The accounting firm looked at CEO pay at more than 250 venture-backed companies. Look at your competitors and determine what they are paying an employee in a similar role. At the seed stage you should have a reasonable salary based on your location. Firstly, and most obviously, companies with more funding are better able to pay their CEOs. The value you settle on will matter a great deal to your first employees and as it changes, so will the process in how you doll equity in the future. The following steps will give you a broad idea of how to go about it. Series B CEOs are paid, on average, about $250,000 to $260,000 - but once again, there is a tremendous range of compensation based on the industry, amount of funding raised, etc. That comes in the form of common stock. Seed Stage CEO Salary by Industry (in thousands). The analysis comes from an anonymized dataset comprising more than 250 venture-funded startups and representing more than $2.5 billion in funding. One of the most common questions CEOs ask us at Kruze Consulting is: How much should my salary be? Since the Kruze team helps run startups books and payroll, its natural that wed get this question. The companies we used to determine this figure have raised collectively more than $2B in funding. The best way is to tie your remuneration to achievable growth milestones and work accordingly. This means the earlier you join, the more diluted you'll become. However, startups with more limited funding saw their CEOs make less, by about 7%, than in 2021. This year, we expanded the data to over 200 of our seed and venture-backed clients and found that in 2019, CEO salaries rose to an average of $142,000 annually, nearly a 10% increase. Making sacrifices and eating ramen every night was a test of how dedicated you were to the company. Please quote the information above when referring to 2020 - 2021 data. Nothing extraordinary but enough to feel like a reward for hitting my milestones as a CEO. As a startup founder, you must understand that entrepreneurship is not a bed of roses. By the way, to see some survey data on what other people think the founder/CEO salary should be, check out the OnStartups poll on founder salary. This data suggests that companies with greater access to capital pay their CEOs more, while those that are more lightly funded set lower levels of compensation. Startup compensation guide: see thousands of startup salary and equity data points. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Wonderful article Kavvya!! Salaries ranged from the 25th percentile of $43,000 to the 75th percentile of $156,000, with the 90th percentile at $274,500. Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. What a great article. Other founding roles, such as the chief operating officer (COO) and chief technical officer (CTO), may also receive a startup salary. At any moment, executives or team members may own public or private stock in any of the third party companies we mention. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. Interestingly, this proportion remains consistent above the 150k inflection point, whether the round size is 200k or approaching 1m. How to Calculate Your Startup Founder Salary? But bringing in non-founders takes actual dollars and requires confronting these tough questions: how much money do we have? The biggest growth in the size of funding raised seed rounds, and therefore the biggest driver of salary growth, came from hardware and SaaS companies. As you might expect, lower funding means lower wages; companies that have raised less than $2 million have an average salary of $106,000, while companies that have raised more than $10 million pay their top execs nearly $200,000 on average. When a seed round raises $5 million instead of $500,000, the temptation to excessively hire and spend increases significantly. "In my experience, that fact pattern (a pair of founders, $500K seed round) would typically see The following table represents the salaries of a few of the most notable tech companies CEOs during their IPOs. At a 2,000,000 valuation, Seed Legals found that the average founders salary was 25,000, rising to 52,000 and 80,000 at 4,000,000 and 6,000,000 respectively. We may monetize some of our links through affiliate advertising. Roughly, for every additional $1,000,000 raised, a startup CEO will take home between $4,000 and $5,000 more in annual salary. For 2021, the average startup CEO salary is now up to $146,000, an increase of $4,000 from 2019 (almost a 3% increase) or 5% up from the COVID crisis of 2020. Transparency and preparation are key. Biotech and pharma CEOs are paid an average of $161,000 typically because CEOs in those industries tend to be medical doctors, with higher education and opportunity costs associated with running a startup. When someone works for less salary than they deserve (meaning: what they could make elsewhere), I think of that as a cash investment theyre making in your company, Jason Cohen writes. When the company exited after three And, of course, you have well-known founders like Jeff Bezos and Mark Zuckerberg who took little or no pay and focused on company equity for their compensation.. Startups with $10 million or more in funding saw their average Chief Executives pay rise 8% from $160,000 in 2018 to $173,000 in 2019. Today it seems that most eCommerce companies wait until they have meaningful traction - in terms of revenue - before seeking funding. The largest growth appeared among companies who raised between $5-10 million among this group, average CEO salaries jumped 12% from $145,000 in 2018 to $162,000 in 2019. We would advise founders to adjust their compensation as their company raises increasing amounts of funding. Also, when founders salaries are scooped out of the treasury, the startup is left with fewer resources to function on. One of the places to start when evaluating your CEO salary is by evaluating the benchmarks and peers in your industry. Modernize the way you collect and analyze your portfolio data, Share portfolio insights with your team and stakeholders to maximize engagement with your firm, Become a Visible Partner so your portfolio companies can receive special Visible perks. Weve kept these previous salary analyses below. According to our founder and CEO of Kruze Consulting, Vanessa Kruze, this years data indicates that startup CEOs are making around 10% more than last year, which is to be expected since funding rounds increased in size year over year.. Expect us to publish future studies on other startup executive pay. This is based on an average seed round of around $900k with the expectation that the round will provide runway for 12 to 18 months. As we found last year, the highest-paid CEOs fell predominantly into the healthcare and biotech categories. According to ZipRecruiter, for example, the average salary for the position of startup CEO is just over $110,000 per year. The lower the CEO salary, the more likely it is to succeed. How much can your startup save in payroll taxes? Sequential rounds gave me a small bump in salary. Keep in mind that these rewards are essential to incentivise you and keep you focused. ETtech. Some families live on that," says VC Sean Owen. VCs, of course, wanted to stretch every dollar they could. For venture-backed companies, you can find this answer through an official 409A process or less formally (as. ) Design by Lucila Romero. Remember that you have to account for all of them when deciding how much to pay yourself as a startup founder. David Rose agrees. You might feel the same way. So, if you had any doubts about taking a salary, shed them now and start thinking about how much you want to pay yourself. According to estimates by 80,000 Hours, for example, startup founders in Y Combinator pay themselves around $50,000 in salary. Youve got a package in mind that includes a salary you can afford and an equity stake that makes the offer competitive if your company grows as expected. As great as it feels to receive money out of your own business, it is usually impractical and will just lead to a portion being lost in taxes. Included in the equation that VCs use to make investment decisions is CEO salaries, and experienced startup CEOs realize that. Weve found that CEOs in some industries have higher average salaries than others. Interestingly, Female CEOs were more likely to take a pay cut during the pandemic. David Rose agrees. The average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. The greater the. I asked Richard why? For venture-backed companies, you can find this answer through an official 409A process or less formally (as Fred Wilson proposed in 2010) by using the valuation of your last financing round or the most recent offer you received to purchase your business. You dont want to walk away from a tough negotiation having damaged your relationship with investors on your own compensation or shown irresponsibility when proposing packages for early employees. Visit our Uber vs. Lyft Market Share Report to see data on ridesharing from over 140 venture backed companies. Startup executive compensation depends on their financial independence as well as the financial health of the business. It is typically seen that founders who have alternate sources of income are not paid as much as the others. Share your companys key data with our beautiful dashboards. Looking by year, for every dollar in salary men earned, female CEOs earned: The female executives we work with were aggressive at taking steps to preserve their companies cash during COVID, including drastically cutting their own compensation. Sometimes, too much profit on the balance sheet stirs gossip so it becomes mandatory for founders to take a decent remuneration even when they have enough money to live without it. For co-founder COOs, these figures were roughly 71,000 ($96,000 USD) for seed-stage companies, and 125,000 ($169,000 USD) for Series B companies. In 2022, chief executives at early-stage companies that have raised over $10 million in financing were paid just under two hundred thousand dollars a year, $199,000. There is a strong positive correlation between the two. Note that our dataset is only for funded companies, with the average company in this analysis having raised between $7 and $8 million in venture and seed financing. When should a startup make its first ops hire? This is an especially important question to answer when youre trying to hire your first employees. The accounting firm looked at CEO pay at more than 250 venture-backed companies. Thankfully, that thinking has evolved. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. With over $10 billion in funding raised by our clients, Kruze is a leader in helping funded startups with accounting, tax, finance and HR strategies. Do account for tax. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. Every stakeholder of the startup often needs direct contact with the CEO, and startup CEOs cant delegate everything. With that being said a salary is what ultimately can be the factor that determines if an ideal candidate will jump ship to join your company. Of course, read our answers to the two logical follow up questions: When can a startup CEO take a raise - well tell you what the data says! Come on! What are Your VCs Return Expectations Depending on the Stage of Investment? While there are quite a few factors that go into determining your salary we find the following to be most important. WebIn my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. When we compared the salaries of male Chief Executives versus females, we found that the numbers were roughly the same $138,000 per year for women versus $143,000 for men. Compute the amount you need each month, week or probably every two weeks to get by and that will be your salary. As your startup starts growing and generating revenue, you may start increasing your salary or decide on bonuses and perquisites for yourself. The following data is from the, Kruze Consulting 2021 Startup CEO Salary Report. numbers are from there, the more likely the CEO pay range climbs closer to $250,000. There has always been an underlying (unsaid) belief that startup CEOs and founders should have to make personal sacrifices and pour their blood, sweat and tears into their business. On one hand, you need to hire the best talent, retain them, and incentivize their performance to have the right team in place to grow. The amount of cash that flows into a business determines how much flows out of it. There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Spiegel, and Jack Dorsey taking a $1 salary. That said, its unlikely in most cases for non-founders to receive more than 5% of the business (bringing on a CTO can be the one common example of exceeding this mark). The table below shows average and median salaries since 2018. When two sides in a negotiation cant come to a deal, its often because the two sides dont have a clear enough view of what each others alternatives are if they cant agree,. Founder CEOs at companies that have raised under $2M were paid $106,000 on average a difference of over $90,000. This year, we took it up a notch and analyzed data from more than 250 venture-funded companies. So, if your only contribution is money and/or some assistance during the ideation phase, you dont get a salary. For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula, Fred Wilson writes. Getting someone to join your dream before it is much of anything is an art not a science.. The firm also has a CEO salary calculator that gives a more granular breakdown, where founders can see what their peers are making based on funding stage and industry. Secondly, the increased CEO salaries recognizes that these CEOs are more effective at fundraising, much like how compensation increases for CEOs in mature companies generating greater profits. Richard had just raised his first round of funding. Related Resource: How to Fairly Split Startup Equity with Founders, In their helpful guide on employee equity, Gusto evaluates the decision to issue stock options, the chance to buy stock at a certain price, and restricted options, the right to buy stock under specified restrictions. Earlier this year, this issue presented itself when a client was the lead investor in a Series A round of about $2MM at a $4MM pre-money. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. How do you determine whats best? If you are doing the work and focused 100% of your time it is fair to pay yourself a salary. Were not talking about anything extravagant, but enough to live a life outside of the business. In 2018, CEOs of hardware startups had an average salary of $118,000, which rose 14% to $135,000 in 2019. So, its better to invest $45K and let the additional $5K stay in your bank account. On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company. When someone works for less salary than they deserve (meaning: what they could make elsewhere), I think of that as a cash investment theyre making in your company,. You need to assess the current state of your venture properly before determining your salary. 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Shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Spiegel, and other major hubs!
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