Start-up chief executives shouldn’t pay themselves more than $150,000, according to tech veteran Peter Thiel, prompting local businesses to highlight the benefits of being frugal.
Peter Thiel, a US-based venture capitalist, is the co-founder and former chief executive of PayPal. He was also an early investor in Facebook and sits on the company’s board of directors.
Thiel currently serves as president of global macro hedge fund Clarium Capital, and is a managing partner in the Founders Fund, a $275 million venture capital fund launched in 2005.
Speaking at PandoMonthly, a monthly event series hosted by news site Pandodaily, Thiel offered his thoughts on entrepreneurialism and what motivates start-up chief executives.
“The question of becoming an entrepreneur is not even the right frame. I’m always nervous when people say, ‘What do I need to do to be an entrepreneur?’ or something like that,” Thiel said.
“You shouldn’t think of it as this line on your credential[s].”
“People start businesses because there are really important problems to solve and it turns out to be the case that starting a new business is an important way to solve problems.”
According to Thiel, one way investors can determine the motivation level of a start-up chief executive is to find out how much they award themselves as a salary.
According to Thiel, it should be no more than $150,000.
“Less than $150,000, even post Series A [is the ideal salary amount for start-up chief executives],” Thiel said.
“That single question is incredibly [informative] because it’s setting the culture – are people doing it for equity or cash? It drives people who are being hired.”
“[It’s about] setting the right tone for the company and you always want to get to this question of motivation – do people actually believe in what they’re doing?”
According to Thiel, a salary above $150,000 shows a lack of motivation to the company and to the future success of the company, citing US entrepreneur Reid Hoffman as an example.
Hoffman took the minimum salary available in the US ($15,000) while serving as chief executive of LinkedIn.
Meanwhile, Jordan and Alex Knight are the founders of Xampling, a Victoria-based business that works on technology development projects for the likes of Microsoft, Telstra and Foxtel.
Xampling appeared in the 2012 StartupSmart Awards Top 50. But according to Jordan Knight, the business would not be as successful if he and Alex had been less frugal at the start.
“We won contracts for business with Microsoft and Cochlear at the very beginning so we really hit the ground running,” Jordan says.
“We took no income from the business in the first few months, relying on savings and friends and family until the contracts started to become more regular.”
“By [not] taking any income, we wouldn’t put a strain on the business cashflow.”
Similarly, iiNet founder Michael Malone told StartupSmart he initially started iiNet as a side project, so paying himself a salary was not a major priority.
“There was no expectation of actually turning it into a business. It was two and half years before I took a salary,” Malone said.
