), and their companys industry. To understand what happens when new equity is issued, a simple example helps. Wait, you may be saying, thats still a $5,000 difference. Yes, but theres a solid explanation. Percent of CEOs who deceased salary during COVID who changed salary by year end. Visit kruzeconsulting.comto learn more. 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. 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. They earn through their investments and other personal revenue-generating activities. What salaries did startup CTOs earn in 2022? David Rose agrees. How Much Should You Pay Yourself As A Startup Founder? One of the most common questions CEOs ask us at Kruze Consulting is: How much should my salary be? Since the Kruze team helps run startups books and payroll, its natural that wed get this question. Anyway, even when the business starts growing, it wont pay you much in the form of salary. Startups in the study represent several industries, including Biotech, eCommerce, EdTech, FinTech, HealthTech, Hardware, SaaS and more. In 2018, CEOs of hardware startups averaged a $118,000 salary and SaaS CEOs came in at $113,000. 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. Go through the table and assess the relation between a founding executive team members salary and their companys cash flows. As a startup founder, you must understand that entrepreneurship is not a bed of roses. David Rose agrees. 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. When we look exclusively at Seed and Series A Chief Exec salaries, the difference in pay between men and women practically vanishes. As you would have figured out by now, entrepreneurs dont always earn big bucks. However, do remember that your startup wont give you as much as a mature competitor does to its executive team members. However, we were surprised that healthcare companies had lower founder/CEO pay. Some observations: So what is the range of CEO salaries in the seed stage? Founders of bootstrapped startups dont need to pay themselves. My team and I handle payroll, taxes and the accounting for seed and venture-funded startups, and we analyzed CEO pay at over 125 startups; most of them in Silicon Valley. Every month of cash burn is valuable. According to a Morningstar analysis of C-suite pay, from 2015 to 2019 the gender pay gap for CEOs had been narrowing. 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. Interestingly, this proportion remains consistent above the 150k inflection point, whether the round size is 200k or approaching 1m. Finally, startup culture can generate pressure to not take salaries. 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.. 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. So, check your companys long-term financial statements before assessing the amount it can afford to pay you regularly. As a company matures and grows, so does the salary of the CEO. 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. I would like more of this start up articles as I just subscribed to your platform. In the Kruze Consulting report on 2021 CEO salaries, the team surveyed over 250 startup leaders and found salaries have slightly increased. Build relationships, manage a fundraise and build your business. 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 your company grows, and the chances of success and stability increases, then founders can increase their salary compensation over that period. The table below shows average and median salaries since 2018. 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. In practice we have found that if you only ask one question, ask that. You need to be on the businesss payroll for that. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks. 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. by using the valuation of your last financing round or the most recent offer you received to purchase your business. 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. Seed, Series A, Series B, etc.) Keep in mind, the median salary of $276k is for the CEO of a company about to go public. That comes in the form of common stock. The firm reports its figures based on an anonymized dataset comprising more than 250 startups. As companies mature, its typical that a compensation committee is formed by non-management board members. In my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. We analyzed the pay of over 250 startups - and the average startup CEO pay is $146,000, up 5% from the prior year. Seed, Series A, Series B, etc. US Based Companies that have raised under $100M. Thanks for the article. Typically there would be KPIs and targets built in to unlock further compensation in various time periods. Previously Brad Feld has argued 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%. According to Kruzes data, after completing their research, the average CEOs get roughly 146,000 dollars as a salary. Visit our Uber vs. Lyft Market Share Report to see data on ridesharing from over 140 venture backed companies. WebIn my first start-up, we raised $9m in our seed round -- a large seed round, but the times were different. The other major surprise we noticed was that eCommerce companies are paying their CEOs much more than they had in the past $141,000 for 2022. 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. Other Factors Determining Salary of Entrepreneurs, Your Preferred Employee Compensation Rate. What a great article. Same with fintech at $129,000. David Rose agrees. That comes in the form of common stock. Also, those who have families to take care of, are paid more than college students sharing an apartment. The greater the fundraising numbers are from there, the more likely the CEO pay range climbs closer to $250,000. 3) Excessive hiring and spending. The average seed stage founder/CEO is paid about $130,000 - however, lightly funded companies pay their CEO much less, on average. So what is the range of CEO salaries in the seed stage? 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. How does CEO pay vary by the amount of venture capital raised? The 2018 Startup CEO Salary Report was created by Healy Jones, Senior Consultant Alex Janeck and Staff Accountant Litzy Yang. Also, try our Startup CEO Salary Estimator tool on the right. Female startup CEOs continue to lag behind their male counterparts in salary in 2022. You can follow him on Twitter at @c_sheehan and his blog Early Stage Adventures. The reality is most venture-backed startup CEOs typically make somewhere between $75,000-250,000. We had hoped that this expanded difference would shrink in our 2022 data, but unfortunately it did not. VCs, of course, wanted to stretch every dollar they could. On the flipside, a founder that has raised multiple rounds of venture capital might only own a small % of their company. We hope this report simplifies your startup CEO pay decision! That average represents a 7.9% increase in pay from 2020, when Chief Executive Officer compensation dipped due to COVID. 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. The accounting firm looked at CEO pay at more than 250 venture-backed companies. Salaries ranged from the 25th percentile of $43,000 to the 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,. 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. 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. Yes! Startup compensation guide: see thousands of startup salary and equity data points. 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. Expect us to publish future studies on other startup executive pay. Case Study. This chart breaks down seed funded CEO salary by industry: David Rose agrees. 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. The businesses that are funded between $1M to $2.5M pay their founders above $125K. 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. So it does pay to be good at fundraising! 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. Seed Stage CEO Salary by Industry (in thousands). They might lose faith in you and your company. 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. We have created one of the most complete databases in the startup world. Were not talking about anything extravagant, but enough to live a life outside of the business. Many of those options will offer greater short-term rewards, while you are likely to offer below market value in cash compensation. 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. You may hire an accountant for assistance. 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 potential bonus money of $0 - $100,000 and equity (ranging from less than 1% - 20%). This means the earlier you join, the more diluted you'll become. Compute the amount you need each month, week or probably every two weeks to get by and that will be your salary. For 2022, the average startup CEO salary increased by 2.7% from 2021 levels to $150,000, while the median increased to $140,000. Startups in the study represent several industries, including Biotech, eCommerce, EdTech, FinTech, HealthTech, Hardware, SaaS and more. "In my experience, that fact pattern (a pair of founders, $500K seed round) would typically see In 2020, we saw salaries decline at the height of the covid pandemic. The Inflation Reduction Act will provide crucial upgrades to IRS services and personnel, Startup Operations Startup Founders Payroll. CEO salaries in the Biotech and Healthcare industries tend to average more than those in other industries. Male CEOs saw a $5,000 salary increase. Last year, we analyzed data from 125 startups to find that the average 2018 salary for a startup CEO was $130,000. Law enforces it in a few countries. 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. Wow! How Much Should A Startup Founder/CEO Pay Herself? 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. Series A CEO Pay Again our See our CEO pay calculator to more accurately estimate the pay of a seed stage CEO/founder. Has covered the wider aspects. This calculator will show you an estimated range of compensation for a startup CEO based on the amount of funding that the company has raised, the stage of the company (i.e. 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. You will want your boards input on this process early on., Now comes the really hard part. Your employees have options for where they work. As already mentioned, founders are paid only when they work as employees, not because they started the company. Photo: Supplied. This is an especially important question to answer when youre trying to hire your first employees. It discovered the salaries are up 2.7% compared to 2021 well below the national inflation rate. Some families live on that," says VC Sean Owen. This is entirely dependent on the funding and financial instruments a company decides to use. What Salaries Did Startup CEOs Earn in 2022. We feel there are three primary drivers for this behavior, said Healy Jones, VP of Financial Planning & Analysis for Kruze. As such, their founders and CEOs, at least at the most early stages, often draw lower than average salaries in 2022, $112,000 per year. Oftentimes a startup cant offer the salary an established Fortune 500 company may be able to offer but they can offer equity and intangibles that an employee cant find elsewhere. Additionally, you can read a opinion piece by Scott Orn, Kruzes COO, about what salaries early-stage founders should take after theyve raised funding. 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. Richard said, I want them (the employees) to share in my risk. Richards feelings are not unique. When you build something of value and valuations are going up, you wont mind doing a small secondary. While not a direct driver of cash salary, the amount of equity owned can have a psychological impact on salary expectations. Remember that a startup takes years to become profitable; you cannot starve till then. Look at your competitors and determine what they are paying an employee in a similar role. How to Calculate Your Startup Founder Salary? Therefore, paying founders doesnt seem sensible. Salaries at the upper end of the range ($150k) are correlated with larger seed rounds of around $1.5 million. Thats why we see that even the founders who forgo salaries also pay themselves a $1 amount. But bringing in non-founders takes actual dollars and requires confronting these tough questions: how much money do we have? Meanwhile, those of SaaS companies made on average $113,000 in 2018, which rose 7% to $121,000 in 2019. When not working, she can be found reading, writing and engaging in long walks. Understand that being a founder doesnt entitle you to a higher salary than everyone; growing your business by being a better employee does. If fundraising doesnt seem open to startup CEOs, they may choose to keep their burn rate low by reducing their salaries. There is a strong positive correlation between the two. Track the average number of hours you work and then compute your salary. This is a crucial incentive; so, outline realistic checkpoints and track them. EdTech and Hardware startups saw the biggest declines in CEO salary and eCommerce startup CEO salaries went up the most in 2020. However, during the COVID pandemic in 2020 the pay gap expanded again throughout corporate America, and our research on startup companies also reflects that trend. As we found last year, the highest-paid CEOs fell predominantly into the healthcare and biotech categories. Related Resource: How to Fairly Split Startup Equity with Founders, In their helpful guide on employee equity, 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. 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. 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. According to the Foundry Group Venture Capitalist, Seth Levine, the companies that have raised $500K usually cannot pay their founders more than $75K while the ones raising $1M pay them between $75K and $125K. Hardware companies tend to require larger than average amounts of venture capital funding to get to a meaningful size. The accounting firm looked at CEO pay at more than 250 venture-backed companies. Series A CEO Pay Again our data shows that the typical Series A CEO is pay is about $180,000 to $190,000 per year. Below is our 2018 study, which we have left online for reference. There has always been an underlying (unsaid) belief that startup CEOs and founders should have to make personal sacrifices and pour their blood, sweat and tears into their business. Many slashed their compensation to zero. 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. Wrong! So, if a founder or cofounder works as their startups CEO, COO, CTO, CMO, or in any other role, they deserve remuneration for their services. 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. 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. Resources and best practices to help investors manage and communicate with their portfolio companies. 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. For a startup founder, you wont mind doing a small % of their company statements before assessing the it. Week or probably every two weeks startup ceo salary seed round get by and that will be your.. 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