Israeli startup entrepreneurs may make millions of dollars and more when they sell their businesses, but while on salary building up their nascent companies they earn little − an average of $47,500 before taxes a year, or 13,800 shekels a month − according to a survey by the startup business research organization Compass. That is only about 50% more than the average salary in Israel.
But Israeli startup entrepreneurs aren’t alone in taking minimal compensation while getting their new companies off the ground. Their colleagues in New York earn on average $53,029 annually and in London even less, just $45,611, according to the study by Compass, which tracks developments in the startup industry around the world.
“Our survey data shows startup founders are living lean, paying themselves low salaries. Even in Silicon Valley, 75% of founders make less than $75,000 per year,” Compass said.
The low average salary is due in part to the high proportion of very young companies in the survey, known in the industry as seed and pre-seed startups. But among entrepreneurs who had succeeded in raising several million dollars from venture capital funds and other investors, salaries more typically ranged between 25,000 shekels and 35,000 shekels a month.
Compass said that 73% of Israeli startup entrepreneurs reported a monthly gross salary below 16,250 shekels, equal to an annual salary of up to $50,000, while 10% said they earned between 16,000 and 24,000 shekels a month. A mere 4% reported a monthly salary between 32,000 shekels and 40,000 shekels, and just 2% a salary greater than 50,000 shekels a month or $175,000 a year.
The data, based on the answers of startup entrepreneurs at 11,000 companies around the world, found that the highest salaries went to Australian technology entrepreneurs, who earned the equivalent of $72,363 a year. At $30,208, Indian entrepreneurs earned the least.
All told, 73% of the startup entrepreneurs surveyed worldwide paid themselves less than $50,000 annually. Even in California’s Silicon Valley, which has a relatively high cost of living compared to most of the United States, two thirds of the entrepreneurs reported an annual salary of below $50,000 a year. As a share of total investment capital put into startups, salary costs for entrepreneurs ranged between a low of 1.98% in Silicon Valley and a high of 4.8% in Australia.
Yaniv Golan, a partner in Israeli venture capital fund Lool Ventures, said he wasn’t surprised by the figure because the great majority of startups are living on the capital invested in them and not earning substantial revenues if at all, much less profits.
“A mature entrepreneur doesn’t think about how much he can draw from his salary,” he said. “From his perspective a salary is an expense that reduces the number of months the company can continue operating ... Expenses are a time bomb.”
Yaniv said that by paying themselves minimal salaries, entrepreneurs can extend the lifetime of their companies by months. It is common for entrepreneurs to stop paying themselves altogether when the money was close to running out.
Of course there is a difference between a 25-year-old startup entrepreneur and one who is 45 years old and has three kids to support, said Adam Fisher, a partner in Bessemer Venture Partners, a U.S. VC active in Israel. He said he expected entrepreneurs in the earliest-stage startups to take a minimal salary and even draw from savings. However, after Bessemer has put in millions of dollars of capital into a company, salaries can become more generous. “It’s not good for the CEO to be under pressure,” Fisher said.
According to Fisher, Silicon Valley entrepreneurs have begun demanding higher salaries and bonuses, but in Israel this hasn’t caught on. “In Israel, when there are three startup partners many times it’s run like a kibbutz and everyone takes home the same salary, which helps lower total salary costs,” he said.