*. Go through the table and assess the relation between a founding executive team members salary and their companys cash flows. 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. In practice we have found that if you only ask one question, ask that. CEOs of funded startups make many important decisions - including compensation decisions. 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. The same trend was true for the median startup CEO salary. Companies that raised between $2 million and $5 million saw almost an 8% increase in Chief Executive Officer salaries. However, there are also various other factors into play. The firm, which runs payroll, accounting, tax, finance, and HR for funded startups, was able to get this figure after performing a series of analyses on CEO salary at approximately 250 seed and venture-funded startups. 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. Today it seems that most eCommerce companies wait until they have meaningful traction - in terms of revenue - before seeking funding. This continues a corporate trend that began in 2019. Anyway, even when the business starts growing, it wont pay you much in the form of salary. 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. How Much Should You Pay Yourself As A Startup Founder? As you would expect, startup CEO salaries vary by the amount of venture/seed funding that the companies have raised. The greater the fundraising numbers are from there, the more likely the CEO pay range climbs closer to $250,000. List down all your sources of income and expenditure; dont forget to consider loans and taxes. Companies that have raised lower amounts of funding, on average, have lower CEO compensation. Having the above questions answered will help. 3) Excessive hiring and spending. Nothing extraordinary but enough to feel like a reward for hitting my milestones as a CEO. Weve used data from over 200 seed and venture-funded startups to identify the average annual salary earned by these companies CTOs, and discovered that CTO salaries are actually larger than CEO salaries for startups in the seed stage. The later the stage a company is, the higher their salary is. But bringing in non-founders takes actual dollars and requires confronting these tough questions: how much money do we have? Just like most couples should discuss important things like money and debt before they are married, its a good idea to talk money and salary before you enter into a marriage with a VC. Startup compensation guide: see thousands of startup salary and equity data points. 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. This means the earlier you join, the more diluted you'll become. Not only does a fair market salary reduce your financial stress, it gives you a safety hatch. Startup Founder Salary Guide: How Much To Pay Yourself? On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company. One of the places to start when evaluating your CEO salary is by evaluating the benchmarks and peers in your industry. 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. As weve seen in the past, biotech and pharmaceutical companies tend to have the highest CEO compensation, with seed funded companies paying their Chief Executives $161,000. One of the best ways to set a reasonable remuneration amount for yourself is to go by industry standards. 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. Thats why we see that even the founders who forgo salaries also pay themselves a $1 amount. 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. How Did the Covid Pandemic Affect CEO Salary? In 2019, we analyzed 125 startups. Non-co-founder COOs at seed-stage startups earn an average salary of 94,500 ($128,000 USD as of writing). Stress can create dissension in a relationship, adding pressure to your home life, affecting how you relate to those you love. Salaries ranged from the 25th percentile of $43,000 to the 75th percentile of $156,000, with the 90th percentile at $274,500. Kruze provides Startup CFO Consulting to over 500+ startups in Silicon Valley, Los Angeles, New York, and other major startup hubs. Remember that every dollar you receive could have been used for your companys growth. 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. Weve been tracking this data for several years, and 2020 was the only year that weve seen a dip in the standard CEO pay. David Rose agrees. One trend remained the same as last year: the more you raise, the more you get paid. In 2020, we saw salaries decline at the height of the covid pandemic. On the other hand, Mukesh Ambani paid himself INR 4.36 crores in the financial year 2019-2020, that is, around $596,000. The more a CEO pays herself, the less runway available to hit milestones. Your salary also depends on the amount you have raised. Have you reached the break-even point? Is it wise to pay yourself when your startup demands this many resources? In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. 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. You may hire an accountant for assistance. The Columbus, Ohio-based startup also recently closed an oversubscribed $4M series seed round led by Tamarind Hill, a venture capital firm investing in tech-driven 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. 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. Here is a breakdown by Series A, Series B, etc. Previously. Interested in other data on startup spending? Same with fintech at $129,000. What salaries did startup CTOs earn in 2022? Startup founders need to decide how much salary is enough. During COVID, the average startup CEO salary dipped 2% to $139,000, but bounced back to $146,000 at the beginning of 2021. 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. They earn through their investments and other personal revenue-generating activities. Non-working founders do deserve equity and dividends, but it does not entitle them to a fixed remuneration each month or week. When not working, she can be found reading, writing and engaging in long walks. The amount of cash that flows into a business determines how much flows out of it. 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. 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. 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. To help answer that question, we analyzed CEO pay at over 250 seed and venture-funded startups. When you build something of value and valuations are going up, you wont mind doing a small secondary. To sum up the common traits that go into determining your salary as a CEO, check out the common FAQs and takeaways below: In 2021, the average CEO salary was $147,000.At the end of the day, it is entirely dependant on the business, industry, and lifecycle. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks. We hope this data will help other early-stage businesses prepare their budgets! David Rose agrees. Much like a competitive package for an employee, a CEOs compensation and equity stake will require negotiations this time with your investors. 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. ), and their companys industry. Talk to your board upfront about the salary. When a seed round raises $5 million instead of $500,000, the temptation to excessively hire and spend increases significantly. In fact, the VCs will insist on this. So, you need to make a fair assessment of your current financial situation before talking to investors about salary. It believes in uncertainty being a key factor in entrepreneurship and that constant pay may damage the whole idea. Try Visible free for 14 days. Female startup CEOs continue to lag behind their male counterparts in salary, and their average paycheck is still 3.7% below the peak in 2019. Thanks for the article. 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. Certainly, there are a few other factors that will go into a startup founders salary as well. Not paying yourself enough can turn you into a bad decision-maker. 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. Market value for equity is dynamic though and the necessary points to attract an individual employee can vary. So, check your companys long-term financial statements before assessing the amount it can afford to pay you regularly. The following is a guest post by Chris Sheehan. However, it doesnt want you to take a modest salary and extract the leftover amount as dividends as the latter are taxed lower. It seems that companies pay 8-12% of their funding to their founders. 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.. For 2022, the average startup CEO salary increased by 2.7% from 2021 levels to $150,000, while the median increased to $140,000. 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. Im seriously enlightened. Has covered the wider aspects. 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 they initially dipped at the start of COVID, the average CEO salary is now hovering around $146,000 a year. Understand that being a founder doesnt entitle you to a higher salary than everyone; growing your business by being a better employee does. But early employees will be attracted to your business in part because of the long-term payoff. How does a cash package for X employees change this? Seed stage salaries for companies that have raised less than $2 million in total funding seem to be still recovering from the COVID crisis, and the overall pay there is down from $120,000 in 2019. Foundry Group venture capitalist Seth Levin voiced the rule: Companies that have raised $1 million or less should pay the CEO between $75,000 and $125,000 a year. 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. Design by Lucila Romero. Photo: Supplied. It discovered the salaries are up 2.7% compared to 2021 well below the Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. 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. The businesses that are funded between $1M to $2.5M pay their founders above $125K. As we found last year, the highest-paid CEOs fell predominantly into the healthcare and biotech categories. WebAccording to ZipRecruiter, for example, the average salary for the position of startup CEO is just over $110,000 per year. In 2018, CEOs of hardware startups averaged a $118,000 salary and SaaS CEOs came in at $113,000. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. Additionally, you can read a opinion piece by Scott Orn, Kruzes COO, about what salaries early-stage founders should take after theyve raised funding. These factors include: the total funding raised, cash in the bank, industry, and the experience of the founder. 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, do remember that your startup wont give you as much as a mature competitor does to its executive team members. 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. Brex vs Ramp - Which card is best for startups? As noted in, , Seth Levines observation on CEO salary in 2012 still holds true compared to the 2019 Kruze salary report data above: early on companies that have raised $500,000 or less cap out at $75,000, companies that have raised $1 million or less pay between $75,000-$125,000, companies that have raised between $1-$2.5 million pay closer to $125,000. That comes in the form of common stock. Some observations: So what is the range of CEO salaries in the seed stage? See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. There is also a shifting trend towards famous entrepreneurs like Mark Zuckerberg, Evan See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. 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. Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. Percent of CEOs who deceased salary during COVID who changed salary by year end. In 2022, female CEOs made $20,000 less than males. 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. $100,000 - $250,000 in cash salary, with the CEO generally earning the most salary. Your employees have options for where they work. 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. Do unprofitable companies need to file tax returns? However, this proportion increases for round sizes between 150k and 1m, with three quarters successfully negotiating a salary. 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. EdTech and Hardware startups saw the biggest declines in CEO salary and eCommerce startup CEO salaries went up the most in 2020. Profit-generating startups are a rare sight. Here are some of the best practices and advice on approaching your boards with proposed plans once youve determined the right way forward. Below is our 2018 study, which we have left online for reference. Suppose you have just raised capital and are using it for the development of business. Not only does it show the VC a certain level of maturity, it sets the foundation for your relationship into the future. You can also fix an hourly wage rate if you want to. 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. Every stakeholder of the startup often needs direct contact with the CEO, and startup CEOs cant delegate everything. Many slashed their compensation to zero. 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. Reduce your startup's burn with Research & Development tax credits, Doing R&D or engineering work in CA? This makes it important to account for the duration that you work when calculating your salary. An interesting perspective. This means that the CEO likely deserves a higher salary as they continue to bring in the new revenue and grow their bottom line. 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. How long will this last us? 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. 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. 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. 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 following chart shows what happened to the CEOs who reduced their pay during COVID by the end of the year. 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. ), and the companys industry. In 2020, approximately 36% of companies reduced their chief executive compensation during COVID. Suppose you put $50K in a business and decide to carve $5K as salary, you effectively put $45K into the business, right? Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. 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. Wrong! Startup accounting firm Kruze Consulting just updated its annual CEO salary reportand has some interesting insights to go with it. 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. Position of startup salary and SaaS CEOs came in at $ 113,000 Angeles, new,! You need to make a fair assessment of your current financial situation before to! Pay you much in the bank, industry, and the experience of the COVID pandemic updated its CEO. $ 1M to $ 2.5M pay their founders and that constant pay may damage the idea. 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