It can be difficult to place a number here as the value of the company is solely on paper. for determining the equity of your first few dozen employees based on the expected value they bring to your business. We have created one of the most complete databases in the startup world. Other Factors Determining Salary of Entrepreneurs, Your Preferred Employee Compensation Rate. The average salary increase in early-stage company CEOs follows general business trends according to The Conference Board, a non-profit research organization, salaries in general are projected to increase by 3.9% in 2022. When a seed round raises $5 million instead of $500,000, the temptation to excessively hire and spend increases significantly. How do you determine whats best? We are currently ranked as the 13th best startup website in the world and are paving our way to the top. The bottom line is: Align everything in your life. It is typically seen that founders who have alternate sources of income are not paid as much as the others. The process is usually difficult for first-time founders, especially because of the complexity of the deciding factors. 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.. Male CEOs saw a $5,000 salary increase. There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Spiegel, and Jack Dorsey taking a $1 salary. It is 50-hours workweeks, endless sacrifices, and years of little or no income from a business that demands numerous resources. The more a CEO pays herself, the less runway available to hit milestones. Seed Stage Ceo Salaries by Industry (in thousands). 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. 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. 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. We may monetize some of our links through affiliate advertising. In my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. Look at your competitors and determine what they are paying an employee in a similar role. To help answer that question, we analyzed CEO pay at over 250 seed and venture-funded startups. In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. On, Stating the obvious, salary needs can vary widely. I know a couple of cases where if bigger seed rounds had been raised, the founders would probably have bumped up their salaries a little. Your employees have options for where they work. Some families live on that," says VC Sean Owen. 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. Below is our 2018 study, which we have left online for reference. Case Study. Therefore, the assessment of your companys present state is somewhat important when determining your salary. Tell us what you think about our article on startup founder salary in the comments section. Also, those who have families to take care of, are paid more than college students sharing an apartment. That average represents a 7.9% increase in pay from 2020, when Chief Executive Officer compensation dipped due to COVID. Someone that has funded their own company and taken no outside financing might own 100% of the company. Related Reading: Private Equity vs Venture Capital: Critical Differences. How Did the Covid Pandemic Affect CEO Salary? Startup executive compensation depends on their financial independence as well as the financial health of the business. Did you know even money losing startups can get up to $250,000? This is an especially important question to answer when youre trying to hire your first employees. How to Rebalance Ownership Between Founders, Kruze is a leader in accounting services for startups. Determining how to properly compensate employees at a startup is also a tricky task. 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. A portion of that money goes to the government. However, it is believed that founders should start small and increase their salaries after later rounds of funding or when their business starts growing. Paul Graham has put together some valuable formulas for determining the equity of your first few dozen employees based on the expected value they bring to your business. Our analysis backs this up, but its important to mention that there is no single factor that influences this decision. The firm reports its figures based on an anonymized dataset comprising more than 250 startups. CEO Salary by Total Funding Raised - 2022. We would advise founders to adjust their compensation as their company raises increasing amounts of funding. Hardware companies tend to require larger than average amounts of venture capital funding to get to a meaningful size. 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. Every stakeholder of the startup often needs direct contact with the CEO, and startup CEOs cant delegate everything. 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. 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. 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. Theyre responsible for fundraising, reporting to the board and other stakeholders, providing direction to the company, and making operational decisions. Therefore, you need to set a lower salary baseline. 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. There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Spiegel, and Jack Dorsey taking a $1 salary. San Francisco/New Delhi: The average startup CEO salary increased by 2.7 per cent in 2022 to reach $150,000 per annum globally from last year, while the median increased to $140,000, according to a new report. 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. Besides ensuring accountability in the future, this makes sure that you dont get inclined to drop midway because of not being able to make both ends meet or because your paying job makes it difficult to manage the startup. 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. Visit our Uber vs. Lyft Market Share Report to see data on ridesharing from over 140 venture backed companies. 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. Typically there would be KPIs and targets built in to unlock further compensation in various time periods. For rounds of 150k or below, around half of founders secure a salary. Non-working founders do deserve equity and dividends, but it does not entitle them to a fixed remuneration each month or week. Weve found that there are a variety of factors that can influence the salary of a startup CEO. Suppose you put $50K in a business and decide to carve $5K as salary, you effectively put $45K into the business, right? I'm not sure that it's a leading predictor of success, but it certainly is a very important aspect at the seed stage because cash is so precious. What are you waiting for? Startups in the study represent several industries, including Biotech, eCommerce, EdTech, FinTech, HealthTech, Hardware, SaaS and more. As a startup founder, you must understand that entrepreneurship is not a bed of roses. The average startup founder salary in the seed round is $100,000. In 2019, we analyzed 125 startups. SaaS was the top performing industry by CEO salary in 2020. Same with fintech at $129,000. For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula,, writes. WebAccording to ZipRecruiter, for example, the average salary for the position of startup CEO is just over $110,000 per year. 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. 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. , 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. Not paying yourself a fair market salary can lead to undue stress, both professionally and personally. Do account for salary baseline and tax here. On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company. I would like more of this start up articles as I just subscribed to your platform. Anyway, even when the business starts growing, it wont pay you much in the form of salary. Some families live on that," says VC Sean Owen. Having the above questions answered will help. 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. Included in the equation that VCs use to make investment decisions is CEO salaries, and experienced startup CEOs realize that. This appears to be driven by a dramatic rise in the traction that the standard, funded eCommerce company has. VCs, of course, wanted to stretch every dollar they could. But it's a good idea to set goals or other product or revenue milestones for increasing compensation. 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. I've seen average salaries range between $60,000 to $100,000 for CEO startups depending on the size of the round and scope of the deal/company. The best way is to tie your remuneration to achievable growth milestones and work accordingly. 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. Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. A Guide to Tax Returns for Seed Stage Startups. 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. Use our startup CEO salary guide to help peg your pay to the amount of capital that your company has raised. Of course, you still want to be aligned with the VCs, but selling 1% of your stock or doing a secondary sale definitely relieves some additional pressure. We hope this report simplifies your startup CEO pay decision! They earn through their investments and other personal revenue-generating activities. This tool can help founders estimate reasonable pay based on the amount of capital that theyve raised, the stage of their business (Seed, Series A, B, etc. 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. As companies mature, its typical that a compensation committee is formed by non-management board members. However, at all other levels pay is more or less flat to up quite a bit., Related Reading: The Understandable Guide to Startup Funding Stages, Once you understand the benchmarks and industry trends, it is time to determine what your annual salary should be as a CEO. And, not surprisingly, compensation is one of the most frequent questions. For first-time founders and leaders of early-stage startups, determining compensation for the CEO and early employees can be tough. 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. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. Every month of cash burn is valuable. Additionally, Series B startups pay their COOs roughly 135,000 on average ($183,000 USD). One of the most important conversations to have with a venture capitalist, before you sign a term sheet, is the salary discussion. US Based Companies that have raised under $100M. In 2020, approximately 36% of companies reduced their chief executive compensation during COVID. You may hire an accountant for assistance. Wow your investors with data-driven updates that drive interaction. Sequential rounds gave me a small bump in salary. Roughly, for every additional $1,000,000 raised, a startup CEO will take home between $4,000 and $5,000 more in annual salary. 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. Last year, we analyzed data from 125 startups to find that the average 2018 salary for a startup CEO was $130,000. It discovered the salaries are up 2.7% compared to 2021 well below the However, successful founders do tend to establish consistent tactics early on and lean on research to find their solution. They span the typical range of U.S. startup industries including biotech, eCommerce, fintech, hardware, SaaS and more. This means the earlier you join, the more diluted you'll become. Read on to see the average CEO salary, detail on how CEO pay differs as companies raise increasing amounts of capital, salary data by company industry - and more! The analysis comes from an anonymized dataset comprising more than 250 venture-funded startups and representing more than $2.5 billion in funding. 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). 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. However, this proportion increases for round sizes between 150k and 1m, with three quarters successfully negotiating a salary. What salaries did startup CTOs earn in 2022? 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.. Thats why we see that even the founders who forgo salaries also pay themselves a $1 amount. How Much Should A Startup Founder/CEO Pay Herself? Getting someone to join your dream before it is much of anything is an art not a science.. Other founding roles, such as the chief operating officer (COO) and chief technical officer (CTO), may also receive a startup salary. For example, if a founder is headquartered in Silicon Valley their cost of living is higher and likely requires a higher salary.. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. While they initially dipped at the start of COVID, the average CEO salary is now hovering around $146,000 a year. Professionally, you want to be on top of your game when it comes to making the right decisions for your company. Its unclear exactly how you should amortize this value, but this method again gives you a value in the low 5 figures. A finance enthusiast, literature beau and lifelong learner. Market value for equity is dynamic though and the necessary points to attract an individual employee can vary. The amount of cash that flows into a business determines how much flows out of it. The following chart shows what happened to the CEOs who reduced their pay during COVID by the end of the year. For venture-backed companies, you can find this answer through an official 409A process or less formally (as. ) Owners of mature companies can pay themselves more than growth-stage startup founders even when both generate good revenue. We hope this data will help other early-stage businesses prepare their budgets! Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. Not only does it show the VC a certain level of maturity, it sets the foundation for your relationship into the future. Runway available to hit milestones and startup CEOs realize that living is higher and likely requires a higher salary startups! This means the earlier you join, the more diluted you 'll become, your Preferred employee compensation Rate making. 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