Product or company names, logos, and trademarks referred to on this site belong to their respective owners. Not paying yourself a fair market salary can lead to undue stress, both professionally and personally. David Rose agrees. The idealistic view says that startup founders must take risks and should not be rewarded unless their company starts making money. 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. As financial and accounting consultants to hundreds of funded startups, we are regularly asked by our clients to help them benchmark their companies metrics. Startup founders need to decide how much salary is enough. by using the valuation of your last financing round or the most recent offer you received to purchase your business. Kruze Consulting expanded its salary research in 2022 to include the average salaries paid to Chief Technology Officers (CTOs). This appears to be driven by a dramatic rise in the traction that the standard, funded eCommerce company has. Sequential rounds gave me a small bump in salary. 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. As most CEOs and founders know, launching a startup means working long hours, dedicating time and thought to the business success. How Much Should A Startup Founder/CEO Pay Herself? What are you waiting for? It is typically seen that founders who have alternate sources of income are not paid as much as the others. Market value for equity is dynamic though and the necessary points to attract an individual employee can vary. The salary amount, frequency, and the way you withdraw that money affect your tax amount. Have you reached the break-even point? 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. 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. In 2019, it was $131,000 and in 2020, salaries ranged around $130,000. The distinction between the two may impact early employee decisions on how they personally value their stock. Markets that are receiving more funding and exiting at higher clips generally warrant a higher salary. So it does pay to be good at fundraising! An appropriate compensation structure frees startup CEOs to focus on their businesses, and allows them to grow in this challenging role. A Guide to Tax Returns for Seed Stage Startups. Answer (1 of 3): I want to pay half market rate, the CEO, Richard, said to me. Tell us what you think about our article on startup founder salary in the comments section. The greater the. So, ask only for the amount that you need. We are currently ranked as the 13th best startup website in the world and are paving our way to the top. Companies that raised between $2 million and $5 million saw almost an 8% increase in Chief Executive Officer salaries. 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. Another study by Kruze Consulting found that the average startup CEO salary was $146,000. 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. 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. Also, see if you can cut down on unnecessary expenditures. Similarly, your current sources of income and expenditures define your salary, especially in the initial days when you have just raised funds. 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. 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. Case Study. 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. 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. Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. We have created one of the most complete databases in the startup world. 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. So, if you had any doubts about taking a salary, shed them now and start thinking about how much you want to pay yourself. Your salary also depends on the amount you have raised. 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 is a guest post by Chris Sheehan. Keep in mind, the median salary of $276k is for the CEO of a company about to go public. How does a cash package for X employees change this? 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. Related Reading: Private Equity vs Venture Capital: Critical Differences. I asked Richard why? Owners of mature companies can pay themselves more than growth-stage startup founders even when both generate good revenue. Having the above questions answered will help. While there are quite a few factors that go into determining your salary we find the following to be most important. ), and the companys industry. 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. Your employees have options for where they work. Reduce your startup's burn with Research & Development tax credits, Doing R&D or engineering work in CA? Seed Stage CEO Salary by Industry (in thousands). $276k Is the Median Startup CEO Salary for a Very Successful Company. Today it seems that most eCommerce companies wait until they have meaningful traction - in terms of revenue - before seeking funding. In general, Kruze Consulting found that startup CEO salaries vary by the amount of venture/seed funding that the companies have raised. 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,. We feel there are three primary drivers for this behavior, said Healy Jones, VP of Financial Planning & Analysis for Kruze. This means the earlier you join, the more diluted you'll become. Capital gains is what you should strive for and this will happen only if you invest enough time and resources in the company. Keep in mind that these rewards are essential to incentivise you and keep you focused. Now that you know how important it is to draw a salary, you have to figure out the amount as well. What Salaries Did Startup CEOs Earn in 2022. 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.. How to Rebalance Ownership Between Founders, Kruze is a leader in accounting services for startups. 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 term sheet However, this proportion increases for round sizes between 150k and 1m, with three quarters successfully negotiating a salary. But youre hiring unusual people to take this ride with you and understanding the package that will satisfy their ambition will also likely require rounds of negotiations and probing questions from you about their true motivations. Thats why its critical you have the salary discussion before you sign the term sheet and close on that investment. 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. The analysis comes from an anonymized dataset comprising more than 250 venture-funded startups and representing more than $2.5 billion in funding. 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 biggest growth in the size of funding raised seed rounds, and therefore the biggest driver of salary growth, came from hardware and SaaS companies. They might lose faith in you and your company. 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. However, the average hides some interesting nuances which may be driven, in part, by changes in the fundraising environment in late 2021/early 2022. 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. 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). 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. You may hire an accountant for assistance. Other founding roles, such as the chief operating officer (COO) and chief technical officer (CTO), may also receive a startup salary. This came to me at the time I needed it most. Law enforces it in a few countries. Even giants like Google and Amazon took years before becoming profitable and even then, their founding workers take salaries. Money can be the root of problems in many relationships. WebIn my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. So, your salary as a founder depends on the state of your startups cash flows and not on its profitability. $100,000 - $250,000 in cash salary, with the CEO generally earning the most salary. However, our research is meant to aid your own, and we are not acting as licensed professionals. The best way is to tie your remuneration to achievable growth milestones and work accordingly. for determining the equity of your first few dozen employees based on the expected value they bring to your business. Kruze Consulting was founded in 2012 by Vanessa Kruze, a big four alum, startup controller and CPA. The greater the fundraising numbers are from there, the more likely the CEO pay range climbs closer to $250,000. 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. A more mature space leading to a higher salary. But bringing in non-founders takes actual dollars and requires confronting these tough questions: how much money do we have? In 2020, approximately 36% of companies reduced their chief executive compensation during COVID. It discovered the salaries are up 2.7% compared to 2021 well below the 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. 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. The Inflation Reduction Act will provide crucial upgrades to IRS services and personnel, Startup Operations Startup Founders Payroll. Startups in the study represent several industries, including Biotech, eCommerce, EdTech, FinTech, HealthTech, Hardware, SaaS and more. The VCs set my salary without discussing or consulting with me (I know, weird, For co-founder COOs, these figures were roughly 71,000 ($96,000 USD) for seed-stage companies, and 125,000 ($169,000 USD) for Series B companies. One of the most common questions we get from founders is what their salary should be after they raise funding. Because of this, startup founder salary is a highly debatable topic. You need to be on the businesss payroll for that. In 2019, before COVID, startup CEO salaries averaged $142,000. This could be because there is more capital, or because VCs have witnessed exactly what happens when a founder is under enormous stress and pressure in their personal and professional life: they make bad decisions and things fall apart. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. Please quote the information above when referring to 2020 - 2021 data. 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? Very few entrepreneurs have the courage to be that transparent. Profit-generating startups are a rare sight. 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. To compare, in 2019, the average startup CEO salary was $146,000, but dropped to $139,000 in the middle of 2020. 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. 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. Try Visible free for 14 days. 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. Visit kruzeconsulting.comto learn more. However, there are also various other factors into play. For rounds of 150k or below, around half of founders secure a salary. Decide how much of their total compensation you would like to pay in cash (AKA their salary). Several years ago, many eComm companies were just getting started when they were seed funded. If you can raise a Series A round with your company at a Seed, Series A, Series B, etc. Suppose you have just raised capital and are using it for the development of business. 8 If you own .7% of the company at this time, then your shares are worth around $37,000. The 2018 Startup CEO Salary Report was created by Healy Jones, Senior Consultant Alex Janeck and Staff Accountant Litzy Yang. Interested in other data on startup spending? WebSequential rounds gave me a small bump in salary. 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. 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. Even Amazons founder, Jeff Bezos earned around $81,840 as a salary in 2020. See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. Seed, Series A, Series B, etc.) That average represents a 7.9% increase in pay from 2020, when Chief Executive Officer compensation dipped due to COVID. We looked at our payroll data for over 125 seed and venture-backed startups to come up with the answer. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. Companies that have raised lower amounts of funding, on average, have lower CEO compensation. The process is usually difficult for first-time founders, especially because of the complexity of the deciding factors. Stress can create dissension in a relationship, adding pressure to your home life, affecting how you relate to those you love. 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. So, if your only contribution is money and/or some assistance during the ideation phase, you dont get a salary. SaaS was the top performing industry by CEO salary in 2020. As a founder and/or CEO, you also want to pay yourself enough to get by and prevent money from being an unnecessary distraction. 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. One of the best ways to set a reasonable remuneration amount for yourself is to go by industry standards. When a seed round raises $5 million instead of $500,000, the temptation to excessively hire and spend increases significantly. We have presented you with CEO salary data the last two years. Some observations: So what is the range of CEO salaries in the seed stage? 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.. 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. Our philosophy is to research, curate, and provide the best startup feeds and resources to help you succeed in your venture. 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startup ceo salary seed round