Money Talk with Malik | Financial Planning for Builders

Key Takeaways

Most founders dramatically underpay themselves early on, which can trigger IRS red flags for S-corps and create real personal financial stress
At seed stage, the median founder salary is around $130,000 according to Kruze Consulting's 2024 State of Startup Finances report
At Series A and beyond, you should be approaching market rate for your role — typically $150,000 to $200,000 or more for a CEO
"Reasonable compensation" is an IRS requirement for S-corp owners, not a suggestion
Underpaying yourself does not save the company money the way most founders think it does

I get it. You just raised a seed round and the last thing you want to do is look like you're paying yourself too much. Your investors trusted you with their money. Your team is watching. So you set your salary at $60,000 and tell yourself you'll make it up later.

Here's the problem. That math doesn't work the way you think it does, and it can create real problems for you personally and for the company.

What Is "Reasonable Compensation" and Why Does It Matter?

The IRS has a rule for S-corp owners that says you have to pay yourself a "reasonable salary" before taking distributions. Reasonable means what someone with your skills and experience would earn doing your job somewhere else.

If you're the CEO of a funded startup and you're paying yourself $40,000 a year, the IRS can reclassify your distributions as wages. You'd owe back payroll taxes, penalties, and interest. The IRS audits this specifically. It is not a gray area.

Realistically, the test is simple. What would it cost to hire someone else to do your job? That's in the ballpark of what you should be earning.

What Do Most Founders Actually Pay Themselves?

According to Kruze Consulting's 2024 State of Startup Finances report, which analyzes over 800 funded startups:

Pre-seed: median founder salary around $88,000
Seed stage: median founder salary around $130,000
Series A: median founder salary around $175,000
Series B and later: founders typically earn $200,000 or more

These numbers make sense. The company has raised money specifically to pay its team, including you. You are not supposed to work for free.

The Underpayment Trap Most Founders Fall Into

Here's what I see happen. A founder raises a round, keeps their salary artificially low to show "discipline," and then slowly runs into personal financial problems. Credit card debt creeps up. They stop contributing to retirement accounts. Emergency fund goes to zero.

By month eighteen, they're financially stressed in a way that actually hurts their judgment and their performance. The company didn't save money. It just transferred financial pressure onto the person who needs to be thinking clearly.

You got to be smart about this. Investor money is meant to fund operations, and you are operations.

What Should Your Salary Look Like at Each Stage?

This is not one-size-fits-all, but here's a practical guide:

Pre-revenue or pre-seed: $80,000 to $100,000 is a reasonable floor if you're truly capital-constrained. Under $70,000 for a full-time CEO is a red flag, not a badge of honor.

Seed stage: $100,000 to $150,000. You've raised money. Pay yourself a living wage for your market.

Series A: $150,000 to $200,000. You should be approaching market rate. You have institutional investors who expect you to run a real company, and that includes paying the CEO appropriately.

Series B and beyond: Market rate for a CEO at a company your size. This isn't about being greedy. It's about building something sustainable.

The Tax Angle You're Probably Ignoring

If your startup is structured as an S-corp, there's a specific strategy here. You can split your compensation between salary and distributions. Salary is subject to payroll tax (15.3% on the first $168,600 in 2024). Distributions above your salary are not.

So there is a legitimate reason to keep salary reasonable but not excessive. The key word is reasonable. The IRS has challenged S-corp owners paying themselves $30,000 a year while taking $300,000 in distributions. Courts have sided with the IRS consistently on this.

Get this structure right from the beginning. A CPA who works with startups can help you set up the split correctly.

What About C-Corps and Venture-Backed Startups?

Most venture-backed startups are Delaware C-corps. There's no S-corp distribution strategy here, so the conversation is simpler. Pay yourself a salary that reflects your role and your market. It's compensation, it's deductible to the company, and it keeps you functioning.

Your investors are not looking for you to work for poverty wages. They're looking for you to build something valuable. Those are different things.

How to Actually Set Your Number

Three inputs to get you started:

Look up what a CEO or founder at a company similar size to yours earns on Levels.fyi, Glassdoor, or Kruze's annual report. That's your market reference.
Calculate your personal burn rate. What do you actually need to pay your bills, fund your retirement account, and not go into debt? That's your floor.
Talk to your board or lead investor. Not asking permission, just aligning expectations. Most investors would rather you take a fair salary than run out of personal runway and start making stressed decisions.

Summary

Founder salary is not a moral statement about how much you believe in your company. It's a financial decision that affects your taxes, your personal stability, and ultimately your ability to do your job well.

Underpaying yourself doesn't impress anyone who actually knows how startups work. It creates problems. Realistically, a fair salary for your stage and role, structured correctly, is the boring stuff that protects you in the long run.

Figure out your number. Structure it right. Then go build something.

Malik Amine is a financial advisor working with tech founders and physicians. This is general education, not personalized financial or tax advice. Talk to a CPA about your specific situation.