But early employees will be attracted to your business in part because of the long-term payoff. "In my experience, that fact pattern (a pair of founders, $500K seed round) would typically see 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. When you build something of value and valuations are going up, you wont mind doing a small secondary. When the company exited after three venture rounds, my salary was at $250k. Are you big enough to start on the expansion journey? "If you're going to disrupt the status quo and beat the competition, you're not going to do it by playing their game.". As your startup starts growing and generating revenue, you may start increasing your salary or decide on bonuses and perquisites for yourself. Startup founders are not entitled to a salary; however, CEOs are. 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.. Back in 2008, Peter Thiel did an interview at TechCrunch50 in which he said one of the most important things he looks at before investing is how much the CEO is getting paid. You can follow him on Twitter at @c_sheehan and his blog Early Stage Adventures. Also, you may have to pay more when hiring more experienced people. 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. 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. that a founder CEO will be in the 5-20% range, a founder CTO in the 2-10% range, other co-founders between 3-7% and non-founder early employees between 0.5-5%. Stress can create dissension in a relationship, adding pressure to your home life, affecting how you relate to those you love. David Rose agrees. Has covered the wider aspects. However, you cannot expect it to be at par with the market standards. The table below shows average and median salaries since 2018. The average CEO pay for seed funded startups is $119,000 - but it does vary by industry. It seems that companies pay 8-12% of their funding to their founders. 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. Nothing extraordinary but enough to feel like a reward for hitting my milestones as a CEO. Non-co-founder COOs at seed-stage startups earn an average salary of 94,500 ($128,000 USD as of writing). Please quote the information above when referring to 2020 - 2021 data. The more investment a startup attracts, the more its funder can afford. The reason why a few big corporate founders and CEOs dont take a huge salary is that it isnt their only source of income. How long will this last us? And, not surprisingly, compensation is one of the most frequent questions. said Vanessa Kruze, CEO of Kruze Consulting. Also, see if you can cut down on unnecessary expenditures. As most CEOs and founders know, launching a startup means working long hours, dedicating time and thought to the business success. As already mentioned, founders are paid only when they work as employees, not because they started the company. Compute the amount you need each month, week or probably every two weeks to get by and that will be your salary. To help answer that question, we analyzed CEO pay at over 250 seed and venture-funded startups. Founders of funded startups may start to pay themselves provided that they are on the payroll. Visit kruzeconsulting.comto learn more. Also, when founders salaries are scooped out of the treasury, the startup is left with fewer resources to function on. Answers to hundreds of startup accounting, finance, HR and tax Q's, Expert startup accounting advice (and more), Top Financial Tips and Resources for Startups, Tips for setting up scaleable financial systems, iCals with federal, state and local compliance deadlines, See more of the best pitch decks ever used, After working with hundreds of startups, we picked the best credit cards. In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. ), and the companys industry. 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. The average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. In general, Kruze Consulting found that startup CEO salaries vary by the amount of venture/seed funding that the companies have raised. 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. Transparency and preparation are key. As financial and accounting consultants to hundreds of funded startups, we are regularly asked by our clients to help them benchmark their companies metrics. The term sheet If it is set at a high level, you end up burning a whole lot more money. Not paying yourself enough can turn you into a bad decision-maker. This year, we took it up a notch and analyzed data from more than 250 venture-funded companies. Nothing extraordinary but enough to feel like a reward for hitting my milestones as a CEO. Firstly, and most obviously, companies with more funding are better able to pay their CEOs. It is 50-hours workweeks, endless sacrifices, and years of little or no income from a business that demands numerous resources. 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. 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. For rounds of 150k or below, around half of founders secure a salary. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. Whenever founders raise a round of finance, the question becomes what the hell should I be paying myself. Its one of those rare things you cant really go to your board or advisors with. Did we miss something? 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). 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. Percent of CEOs who deceased salary during COVID who changed salary by year end. Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. Weve found that CEOs in some industries have higher average salaries than others. 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: The best way is to tie your remuneration to achievable growth milestones and work accordingly. Law enforces it in a few countries. 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. In other words, although founders do not deserve salaries, whoever is on your startups payroll should be paid. As a company matures and grows, so does the salary of the CEO. We hope this data will help other early-stage businesses prepare their budgets! In 2019, it was $131,000 and in 2020, salaries ranged around $130,000. You might feel the same way. Meanwhile, those of SaaS companies made on average $113,000 in 2018, which rose 7% to $121,000 in 2019. Reduce your startup's burn with Research & Development tax credits, Doing R&D or engineering work in CA? However, the average hides some interesting nuances which may be driven, in part, by changes in the fundraising environment in late 2021/early 2022. 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. For companies with total funding of $2 million or less, average CEO salaries increased just $5,000 in 2019. CEO salaries in the Biotech and Healthcare industries tend to average more than those in other industries. ), and their companys industry. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. Lets dive into why we think there are notable difference by industry. Also, try our Startup CEO Salary Estimator tool on the right. Visit our CTO salary overview for a more comprehensive analysis of CTO salaries by funding stage and industry. Product or company names, logos, and trademarks referred to on this site belong to their respective owners. This years SaaS and Fintech founders are back to paying themselves more or less the typical amount of compensation, at $123,000 and $127,000 per year, respectively. 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. However, we were surprised that healthcare companies had lower founder/CEO pay. Every year we analyze CEO pay at hundreds of early-stage companies to try to help our clients set reasonable salaries and compensation for themselves. The idealistic view says that startup founders must take risks and should not be rewarded unless their company starts making money. Industries and different verticals can lead to varying salaries. The firm handles all things Accounting, Tax, Finance, & HR: interim CFO Consulting, financial modeling, annual taxes, venture debt consulting, 409A reporting, bookkeeping, AR/AP, and Seed/Series A/B Fundraising Preparation. We analyzed the pay of over 250 startups - and the average startup CEO pay is $146,000, up 5% from the prior year. Startups in the study represent several industries, including Biotech, eCommerce, EdTech, FinTech, HealthTech, Hardware, SaaS and more. Interestingly, this proportion remains consistent above the 150k inflection point, whether the round size is 200k or approaching 1m. This benchmarking will help you figure out your opportunity cost, that is, the amount of salary money you have forgone to start your own company. Much like a competitive package for an employee, a CEOs compensation and equity stake will require negotiations this time with your investors. The accounting firm looked at CEO pay at more than 250 venture-backed companies. Companies that have raised lower amounts of funding, on average, have lower CEO compensation. Therefore, you need to set a lower salary baseline. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. 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! 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. SaaS was the top performing industry by CEO salary in 2020. $130,000 per year. Tax is one of the most crucial factors to consider when drawing founder salary, especially in mature companies. by using the valuation of your last financing round or the most recent offer you received to purchase your business. This is somewhat true as well. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks. 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). While the spread of compensation by stage of financing (i.e. 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. Money can be the root of problems in many relationships. 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. Seed Stage Ceo Salaries by Industry (in thousands). 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. Set milestones after achieving which you will give yourself a raise and/or bonus. Here are some of the best practices and advice on approaching your boards with proposed plans once youve determined the right way forward. 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. CEOs of funded startups make many important decisions - including compensation decisions. 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. Salaries ranged from the 25th percentile of $43,000 to the 75th percentile of $156,000, with the 90th percentile at $274,500. Female startup CEOs continue to lag behind their male counterparts in salary in 2022. How do you determine whats best? So, your salary as a founder depends on the state of your startups cash flows and not on its profitability. For venture-backed companies, you can find this answer through an official 409A process or less formally (as. ) Hardware companies tend to require larger than average amounts of venture capital funding to get to a meaningful size. Early employees usually come in shortly after a seed round, and seed round valuations average about $5.3m. 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. 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. Capital gains is what you should strive for and this will happen only if you invest enough time and resources in the company. 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. CEOs are always on duty, and startup CEOs are even more in demand than the leaders of mature businesses. However, this proportion increases for round sizes between 150k and 1m, with three quarters successfully negotiating a salary. 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. 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. You may hire an accountant for assistance. As a startup founder, you must understand that entrepreneurship is not a bed of roses. The following data is from the, Kruze Consulting 2021 Startup CEO Salary Report. Im seriously enlightened. That comes in the form of common stock. At any moment, executives or team members may own public or private stock in any of the third party companies we mention. A portion of that money goes to the government. There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan Suppose you have just raised capital and are using it for the development of business. According to estimates by 80,000 Hours, for example, startup founders in Y Combinator pay themselves around $50,000 in salary. This means the earlier you join, the more diluted you'll become. We feel there are three primary drivers for this behavior, said Healy Jones, VP of Financial Planning & Analysis for Kruze. It includes understanding the competitive compensation you can afford, the value of your business, and the sum total of benefits available to you and your employees. WebSequential rounds gave me a small bump in salary. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. 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 average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. The median base pay for an entrepreneur who has successfully raised funding ranges from How to Calculate Your Startup Founder Salary? Meanwhile, the accounting firm Kruze Consulting 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. Richard had just raised his first round of funding. I know of a couple of companies I am invested in where the founders didn't pay themselves anything for quite a while as they were building the foundations of their product. 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