How startup founders get rich (if they do)

99.9% don't, but those that do get rich like this

Necessary preamble: Getting rich is mostly a byproduct of doing hard things well, for a very long time. Being incredibly consistent - outlasting others - is a greater predictor of getting rich, than being incredibly smart, having a great network, or being super lucky. All rich people I know are rich not because they set out to be rich, but rather because they worked incredibly hard for a long time. All of them continue to work hard, even as their net worth exceeds hundreds of millions or billions.

There are many paths to get rich as a startup founder, here are some of the most common paths:

1. Salary: Most startup founders have a pretty mediocre salary vs. their own standards or their executive team. But relatively to the rest of the world it tends to still be quite good. Earning $200k to $500k a year is quite normal at a startup that does tens to hundreds of annual revenue. This is not significant wealth in SF, NY or London, but it is virtually everywhere else.

2. Secondary sales: this is how a large part of venture-backed founders that are rich - have gotten rich. A secondary sale is when a shareholder sells shares to an external party on the private market. So a founder selling to e.g. a large investor. This could be an existing investor or someone new.
   Sometimes companies do secondary sales across their organization in a tender offer, but quite often founders are able to sell some shares in early stages or around a fundraise directly.
   Depending on the size and success of the company, this could be a few million, up to hundred million or more. Serious cash. There usually aren’t (but not always!) any strings attached either. The typical founder wants the company to be crazy successful regardless of their financial state, however if they would leave the company they’d keep that cash they got in the secondary sale.
   Secondary sales work well for VC-backed companies, as they typically don’t pay out dividends and therefore can’t pay out shareholders in other ways. Often investors and founders argue that it’s a good thing to extend some secondary sales to founders to keep them motivated and remove financial worry from their lives. I agree with that, and believe that this generally works as a positive incentive rather than a negative one (where one could argue the founder loses spirit because of lack of future incentive; I think it’s actually the opposite where the taste of a bit of money will drive wanting more of that).

3. Dividends: For privately-held companies, paying out dividends is a great way to net cash. If the company is profitable and not intending on re-investing that profit into the business, this is an obvious move aside from selling shares in a company. Entirely depending on the size of the company and the profits, dividends can be from thousands to many millions. I know of at least one privately held company that you’ve never heard of that has paid >100 million annually to its very small number of shareholders. That business did take decades to build.

4. A good sale: Most company acquisitions you see are not particularly meaningful to its founders. Often the acquisitions are ‘soft-landings’ where a company that was failing is ‘acquired’ or ‘acqui-hired’ by another company that simply gives the founders and employees new jobs without many other incentives. However, this is not always the case. Occasionally a company gets acquired by another company for a meaningful amount. This could be in the shape of shares in the acquiring company, cash, or a combination of both. In these sales the founders often have specific incentive plans to keep them engaged while the two companies merge. If the acquiring company is public, those shares quickly become available for trade and so an acquisition can mean real money for the founders and employees.
   When a private company acquires another private company in equity (shares), that changes things a bit. The founders of the acquired company might get a bit of cash extra (often), but given the shares in the acquiring company aren’t publicly traded, they don’t immediately get rich with them either - only on paper or until some event where they can sell shares (a secondary sales or IPO).

5. Going public: When a company goes public, all shareholders are able to trade their shares in the public market. There are employee and founder specific restrictions on IPO (a lock-up period often, and restrictions on what and when), but generally this means that founders can sell (some of) their shares for a fair market price (and you can buy them!).

   There are other things some founders end up doing, like taking a loan backed against the equity in their company. I don’t know any founder that wasn’t already incredibly rich to do this, but depending on the country you’re taxed in, this could be a particulary good way to get liquidity. That said, this is usually also reserved to only very successful founders.

   

   The fine print

   Most founders don’t get rich from starting a startup. And even the ones that you think are getting rich, might be overly diluted to get rich at all, independent of the size of the exit. Then there are liquidation preferences, and other reasons that cash for equity might not mean cash for founders.

   
   And those founders that do net significant cash, are still due to pay taxes (and tax authorities aren’t equally friendly everywhere).

   
   Don’t start a startup to get rich, is what I’m saying.

   And that’s about it! This is how most startup founders go from not-rich to rich. Beyond this, there are a million things people do to further make money (investing, building other companies, etc), but those avenues are open only to those already in the money for the most part.