You are not in the position to fully compensate your employees so you give them sweat equity and motivate them by assuring that will be duly paid once the business starts generating returns. So, if your only contribution is money and/or some assistance during the ideation phase, you dont get a salary. Co-founder/CEO at EchoSign (acq'd by Adobe), Upvoted by Oliver Emberton , Founder of Silktide and I asked Richard why? Therefore, paying founders doesnt seem sensible. Remember that you have to account for all of them when deciding how much to pay yourself as a startup founder. Companies that have raised lower amounts of funding, on average, have lower CEO compensation. However, successful founders do tend to establish consistent tactics early on and lean on research to find their solution. So, you need to make a fair assessment of your current financial situation before talking to investors about salary. It discovered the salaries are up 2.7% compared to 2021 well below the national inflation rate. Male CEOs saw a $5,000 salary increase. The table below shows average and median salaries since 2018. List down all your sources of income and expenditure; dont forget to consider loans and taxes. You are probably eligible, Hiring veterans and felons? Design by Lucila Romero. If you are the founder of a mature company, remember that your remuneration should be a healthy mix of salary, work-based bonus, equity, and additional options. 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 At the seed stage you should have a reasonable salary based on your location. As we wrote about in our post, How to Fairly Split Startup Equity with Founders, startup employees are generally looking for something more than a salary transparency, collaboration, ownership, responsibility, etc. 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. This is somewhat true as well. Tax is one of the most crucial factors to consider when drawing founder salary, especially in mature companies. Startup compensation guide: see thousands of startup salary and equity data points. WebIn my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. My prior salary as a VP before the company had been $150,000, and they raised it to $180,000, with a performance-tied bonus. Weve found that CEOs in some industries have higher average salaries than others. According to ZipRecruiter, for example, the average salary for the position of startup CEO is just over $110,000 per year. Included in the equation that VCs use to make investment decisions is CEO salaries, and experienced startup CEOs realize that. In 2022, female CEOs made $20,000 less than males. 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). In my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks. 28 2 Jason M. Lemkin SaaStr Fund. They span the typical range of U.S. startup industries including biotech, eCommerce, fintech, hardware, SaaS and more. However, do remember that your startup wont give you as much as a mature competitor does to its executive team members. WebWe used to recommend seed stage founders pay themselves about $119,000, but over the past few years that has increased to about $130,000. This came to me at the time I needed it most. What Salaries Did Startup CEOs Earn in 2022. 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,. This continues a corporate trend that began in 2019. You can also fix an hourly wage rate if you want to. Richard had just raised his first round of funding. We recommend that you use your own judgement and consult with your own consultant, lawyer, accountant, or other licensed professional for relevant business decisions. CEO salaries in the Biotech and Healthcare industries tend to average more than those in other industries. Come on! Roughly, for every additional $1,000,000 raised, a startup CEO will take home between $4,000 and $5,000 more in annual salary. We looked at our payroll data for over 125 seed and venture-backed startups to come up with the answer. Series A CEO Pay Again our Founders in those industries tend to come with academic credentials, and previous experience, that founders in other industries dont always have (M.D., PHD), and thus warrant a higher annual salary. While they initially dipped at the start of COVID, the average CEO salary is now hovering around $146,000 a year. Start your search now on this startup guide. Interestingly, this proportion remains consistent above the 150k inflection point, whether the round size is 200k or approaching 1m. Also, when founders salaries are scooped out of the treasury, the startup is left with fewer resources to function on. Seed, Series A, Series B, etc.) This will help you avoid future hassles. As most CEOs and founders know, launching a startup means working long hours, dedicating time and thought to the business success. 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. If you can raise a Series A round with your company at a As we found last year, the highest-paid CEOs fell predominantly into the healthcare and biotech categories. Im seriously enlightened. 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. ), and their companys industry. How do you Determine Proper Compensation for Startup CEOs and Suppose you have just raised capital and are using it for the development of business. Thankfully, that thinking has evolved. It believes in uncertainty being a key factor in entrepreneurship and that constant pay may damage the whole idea. 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. And if you are interested in how COVID impacted compensation in 2020, skip to How Did the Covid Pandemic Affect CEO Salary? If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. You might feel the same way. As your company grows, and the chances of success and stability increases, then founders can increase their salary compensation over that period. 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. And, while we did see many of startups with male leaders also reduce their pay, we arent quite sure why females were more likely to take a pay cut during the pandemic.. In practice we have found that if you only ask one question, ask that. Our philosophy is to research, curate, and provide the best startup feeds and resources to help you succeed in your venture. 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,. An interesting perspective. Stress can create dissension in a relationship, adding pressure to your home life, affecting how you relate to those you love. 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. ETtech. Below is our 2018 study, which we have left online for reference. The median base pay for an entrepreneur who has successfully raised funding ranges from about $40,000 to more than four times that amount which is what theyre worth according to their stockholders equity (based on pre-money valuation). Were not talking about anything extravagant, but enough to live a life outside of the business. As already mentioned, founders are paid only when they work as employees, not because they started the company. Your employees have options for where they work. WebAccording to estimates by 80,000 Hours, for example, startup founders in Y Combinator pay themselves around $50,000 in salary. Estimate your R&D tax credit using our free calculator. Expect us to publish future studies on other startup executive pay. Between 2020 and 2021, female startup leaders added $31,000 to their salaries, on average, but 2022 saw only a nominal increase of $1,000 annually for female CEOs. Are you big enough to start on the expansion journey? Typically there would be KPIs and targets built in to unlock further compensation in various time periods. Early employees usually come in shortly after a seed round, and seed round valuations average about $5.3m. The lower the CEO salary, the more likely it is to succeed. 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. When the company exited after three venture rounds, my salary was at $250k. Industries and different verticals can lead to varying salaries. How does a cash package for X employees change this? With the financial stress that comes with running a startup, the last thing a startup CEO or founder should be worrying about is how theyre going to live day-to-day. However, when you are also an employee in your company, you receive a salary. On the other hand, Mukesh Ambani paid himself INR 4.36 crores in the financial year 2019-2020, that is, around $596,000. According to estimates by 80,000 Hours, for example, startup founders in Y Combinator pay themselves around $50,000 in salary. Salaries ranged from the 25th percentile of $43,000 to the 75th percentile of $156,000, with the 90th percentile at $274,500. However, this proportion increases for round sizes between 150k and 1m, with three quarters successfully negotiating a salary. Chris is a seed stage VC and angel investor at CommonAngels. According to a Morningstar analysis of C-suite pay, from 2015 to 2019 the gender pay gap for CEOs had been narrowing. *. Certainly, there are a few other factors that will go into a startup founders salary as well. by using the valuation of your last financing round or the most recent offer you received to purchase your business. Personally, you dont want to bring that kind of stress home to your partner. In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. As a startup founder, you must understand that entrepreneurship is not a bed of roses. It can be difficult to place a number here as the value of the company is solely on paper. Weve found that there are a variety of factors that can influence the salary of a startup CEO. Meanwhile, the accounting firm Kruze Consulting reveals that for startups with $7 million to $8 million in financing, the average startup CEO salary is Even giants like Google and Amazon took years before becoming profitable and even then, their founding workers take salaries. The average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. Upon digging deeper, we realized that this is because of the rise of D2C healthcare companies, which tend to seem more like SaaS businesses and less like a healthcare company with a CEO who has an advanced degree. Try Visible free for 14 days. We analyzed the pay of over 250 startups - and the average startup CEO pay is $146,000, up 5% from the prior year. 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. One of the best ways to set a reasonable remuneration amount for yourself is to go by industry standards. Wow! If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. Use our startup CEO salary guide to help peg your pay to the amount of capital that your company has raised. Also, try our Startup CEO Salary Estimator tool on the right. Because of this, startup founder salary is a highly debatable topic. 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. The companies we used to determine this figure have raised collectively more than $2B in funding. 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. $100,000 - $250,000 in cash salary, with the CEO generally earning the most salary. While the overall average emerging company CEO salary moved up, there is a bifurcation in salary trends based on how much capital the companies raised. 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. Case Study. It seems that companies pay 8-12% of their funding to their founders. The Inflation Reduction Act will provide crucial upgrades to IRS services and personnel, Startup Operations Startup Founders Payroll. Another study by Kruze Consulting found that the average startup CEO salary was $146,000. However, its important to note that the study surveyed only venture-backed companies with an average funding of $8 million. Below are some of the factors that may influence a startup CEOs salary: 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. Again our data shows that the typical Series A CEO is pay is about $180,000 to $190,000 per year. 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. $276k Is the Median Startup CEO Salary for a Very Successful Company. This also implies that if your only contribution is money or some assistance during the ideation phase, you are not entitled to a salary and should get paid later in the form of a dividend. Interested in other data on startup spending? On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company. How to Rebalance Ownership Between Founders, Kruze is a leader in accounting services for startups. While a very small salary may lead you to starve and hamper your productivity, a huge sum will give the impression that you are more interested in filling your own pockets than working for the company. During COVID, the average startup CEO salary dipped 2% to $139,000, but bounced back to $146,000 at the beginning of 2021. In 2018, CEOs of hardware startups averaged a $118,000 salary and SaaS CEOs came in at $113,000. 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. Getting someone to join your dream before it is much of anything is an art not a science.. The salary amount, frequency, and the way you withdraw that money affect your tax amount. Very few entrepreneurs have the courage to be that transparent. See our full report for CEO pay bands. You have to be able to afford the talent youre recruiting without cutting your financial runway unnecessarily fast for some quick-to-compete cash package. Some families live on that," says VC Sean Owen. Transparency and preparation are key. 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. Also, you may have to pay more when hiring more experienced people. We hope this data will help other early-stage businesses prepare their budgets! Wrong! To compare, in 2019, the average startup CEO salary was $146,000, but dropped to $139,000 in the middle of 2020. Do unprofitable companies need to file tax returns? When the company exited after three Theyre responsible for fundraising, reporting to the board and other stakeholders, providing direction to the company, and making operational decisions. Look at your competitors and determine what they are paying an employee in a similar role. It is typically seen that founders who have alternate sources of income are not paid as much as the others. Raise capital, update investors and engage your team from a single platform. When not working, she can be found reading, writing and engaging in long walks. I would like more of this start up articles as I just subscribed to your platform. As companies mature, its typical that a compensation committee is formed by non-management board members. However, there are also various other factors into play. 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. The following table represents the salaries of a few of the most notable tech companies CEOs during their IPOs. David Rose agrees. Visit our Uber vs. Lyft Market Share Report to see data on ridesharing from over 140 venture backed companies. Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. 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. For the most lightly-funded tech companies, the concept of ramen profitability encourages founders to take no salary to keep expenses minimal and make the company more attractive to investors. The firm reports its figures based on an anonymized dataset comprising more than 250 startups. Share your companys key data with our beautiful dashboards. However, the average hides some interesting nuances which may be driven, in part, by changes in the fundraising environment in late 2021/early 2022. If the CEO is also a founder, it will be much easier to manage their annual salary because the value of their compensation package will likely lean much heavier toward equity than cash. There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Spiegel, and Jack Dorsey taking a $1 salary. Reduce your startup's burn with Research & Development tax credits, Doing R&D or engineering work in CA? 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 site may also contain links to affiliate websites, and we receive an affiliate commission for any purchases made by you on the affiliate website using such links. Most early-stage, non-CEO founders are often paid about the same amount as the CEOs, so founders can use this to estimate compensation as well. How does CEO pay vary by the amount of venture capital raised? Additionally, you can read a opinion piece by Scott Orn, Kruzes COO, about what salaries early-stage founders should take after theyve raised funding. 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. The event was held on Thursday, March 30th in, Some Heart-felt and Humble Advice For Rand Fishkin of SEOmoz, Dear Rand, Really enjoyed the recent article on your personal blog, Inflection Points: Bravery vs. Foolishness. Profit-generating startups are a rare sight. Ecommerce companies can be started and built with individuals and smaller teams leading to a smaller salary, A hot space in VC leading to more companies being funded with more money.. Founders of funded startups may start to pay themselves provided that they are on the payroll. One of the most common questions we get from founders is what their salary should be after they raise funding. Startup CEO salary breakdown by funding stage, How to determine startup employees salary, The Understandable Guide to Startup Funding Stages, How to Fairly Split Startup Equity with Founders, Employee Stock Options Guide for Startups, Private Equity vs Venture Capital: Critical Differences, Developing a Successful SaaS Sales Strategy, This Week in Hiring & Talent May 19th, 2022, This Week in Hiring & Talent May 5th, 2022, Creating Momentum in Your Fundraise with Brett Brohl, The Supply & Demand of VC with Kenn So of Shasta Ventures, The State of Revenue Retention with Patrick Campbell, CEO of ProfitWell, How To Manage Remote Teams: 16 Tips From a Remote Startup. Tax Credit Center - Which of the 700+ Credits Are Best? Although a huge inflow of cash means that the founding employees can take more money home, other discussed factors also come into play. Filter by role, location, stage, startup size. Interestingly, Female CEOs were more likely to take a pay cut during the pandemic. Also, see if you can cut down on unnecessary expenditures. Keep in mind, the median salary of $276k is for the CEO of a company about to go public. These factors include: the total funding raised, cash in the bank, industry, and the experience of the founder. The right approach wont include a one-size-fits-all answer for every business. Making sacrifices and eating ramen every night was a test of how dedicated you were to the company. 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. Granted, for the later stage companies its a different story while these CEOs tend to make more, there are fewer female CEOs in this group. Startup Lessons From The MIT and Harvard Strategy War Game, Recently, I led a team from MIT in the second annual strategy war game with Harvard Business School organized by Fuld and Company. A finance enthusiast, literature beau and lifelong learner. Do account for tax. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. CEO founders sometimes ask me for guidance on what is market for salaries in a seed stage startup. We are strong advocates for CEOs and founders paying themselves a fair market salary. That comes in the form of common stock. Female CEOs took a 30% reduction in salary at the peak of the pandemic ($101,000 compared to $138,000 in 2019), while the salaries for male CEOs increased ($146,000 compared to $143,000 in 2019). Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. Every stakeholder of the startup often needs direct contact with the CEO, and startup CEOs cant delegate everything. ), and the companys industry. Money can be the root of problems in many relationships. If the investment is up to $2.5 million, the CEOs salary should be $125,000. Some families live on that," says VC Sean Owen. Wow your investors with data-driven updates that drive interaction. However, it doesnt want you to take a modest salary and extract the leftover amount as dividends as the latter are taxed lower. Thiel was hesitant to answer, but eventually said $100-125k. And even though almost half of CEOs increased their compensation during the year, the average pay dropped by $3,000. 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. Non-working founders do deserve equity and dividends, but it does not entitle them to a fixed remuneration each month or week. Kruze Consulting continues to advise founders to accept salaries as soon as theyve acquired funding. So, its better to invest $45K and let the additional $5K stay in your bank account. The trend of increasing compensation being tied to increasing levels of capital raised persisted - as expected. How Much Should You Pay Yourself As A Startup Founder? This is entirely dependent on the funding and financial instruments a company decides to use. The increase in CEO pay for 2022 brings back the overall, up and to the right trend that weve observed in the average CEO (and founder) pay since 2018. CEOs are always on duty, and startup CEOs are even more in demand than the leaders of mature businesses. Photo: Supplied. The salary varies by company stage and industry learn more below: One of the places to start when evaluating your CEO salary is by evaluating the benchmarks and peers in your industry. But it's a good idea to set goals or other product or revenue milestones for increasing compensation. Founders of bootstrapped startups dont need to pay themselves. Many CEOs scrambled during COVID to try to stretch their companys runway by slashing costs, including their own pay, said Scott Orn, COO of FP&A at Kruze Consulting. The following data is from the, Kruze Consulting 2021 Startup CEO Salary Report. The distinction between the two may impact early employee decisions on how they personally value their stock. The median base pay for an entrepreneur who has successfully raised funding ranges from 75k-150k Pre-seed should be just enough to get by so you can quit your job and focus 100% If you want to add to it later there's not a lot stopping you. In 2019, before COVID, startup CEO salaries averaged $142,000. Youll want to pay yourself a fair wage, but it can be a tricky conversation with the people who need to sign off on your salary before you give yourself a bump. Salaries ranged from the 25th percentile of $43,000 to the 120 4 10 Related questions More answers below Would a VC view a foreign non-technology angel getting a 40% stake (for a 400k pre-seed) in a 2 founder run startup as a red flag? Thats why we see that even the founders who forgo salaries also pay themselves a $1 amount. We are currently ranked as the 13th best startup website in the world and are paving our way to the top. Having the above questions answered will help. The role of the compensation committee can vary, from making recommendations to the board on executive salaries, bonuses (and option grants) to having authority to set executive salaries. Are you still an early-stage venture, or have you matured? The seed-stage-focused firm, which also has a presence in St. Louis, has funded Amazon-as-a-service" startup Amify. For venture-backed companies, you can find this answer through an official 409A process or less formally (as. ) Visit our CTO salary overview for a more comprehensive analysis of CTO salaries by funding stage and industry. Working her way up the success ladder and her personal philosophy textbook, Kavvya believes that a good conversation is worth more than a good book. Kruzes clients have raised over $500 million in venture capital in the past 12 months, and are market leading Saas, software, eCommerce, eHealth and FinTech startups. Some observations: So what is the range of CEO salaries in the seed stage? This is an especially important question to answer when youre trying to hire your first employees. Therefore, the assessment of your companys present state is somewhat important when determining your salary. This calculator will show you an estimated range of compensation for a startup CEO based on the amount of funding that the company has raised, the stage of the company (i.e. 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). potential bonus money of $0 - $100,000 and equity (ranging from less than 1% - 20%). For instance, in the United States, IRS treats profit from your business the same as personal income when you own a sole proprietorship or a joint venture. 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, Tim Jackson writes. What's the average salary for CEOs from funded startups? Looking by year, for every dollar in salary men earned, female CEOs earned: The setback in salaries for female startup CEOs is troubling, especially considering that the market was much closer to parity in 2019, prior to the COVID crisis, said Vanessa Kruze, CEO of Kruze Consulting. Several years ago, many eComm companies were just getting started when they were seed funded. 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 term sheet You may start taking a salary when your business raises enough capital. Breaking the numbers down by industry, on average: Hardware company CEOs are near the bottom of the pack, with an average salary of $112,000 per year. Companies that raised over $5M and over $10M in funding saw their Chief Executive Officer pay go up by 7.5% and 13%, respectively, in 2022. Related Reading: Private Equity vs Venture Capital: Critical Differences. Make sure that you dont ask for too much or little.