3.13Co-founders and the founding team

Paying founders before and after funding

Stage: Pre-seedCore

1. Core idea and who it's for#

Founder pay is a small line in the budget but a large signal. If it's too low for too long, founders burn out, take side work or quietly start job hunting. If it's too high too early, investors read it as a founder optimising for comfort rather than outcome, and it shortens runway.

The goal is a salary that removes personal financial stress without becoming a reason to stay. It should be explainable to your board, your co-founders and your first employees. This playbook covers:

  1. Before funding: whether to pay anything, how to handle unequal personal finances, and the trouble with deferred salary.
  2. After a pre-seed or seed: benchmarks by stage and country, and how to set the number with investors.
  3. Equal or different pay among founders: when each makes sense.
  4. Mechanics: payroll, director pay, tax and minimum-wage rules in India, the US and the UK.

Who it's for: founding teams planning their first budget, and founders about to close a round who need to set salaries the board will approve. Deeptech founders often have families, mortgages or visa salary requirements (1.06), so "ramen pay" is less realistic for them than in a typical software startup.

The one-line rule: pay enough to remove distraction, stay clearly below market, and agree the rules for raises before you need them.

2. Evidence#

US benchmarks. Kruze Consulting's 2026 report, based on payroll data from more than 450 startups, puts the median VC-backed CEO salary at $159,000, with a seed median of $153,000 and a typical seed range of $130,000 to $170,000. Seed CEO pay rose from $132,000 in 2024 to $153,000 in 2026. Kruze reads this as boards being more willing to move seed CEOs to a sustainable salary. It also suggests CEOs with smaller, bridge-like seed rounds should stay near the low end.

Europe and UK benchmarks. Creandum's Founder Compensation 4.0 report (February 2026) puts the median seed founder salary at €89,000, and the bootstrapped median at €77,500. Its 2024 data put the median at €85,000 at seed and €120,000 at Series A, with the biggest jump between seed and Series A. Pre-seed median pay was about €48,000. Creandum's 2024 report found UK founders were paid less than peers in France, Germany and the Benelux.

India benchmarks are thinner. There is no Indian equivalent of the Kruze or Creandum data. Crowd-sourced salary sites show a wide range of roughly ₹10 lakh to ₹60 lakh a year for co-founders, which mixes funded and unfunded companies. Practitioner guides put seed-funded founders at roughly ₹2 lakh to ₹4 lakh a month, and suggest a founder should earn no more than the lowest-paid senior employee. eChai's summary of a Storyboard18 piece suggests ₹18 to 30 lakh a year reads as sustainable. Treat all of these as rough guides.

Investors want sustainable, not starving. OpenVC's guide gives rough US stage points of about $50k at pre-seed, $100k at seed and $150k at Series A. It notes that modern angels know a founder who can't pay rent can't focus. Raising founder pay sharply right after a round, or pay disconnected from the stage, is a common red flag.

Deeptech adjustments. Deeptech founders are often older, with families, and come from salaried research or industry jobs. They also face longer funding gaps. This argues for a sustainable salary earlier, paid for by a slightly larger round, rather than months of unpaid work that drives the best people away.

3. Method#

Step 1: Before funding, decide on purpose#

  • Default: take no salary, or a token one, while living on savings, a fellowship or grant stipend (1.10), or a partner's income.
  • If a founder can't go unpaid, discuss it openly. Options are:
    • a small salary from grant or angel money;
    • a stipend from a fellowship;
    • a part-time arrangement with a deadline (3.10).
  • Avoid accruing deferred salary. Promising to pay "back salary" after funding creates a debt on the balance sheet. Investors usually ask for it to be waived, or converted into equity at the round. If you do it, cap it, write it down, and agree it can be converted or forgiven.
  • Mind the equity effect. A founder who is paid while others aren't is taking less risk. That can justify a small difference in the split (3.05).

Step 2: Set a salary policy at the first round#

  1. Benchmark against the country data in section 2, using the low to middle part of the range for your stage.
  2. Check the budget. Total founder pay should usually be a small share of burn, often 10 to 20% at seed for a two- or three-person founding team. That share falls as you hire.
  3. Check against the team. No founder should earn more than the best-paid senior hire at seed. Many teams set founders at or below their first senior engineers.
  4. Write it down. Put the policy (amounts, review dates and who approves it) in a board minute. After a priced round, the board or a remuneration committee approves founder pay.

Step 3: Equal or different?#

  • Equal pay is the default for co-founders at the same stage. It is simple and avoids comparisons.
  • Different pay can be fair when:
  • the market rates for the roles are very different, for example a CEO in London and a CTO in Pune;
  • a founder is part time;
  • a founder has a visa salary floor, such as a UK Skilled Worker or US H-1B requirement.
  • Keep differences transparent and tied to a stated reason. Never use salary to quietly fix an unequal equity split.

Step 4: Agree when pay changes#

Tie raises to milestones, not dates. Examples are a priced round, a key technical milestone, a first major customer or reaching a team size. Revisit pay at each round with the board, and move gradually towards market rates by Series B.

Worked example (illustrative)#

A Bengaluru-based quantum-hardware company with two founders closes a ₹12 crore seed. It plans 24 months of runway on burn of about ₹6 crore a year.

Item Before (pre-seed,₹3 crore) After seed
CEO salary ₹12 lakh ₹30 lakh
CTO salary ₹12 lakh ₹30 lakh
Item Before (pre-seed,₹3 crore) After seed
Founder pay as a share of About 13% About 10%
burn
Highest-paid hire Senior RF engineer at₹35 Senior RF engineer at₹35
lakh lakh
  • Why ₹30 lakh: it is at the sustainable end of Indian practitioner guidance, below the senior hires, and easy to explain to investors.
  • Visa case: if the CTO were based in the UK on a Skilled Worker visa, the salary would need to meet the visa threshold. That would justify a documented difference.
  • Next review: at Series A or after 18 months, whichever is first. The board approves any change.
  • Not done: no deferred salary was carried over from the pre-seed period. The founders agreed to waive their earlier unpaid months when they signed the seed documents.

4. India, US and UK differences#

India#

  • How founders are paid: usually as salaried employees and directors, with TDS deducted. Pay as a director of a private company isn't subject to the section 197 limits that apply to public companies. Shareholder approval may still be needed under the articles or the shareholders' agreement, which normally makes founder pay a reserved matter after a round.
  • Benefits and payroll: provident fund and gratuity rules apply once the company crosses the headcount thresholds. Many founders set up proper payroll from day one, which also helps with home loans and visas.
  • Grant money: check the grant terms before paying founders from BIRAC, DST or other government grants. Some allow salaries only for named project staff, at set rates.
  • Consultancy instead of salary: possible, but it can look like disguised employment. It also complicates ESOP eligibility and tax.

US#

  • C-corporation founders: paid through payroll as employees, with federal and state payroll taxes. (The "reasonable salary" rule for owner-employees applies to S- corporations, which venture-backed companies rarely are.)
  • Minimum wage and exemptions: federal rules treat an owner with at least 20% equity who actively manages the business as an exempt executive, without a salary test. States such as California have their own rules, so check before paying a founder nothing or a token amount.
  • Visas: H-1B and O-1 founders must be paid the wage stated in their petition (1.06). Unpaid work by a visa holder can breach status.
  • Deferred pay and 409A: deferred salary that is promised and accrued can be treated as deferred compensation under section 409A. Get advice before setting it up.

UK#

  • Salary and dividends: founders are usually paid a salary through PAYE. Some set salary near the National Insurance thresholds and take dividends later, but dividends need distributable profits, which pre-revenue startups don't have.
  • Minimum wage: directors without an employment contract are generally outside the National Minimum Wage. Founders with an employment contract are covered, so token salaries need care.
  • Skilled Worker visas: sponsored founders must be paid at least the going rate for their occupation, and the general salary threshold. Check current figures before setting pay.
  • EIS and SEIS: founder pay must be reasonable, and paying out investors' money to founders in unusual ways can put tax relief at risk.
  • EMI: EMI options need the working-time test (25 hours a week, or 75% of working time). Low or token pay doesn't affect this, but part-time founders may not qualify.

Scripts#

Between co-founders, before funding:

"Let's be honest about what each of us needs to live on for the next year. I can go 9 months without pay. You have a mortgage. Rather than one of us quietly struggling, let's agree a small salary for you from the grant, and reflect that in how we think about the split."

To your lead investor, setting post-round pay:

"We're proposing ₹30 lakh each for the two of us. That's below our senior hires and about 10% of burn. We'd like to review it at Series A or in 18 months. Does that fit how you think about it?"

When an investor pushes for lower pay:

"We want to be capital-efficient too. At this level, neither of us is distracted by personal finances, and we can recruit people who'd otherwise earn three times as much in industry. Here's how it compares with the benchmarks."

To an early hire asking what founders earn:

"We're paid less than you, deliberately. We're compensated mainly through equity, and we'll review our pay with the board only at milestones."

Common mistakes#

  1. Starving too long. Founders who can't pay bills make short-term decisions and are more likely to leave.
  2. Big raises right after a round. Investors notice, and so does the team.
  3. Accruing large deferred salaries. They become a debt investors will ask you to waive.
  4. Hidden differences between founders. Unexplained pay gaps cause resentment.
  5. Using grant money wrongly. Paying founders from a grant that doesn't allow it can mean repaying the grant.
  6. Ignoring visa salary rules. Underpaying a sponsored founder can put their visa at risk.
  7. No written policy. Without a board-approved policy, every raise becomes a personal negotiation.
  • 1.05 Personal runway: savings, family support and the quit date
  • 1.06 Founder visas: O-1, H-1B cap-exempt, startup visas
  • 1.10 Fellowships for pre-company founders
  • 3.05 Splitting founder equity
  • 3.10 Part-time and academic co-founders
  • 5.04 Allocating equity by level

Sources#

This playbook is general information, not legal or tax advice. Payroll, tax, visa and grant rules change, so check current figures with an accountant before setting founder pay. Last checked November 2026.

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