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E235: Compensation Comparison: How Bootstrappers Fare Against VC Backed Startups

by Sean Boyce

In this episode, Sean discusses the benefits of bootstrapping and why it often outshines the VC backed model for startup success. He analyzes compensation data, revealing that both bootstrappers and VC-backed founders typically earn less than $100k annually, with some founders not paying themselves at all. Sean highlights the challenges of relying on future success and equity and emphasizes the diminishing returns of VC-backed compensation. He also explains how bootstrapping offers more control over compensation and time management. Ultimately, he concludes that bootstrapping provides better potential for future success, health, sustainability, and lifestyle.

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Key Points

  • Half of surveyed founders, regardless of funding source, earn less than $100k annually.
  • About 5% of founders don’t pay themselves at all, which is unsustainable.
  • Founders often pay themselves less than market rates, hoping for future success and equity to make up for it.
  • VC-backed compensation begins to fall behind bootstrapped compensation as numbers surpass $200k-$300k per year.
  • VC-backed founders have less control over their compensation due to voting rights and investor involvement.
  • Failure in the VC-backed model results in a significant financial setback and the need to start over.
  • The time founders invest in VC-backed startups often devalues their compensation rate.
  • “You’re already betting on a future that’s unlikely. That’s a problem because it affects your compensation now.”
  • “If there is extra and everything’s operating healthy and you wanna take more profit, you might be locked out of being able to do that.”
  • “Your rate for your time ends up in the toilet, it ends up being ridiculously low.”