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.. As most CEOs and founders know, launching a startup means working long hours, dedicating time and thought to the business success. David Rose agrees. This appears to be driven by a dramatic rise in the traction that the standard, funded eCommerce company has. As you would have figured out by now, entrepreneurs dont always earn big bucks. To understand what happens when new equity is issued, a simple example helps. 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. So, if you had any doubts about taking a salary, shed them now and start thinking about how much you want to pay yourself. Wrong! Although a huge inflow of cash means that the founding employees can take more money home, other discussed factors also come into play. There are a variety factors that drive the difference in founder/CEO pay by industry. Founders are paid only when they work as employees. In 2022, chief executives at early-stage companies that have raised over $10 million in financing were paid just under two hundred thousand dollars a year, $199,000. Startup founders need to decide how much salary is enough. This chart breaks down seed funded CEO salary by industry: Assess the state of your startup and its finances. For example, if you have a 1% equity stake in a startup valued at $100M, which eventually IPOs at $1B, your stake will be worth 1% * $1B * dilution rate dilution rate varies, but a rule of thumb is to assume 10-25% per funding round. 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 However, there are also various other factors into play. 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. 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. 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! Meanwhile, those of SaaS companies made on average $113,000 in 2018, which rose 7% to $121,000 in 2019. 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. When a seed round raises $5 million instead of $500,000, the temptation to excessively hire and spend increases significantly. When you build something of value and valuations are going up, you wont mind doing a small secondary. As noted in Business Insider here, 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. VCs, of course, wanted to stretch every dollar they could. WebAccording to ZipRecruiter, for example, the average salary for the position of startup CEO is just over $110,000 per year. Did you know even money losing startups can get up to $250,000? Do unprofitable companies need to file tax returns? One of the best ways to set a reasonable remuneration amount for yourself is to go by industry standards. How Much Should You Pay Yourself As A Startup Founder? Did we miss something? We recommend that you use your own judgement and consult with your own consultant, lawyer, accountant, or other licensed professional for relevant business decisions. An interesting perspective. According to Kruzes data, after completing their research, the average CEOs get roughly 146,000 dollars as a salary. For first-time founders and leaders of early-stage startups, determining compensation for the CEO and early employees can be tough. Other founding roles, such as the chief operating officer (COO) and chief technical officer (CTO), may also receive a startup salary. 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 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. Say you raise $1,000,000 on a $5,000,000 pre-money valuation. The trend of increasing compensation being tied to increasing levels of capital raised persisted - as expected. The firm reports its figures based on an anonymized dataset comprising more than 250 startups. 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. In my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. 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. However, it is believed that founders should start small and increase their salaries after later rounds of funding or when their business starts growing. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. The analysis comes from an anonymized dataset comprising more than 250 venture-funded companies and representing more than $2 BN in funding. The later the stage a company is, the higher their salary is. 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.. Below is our 2019 study, which we have left online for reference. The table below shows average and median salaries since 2018. Having the above questions answered will help. There is a strong positive correlation between the two. 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. Included in the equation that VCs use to make investment decisions is CEO salaries, and experienced startup CEOs realize that. However, it doesnt want you to take a modest salary and extract the leftover amount as dividends as the latter are taxed lower. 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. Startup founders are not entitled to a salary; however, CEOs are. As a startup founder, you must understand that entrepreneurship is not a bed of roses. 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. 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). 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. In 2020, approximately 36% of companies reduced their chief executive compensation during COVID. 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. 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. 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. Just like it is mandatory to pay regular employees, it is mandatory to pay founding employees as well. Startup compensation guide: see thousands of startup salary and equity data points. Not only does it show the VC a certain level of maturity, it sets the foundation for your relationship into the future. Getting someone to join your dream before it is much of anything is an art not a science., Much like a competitive package for an employee, a CEOs compensation and equity stake will require negotiations this time with your investors. However, as the year ended and many technology companies recovered - and as venture funding continued at unprecedented levels - boards and executives felt comfortable increasing executive compensation to pre-crisis levels., Compared to Their Male Counterparts, Female CEOs Took a Pay Cut During the Pandemic. Additionally, you can read a opinion piece by Scott Orn, Kruzes COO, about what salaries early-stage founders should take after theyve raised funding. And in 2021, the average salary popped back - but thats not the full story, as youll see as we dig into the numbers. 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. This is entirely up to the startup or founder. Track the average number of hours you work and then compute your salary. In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. Professionally, you want to be on top of your game when it comes to making the right decisions for your company. 8 If you own .7% of the company at this time, then your shares are worth around $37,000. David Rose agrees. Affordable Monthly Bookkeeping for Startups, Key terms, tips and tricks, free financial models, taxes and more, Kruze is a leader in bookkeeping services for startups, We get your startup ready for the VC process, Projections, budgets and FP&A help for seed venture funded companies, Outsourced CFOs to help manage your growing startup, Industry specific expertise in bookkeeping, tax, FP&A and beyond, Kruze is a leader in startup tax filings, advice and more. Every stakeholder of the startup often needs direct contact with the CEO, and startup CEOs cant delegate everything. Because of this, startup founder salary is a highly debatable topic. When we look exclusively at Seed and Series A Chief Exec salaries, the difference in pay between men and women practically vanishes. This means that the CEO likely deserves a higher salary as they continue to bring in the new revenue and grow their bottom line. 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. 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. We analyzed the pay of over 250 startups - and the average startup CEO pay is $146,000, up 5% from the prior year. The lower the CEO salary, the more likely it is to succeed. A more mature space leading to a higher salary. 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, Stating the obvious, salary needs can vary widely. Also, try our Startup CEO Salary Estimator tool on the right. 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. We would advise founders to adjust their compensation as their company raises increasing amounts of funding. So it does pay to be good at fundraising! 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. Non-co-founder COOs at seed-stage startups earn an average salary of 94,500 ($128,000 USD as of writing). However, successful founders do tend to establish consistent tactics early on and lean on research to find their solution. 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,. 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. How Did the Covid Pandemic Affect CEO Salary? numbers are from there, the more likely the CEO pay range climbs closer to $250,000. said Vanessa Kruze, CEO of Kruze Consulting. Thanks for the article. It discovered the salaries are up 2.7% compared to 2021 well below the national inflation rate. CEOs are always on duty, and startup CEOs are even more in demand than the leaders of mature businesses. 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. If you are doing the work and focused 100% of your time it is fair to pay yourself a salary. You can also fix an hourly wage rate if you want to. Anyway, even when the business starts growing, it wont pay you much in the form of salary. However, the average hides some interesting nuances which may be driven, in part, by changes in the fundraising environment in late 2021/early 2022. Brex vs Ramp - Which card is best for startups? Sequential rounds gave me a small bump in salary. 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. But bringing in non-founders takes actual dollars and requires confronting these tough questions: how much money do we have? The following table represents the salaries of a few of the most notable tech companies CEOs during their IPOs. 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. 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. On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company. We have presented you with CEO salary data the last two years. For example, if a company has gone on to raise their series A that is a testament to the companies growth and should be reflected on the CEOs salary. Richard had just raised his first round of funding. When the company exited after three The following is a guest post by Chris Sheehan. Calculate your budget by accounting for all your sources of income and expenditure. 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. 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). Some families live on that," says VC Sean Owen. Same with fintech at $129,000. To help answer that question, we analyzed CEO pay at over 250 seed and venture-funded startups. This makes it important to account for the duration that you work when calculating your salary. 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. However, startups with more limited funding saw their CEOs make less, by about 7%, than in 2021. WebIn my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. 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. 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. Startup Founder Salary Guide: How Much To Pay Yourself? Estimate your R&D tax credit using our free calculator. This means the earlier you join, the more diluted you'll become. The idealistic view says that startup founders must take risks and should not be rewarded unless their company starts making money. What a great article. Some families live on that," says VC Sean Owen. Make sure that you dont ask for too much or little. It believes in uncertainty being a key factor in entrepreneurship and that constant pay may damage the whole idea. Thats why its critical you have the salary discussion before you sign the term sheet and close on that investment. But early employees will be attracted to your business in part because of the long-term payoff. These factors include: the total funding raised, cash in the bank, industry, and the experience of the founder. Do account for tax. : The average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. 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. 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. On the other hand, you need to keep cash in the bank and appease your investors and board members that youre extending responsible offers. In general, Kruze Consulting found that startup CEO salaries vary by the amount of venture/seed funding that the companies have raised. Has covered the wider aspects. 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. 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. Design by Lucila Romero. This is entirely dependent on the funding and financial instruments a company decides to use. The salary amount, frequency, and the way you withdraw that money affect your tax amount. It is 50-hours workweeks, endless sacrifices, and years of little or no income from a business that demands numerous resources. In my experience in New York, for seed round startups, founder salaries tend to be in the range of $75,000 $125,000, with the occasional outlier in both directions. This will help you avoid future hassles. Photo: Supplied. According to our founder and CEO of Kruze Consulting, Vanessa Kruze, this years data indicates that startup CEOs are making around 10% more than last year, which is to be expected since funding rounds increased in size year over year.. A portion of that money goes to the government. Not paying yourself enough can turn you into a bad decision-maker. Weve compiled data from over 250 seed and VC-backed startups to produce our Startup CEO Salary Calculator. See our full report for CEO pay bands. Your request has been submitted.We will contact you shortly. So, a high founder salary sets a high baseline for others as well. The term sheet Similarly, your current sources of income and expenditures define your salary, especially in the initial days when you have just raised funds. If the investment is up to $2.5 million, the CEOs salary should be $125,000. As you can see below, the average salary of a seed-stage startup CEO varies depending on the industry. Startups in the study represent several industries, including Biotech, eCommerce, EdTech, FinTech, HealthTech, Hardware, SaaS and more. Next, its time to determine what your business is worth so the value of equity can be established. 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. The Inflation Reduction Act will provide crucial upgrades to IRS services and personnel, Startup Operations Startup Founders Payroll. Firstly, and most obviously, companies with more funding are better able to pay their CEOs. One trend remained the same as last year: the more you raise, the more you get paid. "If you're going to disrupt the status quo and beat the competition, you're not going to do it by playing their game.". See if you are eligible for a salary or not. You need to assess the current state of your venture properly before determining your salary. Therefore, you need to set a lower salary baseline. 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. The analysis comes from an anonymized dataset comprising more than 250 venture-funded startups and representing more than $2.5 billion in funding. 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. Startup accounting firm Kruze Consulting just updated its annual CEO salary reportand has some interesting insights to go with it. David Rose agrees. While there is no correct answer to the question, here is my main take-away: it's so critical to be capital-conscious at the seed stage. Our data shows that the average annual salary for a CEO of a seed or venture backed company is $130,000. Are you still an early-stage venture, or have you matured? The term sheet was pretty much a done deal, when the startups CEO demanded a salary of $25,000. Weve found that there are a variety of factors that can influence the salary of a startup CEO. 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. As a company matures and grows, so does the salary of the CEO. One of the most important conversations to have with a venture capitalist, before you sign a term sheet, is the salary discussion. Wow your investors with data-driven updates that drive interaction. Have you reached the break-even point? Non-working founders do deserve equity and dividends, but it does not entitle them to a fixed remuneration each month or week. As financial and accounting consultants to hundreds of funded startups, we are regularly asked by our clients to help them benchmark their companies metrics. Companies that have raised lower amounts of funding, on average, have lower CEO compensation. 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. 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). WebSequential rounds gave me a small bump in salary. 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. Firstly, and most obviously, companies with more funding are better able to pay their CEOs. Not only does a fair market salary reduce your financial stress, it gives you a safety hatch. In other words, although founders do not deserve salaries, whoever is on your startups payroll should be paid. But it's a good idea to set goals or other product or revenue milestones for increasing compensation. Someone that has funded their own company and taken no outside financing might own 100% of the company. That comes in the form of common stock. Visit our Uber vs. Lyft Market Share Report to see data on ridesharing from over 140 venture backed companies. 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. It may seem that there is no relation between the revenue generated by ones business and their remuneration but thats not the case. 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. As companies mature, its typical that a compensation committee is formed by non-management board members. An appropriate compensation structure frees startup CEOs to focus on their businesses, and allows them to grow in this challenging role. We spend a lot of time researching and writing our articles and strive to provide accurate, up-to-date content. 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. "In my experience, that fact pattern (a pair of founders, $500K seed round) would typically see And if you are interested in how COVID impacted compensation in 2020, skip to How Did the Covid Pandemic Affect CEO Salary? 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. Therefore, the assessment of your companys present state is somewhat important when determining your salary. Wait, you may be saying, thats still a $5,000 difference. Yes, but theres a solid explanation. Of their company raises increasing amounts of funding, on average, have CEO! Month or week ask for too much or little new equity is issued, a founder has... 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Time researching and writing our articles and strive to provide accurate, up-to-date content would have figured out now...
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