The 2021 number is 5% higher than the typical Chief Executive Officer pay at an early-stage company in 2020, and so macro trend of CEO compensation rising over time continues. Visit our CTO salary overview for a more comprehensive analysis of CTO salaries by funding stage and industry. Based on what I see in the market, I'd say the range for founder CEO salaries after a seed round is between $60k and $150k, with the average/median in the range of $90k - $110k. 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. Wow your investors with data-driven updates that drive interaction. 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. However, successful founders do tend to establish consistent tactics early on and lean on research to find their solution. Start your search now on this startup guide. For 2022, the average startup CEO salary increased by 2.7% from 2021 levels to $150,000, while the median increased to $140,000. This will help you avoid future hassles. I would like more of this start up articles as I just subscribed to your platform. Now that you know how important it is to draw a salary, you have to figure out the amount as well. Included in the equation that VCs use to make investment decisions is CEO salaries, and experienced startup CEOs realize that. 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. When the company exited after three You will want your boards input on this process early on., Related Reading: Employee Stock Options Guide for Startups, Now comes the really hard part. CEO Salary by Total Funding Raised - 2022. However, during the COVID pandemic in 2020 the pay gap expanded again throughout corporate America, and our research on startup companies also reflects that trend. So, if a founder or cofounder works as their startups CEO, COO, CTO, CMO, or in any other role, they deserve remuneration for their services. The median base pay for an entrepreneur who has successfully raised funding ranges from Startup CEOs pay varies by industry and the amount of venture capital funding the company has raised, with companies that are more highly funded earning a higher salary. One of the most common questions we get from founders is what their salary should be after they raise funding. You need to assess the current state of your venture properly before determining your salary. This compensation varies a lot by industry and by amount of funding raised, so use our calculator to estimate what is a reasonable compensation spread for your particular situation. Thats why its critical you have the salary discussion before you sign the term sheet and close on that investment. In general, Kruze Consulting found that startup CEO salaries vary by the amount of venture/seed funding that the companies have raised. This has long been an acceptable salary range depending on the cost of living adjustments and the value of the business, and as long as the fledgling business isnt truly desperate for cash. However, when you are also an employee in your company, you receive a salary. You may be eligible, CA hardware startups doing R&D can pay less sales tax, Eligibility requirements are challenging for most VC-backed companies, Experts in raising capital and working with VCs, Venture Debt fundraising advice for VC backed startups, Experience helping funded startups navigate the M&A diligence process, High quality 409A's at a discounted price, Kruze's clients raise $1B+ a year in VC funding; this checklist will help you prepare. Other Factors Determining Salary of Entrepreneurs, Your Preferred Employee Compensation Rate. Seed funding is then followed by multiple larger rounds of venture capital financing, which are named according to their order: Series A, Series B, Series C, etc. WebAt the seed stage you should have a reasonable salary based on your location. Also, while deciding your pay, you need to account for the source of investment, that is, where the money is coming from your personal account, investors pockets, or the revenue generated by the company. Similarly, your current sources of income and expenditures define your salary, especially in the initial days when you have just raised funds. Case Study. Another influencing factor is how long the company has bootstrapped prior to the seed round and how much were the founders getting paid during this time. Hardware companies tend to require larger than average amounts of venture capital funding to get to a meaningful size. You need to be on the businesss payroll for that. EdTech and Hardware startups saw the biggest declines in CEO salary and eCommerce startup CEO salaries went up the most in 2020. Roughly, for every additional $1,000,000 raised, a startup CEO will take home between $4,000 and $5,000 more in annual salary. How Did the Covid Pandemic Affect CEO Salary? Based on our analysis of the data, this small difference can be explained by the fact that the female CEOs in our dataset are predominantly running earlier stage companies. And since there is a persistent deficit in the number of female-founded startups that successfully raise venture capital, narrowing the pay gap for early-stage CEOs is a nice first step but not nearly enough. The following steps will give you a broad idea of how to go about it. Startup executive compensation depends on their financial independence as well as the financial health of the business. Someone that has funded their own company and taken no outside financing might own 100% of the company. Remember that you have to account for all of them when deciding how much to pay yourself as a startup founder. Lets dive into why we think there are notable difference by industry. Wrong! Build relationships, manage a fundraise and build your business. Co-founder/CEO at EchoSign (acq'd by Adobe), Upvoted by Oliver Emberton , Founder of Silktide and How much can your startup save in payroll taxes? So what is the range of CEO salaries in the seed stage? Based on what I see in the market, I'd say the range for founder CEO salaries after a seed round is between $60k and $150k, with the average/median in the range of $90k - $110k. : The average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. Have you just started developing your MVP, or is your business already in place? Founders of bootstrapped startups dont need to pay themselves. Case Study. Visit kruzeconsulting.comto learn more. 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. Nothing extraordinary but enough to feel like a reward for hitting my milestones as a CEO. Remember that every dollar you receive could have been used for your companys growth. My team and I handle payroll, taxes and the accounting for seed and venture-funded startups, and we analyzed CEO pay at over 125 startups; most of them in Silicon Valley. *. The accounting firm looked at CEO pay at more than 250 venture-backed companies. Oftentimes a startup cant offer the salary an established Fortune 500 company may be able to offer but they can offer equity and intangibles that an employee cant find elsewhere. 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. You can also fix an hourly wage rate if you want to. The greater the fundraising numbers are from there, the more likely the CEO pay range climbs closer to $250,000. How Much Should You Pay Yourself As A Startup Founder? Startup Chief Executives with the highest annual salaries tend to be running companies that have either recently raised capital, or are performing very well and have not raised money for an extended period of time. Also, see if you can cut down on unnecessary expenditures. Are you still an early-stage venture, or have you matured? To understand what happens when new equity is issued, a simple example helps. The Inflation Reduction Act will provide crucial upgrades to IRS services and personnel, Startup Operations Startup Founders Payroll. I asked Richard why? But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks. 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. 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. In other words, these companies were all tremendously successful up to the point of going public, yet the CEOs salary was still lower than that weve seen for some Series A startups, especially on the West Determining how to properly compensate employees at a startup is also a tricky task. But youre hiring unusual people to take this ride with you and understanding the package that will satisfy their ambition will also likely require rounds of negotiations and probing questions from you about their true motivations. So, you need to make a fair assessment of your current financial situation before talking to investors about salary. US Based Companies that have raised under $100M. Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. Resources and best practices to help investors manage and communicate with their portfolio companies. 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 you also have 10,000,000 shares outstanding then you are selling the shares at: $5,000,000 / 10,000,000 = 50 cents per share. In 2019, we analyzed 125 startups. Product or company names, logos, and trademarks referred to on this site belong to their respective owners. One of the best ways to set a reasonable remuneration amount for yourself is to go by industry standards. Previously. According to a Morningstar analysis of C-suite pay, from 2015 to 2019 the gender pay gap for CEOs had been narrowing. That comes in the form of common stock. Assess the state of your startup and its finances. A well-researched proposal that clearly assesses your companys current financials, demonstrates the expected impact fairly compensating an early employee or CEO will have and honors your commitment to delivering the return they expect on their investment will get you to reach mutually agreeable terms. And, not surprisingly, compensation is one of the most frequent questions. While they initially dipped at the start of COVID, the average CEO salary is now hovering around $146,000 a year. The salary amount, frequency, and the way you withdraw that money affect your tax amount. ETtech. 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. Early employees usually come in shortly after a seed round, and seed round valuations average about $5.3m. Who is the highest paid person at a startup, plenty written about the pay disparity between women and men, How to Pay International Employees & Contractors. A finance enthusiast, literature beau and lifelong learner. Although a huge inflow of cash means that the founding employees can take more money home, other discussed factors also come into play. We used to recommend seed stage founders pay themselves about $119,000, but over the past few years that has increased to about $130,000. We hope this report simplifies your startup CEO pay decision! The percent equity owned by the CEO post the seed financing varies as a function of not just the size and terms of the seed round, but quite significantly, by the number of founders and how equity is divided up between them. Our analysis backs this up, but its important to mention that there is no single factor that influences this decision. Just like it is mandatory to pay regular employees, it is mandatory to pay founding employees as well. Not only does a market salary enable you to cover the cost of living and a good housing arrangement, it also ensures the financial stress doesnt lead to bad decisions at the company. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Wonderful article Kavvya!! One of the easiest ways to do that is pay yourself the right amount. Kruze provides Startup CFO Consulting to over 500+ startups in Silicon Valley, Los Angeles, New York, and other major startup hubs. Many slashed their compensation to zero. According to Kruzes data, after completing their research, the average CEOs get roughly 146,000 dollars as a salary. This means the earlier you join, the more diluted you'll become. If you can raise a Series A round with your company at a We had hoped that this expanded difference would shrink in our 2022 data, but unfortunately it did not. Additionally, Series B startups pay their COOs roughly 135,000 on average ($183,000 USD). There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Spiegel, and Jack Dorsey taking a $1 salary. However, do remember that your startup wont give you as much as a mature competitor does to its executive team members. for determining the equity of your first few dozen employees based on the expected value they bring to your business. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. Richard said, I want them (the employees) to share in my risk. Richards feelings are not unique. These factors include: the total funding raised, cash in the bank, industry, and the experience of the founder. Transparency and preparation are key. As companies mature, its typical that a compensation committee is formed by non-management board members. When you build something of value and valuations are going up, you wont mind doing a small secondary. One of the places to start when evaluating your CEO salary is by evaluating the benchmarks and peers in your industry. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. E-commerce founders saw a significant increase over last year, with an average salary of $141,000 presumably because the sector has seen a great run of successful results, partially due to a downtick in the retail sector and a customer focus toward buying online. Do account for salary baseline and tax here. Visit our Uber vs. Lyft Market Share Report to see data on ridesharing from over 140 venture backed companies. No need to stifle reasonable human aspirations but also dont expect a lavish lifestyle when you own a growing company. And in 2021, the average salary popped back - but thats not the full story, as youll see as we dig into the numbers. CEO founders sometimes ask me for guidance on what is market for salaries in a seed stage startup. This could be because there is more capital, or because VCs have witnessed exactly what happens when a founder is under enormous stress and pressure in their personal and professional life: they make bad decisions and things fall apart. 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. 41% of the CEOs who had their salaries reduced later increased them by the end of the year, while 47% kept their salaries flat - and 13% decreased their compensation further. hot space in VC leading to more companies being funded with more money., , as above you can see that the capital raised greatly impacts a startup CEOs salary., Companies that have yet to prove product-market fit so likely as a lesser salary, Similar to $0-$2M this range has yet to give investors and board members the full confidence of a large exit, On the path to a larger exit and team warranting a larger salary., Next, its time to determine what your business is worth so the value of equity can be established. But early employees will be attracted to your business in part because of the long-term payoff. This level of pay makes sense, given the low amount of funding and modest traction that most of these types of companies have at the seed stage. CEO pay varies by a number of factors, including the executives previous experience, the amount the company has raised, the startups traction and the industry the startup is in. Some families live on that," says VC Sean Owen. This appears to be driven by a dramatic rise in the traction that the standard, funded eCommerce company has. Startup founders are not entitled to a salary; however, CEOs are. You may hire an accountant for assistance. However, there are also various other factors into play. We are currently ranked as the 13th best startup website in the world and are paving our way to the top. 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. 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. Software startup Hudled, which has designed dashboard for growing companies to track and optimise their software stack, has raised $640,000 in a seed round as it officially launches the product and looks to expand into the US. Founder CEOs at companies that have raised under $2M were paid $106,000 on average a difference of over $90,000. 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. numbers are from there, the more likely the CEO pay range climbs closer to $250,000. Thanks for the article. 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. David Rose agrees. Its unclear exactly how you should amortize this value, but this method again gives you a value in the low 5 figures. Raise capital, update investors and engage your team from a single platform. Finally, startup culture can generate pressure to not take salaries. In 2018, CEOs of hardware startups had an average salary of $118,000, which rose 14% to $135,000 in 2019. Weve found that there are a variety of factors that can influence the salary of a startup CEO. Understand that being a founder doesnt entitle you to a higher salary than everyone; growing your business by being a better employee does. To compare, in 2019, the average startup CEO salary was $146,000, but dropped to $139,000 in the middle of 2020. Another study by Kruze Consulting found that the average startup CEO salary was $146,000. Photo: Supplied. Certainly, there are a few other factors that will go into a startup founders salary as well. The best way is to tie your remuneration to achievable growth milestones and work accordingly. 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. Weve been tracking this data for several years, and 2020 was the only year that weve seen a dip in the standard CEO pay. Search by stage, location, sector and more. Did you know even money losing startups can get up to $250,000? Theres been plenty written about the pay disparity between women and men in the U.S. And when it comes to the startup world, that pay gap has remained stubbornly high. The following data is from the Kruze Consulting 2021 Startup CEO Salary Report:, While the industry certainly has an impact on a CEOs salary the stage and capital raised seem to have the largest impact on a startup CEOs salary, Using the same report, Kruze Consulting 2021 Startup CEO Salary Report, as above you can see that the capital raised greatly impacts a startup CEOs salary., Presumably, as a startup raises more capital they are growing as a company. Based on what I see in the market, I'd say the range for founder CEO salaries after a seed round is between $60k and $150k, with the average/median in the range of $90k - $110k. The average startup founder salary in the seed round is $100,000. 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.. In 2020, we saw salaries decline at the height of the covid pandemic. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. Leading into 2021, the female leaders moved their salaries up over $30,000 - however, the gap between male and female CEOs salaries did not close vs 2019. While not a direct driver of cash salary, the amount of equity owned can have a psychological impact on salary expectations. Staying within a competitive range is needed to appease your current board and attract new investors (for example Peter Thiel has publicly stated he passes on any startup saying its CEO more than $150,000). As a CEO, you also want to examine your own motivations in a negotiation, especially if you are attempting to increase your salary or equity stake. So, ask only for the amount that you need. Kruze Consulting was founded in 2012 by Vanessa Kruze, a big four alum, startup controller and CPA. In 2022, female CEOs made $20,000 less than males. Every month of cash burn is valuable. Even giants like Google and Amazon took years before becoming profitable and even then, their founding workers take salaries. Early-stage companies, as well as all other companies, should evaluate their policies to determine how the gender pay gap increased in the last three years, and see what steps they can take to better support female leaders.. When comparing male and female CEOs, female leaders took a 30% reduction in salary at the peak of the pandemic ($101,000 compared to $138,000 in 2019) while their male counterparts saw an increase ($146,000 compared to $143,000 in 2019). The following table represents the salaries of a few of the most notable tech companies CEOs during their IPOs. How To Make An Infographic: Step-By-Step Guide, 10 Proven Ways To Make Money With Your Car, Presentation Tips: 11 Simple Yet Effective Strategies. 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! Same with fintech at $129,000. 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. Keep in mind that these rewards are essential to incentivise you and keep you focused. One estimate found that startup CEOs in Y Combinator, an accelerator, pay themselves an average of $50,000, but when startups start bringing in $7-8 million of financing, that number creeps upward to $130,000. While the spread of compensation by stage of financing (i.e. 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. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. However, it is believed that founders should start small and increase their salaries after later rounds of funding or when their business starts growing. However, at all other levels pay is more or less flat to up quite a bit. When the company exited after three venture rounds, my salary was at $250k. This is an especially important question to answer when youre trying to hire your first employees.
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