Are you kidding me? This is the Silicon Valley. Every freakin thing here is expensive. CEO or not one needs a salary to survive. It is easy for Peter to say so since is sitting on a shit load of money that his portfolio company generated for him. Talking the talk is ok, Walk and one will find out that this is not real.
SG
Jesse – Peter runs a macro hedge fund so understanding the world (elections, etc.) are what allows him to make money for his investors so he is really then an expert on most of the subjects he touches base on as his fund has outperformed everything in their class the past 5 years.
SG – Peter ate Ramon when he was CEO of Paypal, likely not taking much of a salary so he speaks from his own experience more so than the high horse SG mentions.
This point about CEOs making less being best is exactly right. Props to those that mentioned taking no salary, that’s even cooler.
BigJohn – Thiel was a bond trader at credit suisse before paypal, i think he had more than enough money to survive off of
also, i think it makes no sense for CEOs to have ridiculously low pay/not get paid at all, unless they are in a position to bear so. alot of people here are using the argument that hunger forces entrepreneurs to excel; this may have been true before, should it stay true? why should it? is it possible to find a more optimal mix, where people are paid adequately AND are able to become entrepreneurs building successful companies? is there a way to overcome fairly primeval notions of “startup hunger” to get even more smart people building companies? i know dozens of people working at mega private equity funds and distressed credit funds, raking in millions, but are smart enough to start comanies if there was more of an incentive to do so. socially, we are missing out on having these people managing wealth, instead of directly creating it entrereneurially, and the only way they will is if there is a high enough hurdle rate for compensation that will draw these people away from such “quick money” professions. my point: pay that is too low will, on the whole, keep very smart people away from entrepreneurship because the opportunity cost is too high for them, versus working for an SAC Capital or a Goldman (or a Clarium Capital).
That’s odd. I did my own statistical analysis and found a positive correlation between successful startups and CEOs with mad dance skills. When I only have one question, I usually turn up “Bust A Move” and ask, “Now what muthaf**ka?”
Petey was hesitant to answer what the actual range is because he knows his answer was full of crap to begin with.
Very valid point. In my experience CEOs are BIG EATER.
I’m a startup CEO and a single father of 2. Can someone tell me how to raise my girls on $80K in Silicon Valley? And I’m not talking you swaggering 20-somethings who have no clue what I’m talking about. This is one of the most expensive places to live on the planet and if you want seasoned talent (will most likely have a family) you need to pay something close to a market rate. Period.
Why startup? Why not you’re having a Managerial job in some enterprises?
Did peter say the start ups have to be in SF or Silicon Valley or Palo Alto? Shiit why not moving the friggin thing to Beverly Hills?
If you got your funding already, why not find an office space somewhere else? Or are you saying your programmers only reside at these locations and wil only work for high wages as they will only drive Porsche to work?
Hmmm. I make $170k working as a Software Architect. A $100k salary wouldn’t make me want to start a company.
But if you were passionate about the company and believed that it could succeed against all odds, you would work for 60k. This is the filtering mechanism that he is talking about.
what if i don’t believe it can succeed against all odds, but there is a high likelihood that it will regardless of this, should i pay myself more? why should that be a filtering mechanism? this is very primitive in my opinion; passion needs to be removed as a barrier to entry, because this need for passion/low pay is what keeps ridiculously smart ivy-leageurs in investment banking/finance jobs
It’s all about money and how a startup team use it. If CEO is able to use his own pay efficiently, there’s a big chance he will do it for investor as well.
WOW. One that is awake.
I agree with Peter but think that it needs to be reasonable. If it was zero salary then almost start-ups would be college students.
US$40-70k is more realistic.
Exactly. How in the world they are commanding top salaries as if they are seasoned veterans. Waste of resources, total crap.
I guess his next point is that there is a correlation between start-up success and CEO’s with no kids
I think this is a well-known and oft unsaid preference for most investors. How can you work 20 hour days for 60K a year with kids? Or a spouse?
How can you work 20 hour days for 60K a year with kids? Or a spouse?
Brad…that is one of the dumbest comment i have ever heard on TC.
Please go around and do your research, in fact do your research on all the panels on TC50. See how many of them are married. You can’t lump hours and income per year together.
Most CEO’s have family and they can work up to 20 hours per day. Almost 90% (number i pulled from my head) of CEO’s in the US are married. They make that happen. Hours is not an issue.
The issue here is the 60k which will not make much sense for a family living in the Valley.
It will be fine if you are single guy without a mattress. But i think smart investors will not want a CEO with a family to be constantly worried about how he is going to feed his children and family, pay health care, rent while running a startup.
Good!
100k? I’m getting about 1/10th of it as of today so I guess I’m SUPER SUCCESSFUL
You shouldn’t pay yourself until you are making money. You shouldn’t pay yourself a lot until you are making a lot of money.
this is idiotic; try telling a bunch of kids at princeton this, see how many choose startup over Mckinsey/Goldman; you will never know if they would have been successful, because you told them “You shouldn’t pay yourself until you are making money. You shouldn’t pay yourself a lot until you are making a lot of money.”, even though they are arguably some of the brightest people in the world
for what it’s worth it does seem to me that people need to distinguish between the CEO and the Founder. Clearly a CEO may or may not be a significant equity holder while a Founder&CEO probably is.
In my experience, if you’re a founder and you believe in your project, it always makes sense to put any spare cash you have (including your salary) back into your business.
I’d suggest that a better indicator of whether a startup is worth looking it isn’t how much the CEO’s being paid but how vested the Founders and the Executive team are. Being ‘all in’ aligns your interests with those of your investors much more than taking a smaller salary.
Does anyone know other factors for the younoodle algorithm?
extensive use of rand()
So true, but then again this comes from the a neo-conservative emperor of the most evil facebook
LOL
I have 2 issues with this tact. The biggest is the “sets the bar” side of things. Setting the bar so low that your rockstar engineers are choosing between 120+K at fb/goog, and 60K with you. But, you say, the BIG PAYDAY! That big payday for non-founding engineers is, what, 0.5%? Presuming it takes 3 years for that payday to hit, you end up leaving, let’s say, a minimum of 180K on the table as that rockstar engineer. Which means you need a 40MM payout, again presuming that the engineer gets his piece of that pie day 0. This is *below* most of the startups we’re talking about — for the ones that actually *see* a payday. Most, of course, don’t. In my experience, engineers are pretty good at math. The second part I take issue with, is that a great deal of low-pay CEOs can *TAKE* that low-pay because they’ve already had one decent/big success. Which means that the paycheck means nothing to them. This, to me, is EVEN LESS incentive than the fair pay, relative to their role and job. The guy with 10M in the bank is going to care about the living and breathing of his new startup as much as the one that has 75K in bills a year (with wife, kid[s], mortgage, car payments, this isn’t hard), and wants to be able to enjoy a nice meal once a week? Seriously? Just proves that blanket statements can miss as much as they hit.
Gee – by that standard, our success will be overwhelming, too…
)
The whole ‘you should work for nothing until you make money’ or ‘you should work for peanuts because you are so passionate about your idea’ is simple-minded crap. CEO pay is one of many indicators, not an absolute rule – pay attention all you simpletons. Once you get a life you’ll understand that you can still create a kick ass company while having a family and existence beyond your 4 office walls. Until then, assume you know very little about how the world works and keep your mouth shut.
What a bitter comment.
Relax grandpa.
100k? Should be just enough in the USA, but here in Eastern Europe is still a dream salary for us. I’m happy to be super successful
If this is gross, then even for Eastern Europe it is already quite low. You will get either a student with no experience or a dumb guy who won’t be able to make anything a success.
In theory, sounds great to pay the CEO peanuts. But what if the start-up has appointed a CEO with wife and three kids, all still at school. Living in Palo Alto, he will not be able to survive on a salary of 100k. Its just not practical. Any advice?
Get a CEO who already has some other money sources and does his / her job for passion.
Thanks Kow, the CEO is me – the passion is definitely there, and I’m working on the money part!