There’s an interesting phenomemon occurring in founder compensation for post-Series A companies: founding CEOs are swapping cash for larger equity stakes in their companies. Founding CEO salaries, post Series A, have fallen by about 24% while founder equity has increased by 32%.
This trend is broad. Each year, Redpoint portfolio companies participate in a compensation survey along with the portfolio companies of about 50 other firms, totaling about 800 startups. A third party pools the data to benchmark compensation trends across the executive functions in startups (CEO, VP of Product, VP of Marketing, VP of Sales, and so on) across the different financing series, locations, development stages and founders vs non-founders.
While I can’t be certain why the trend towards equity is occurring, I suspect that many startups are founded by younger entrepreneurs who don’t demand larger salaries and prefer equity. In any case, this patterns startups in two ways:
First, smaller salaries for CEOs reduces burn and lengthens the time startups can iterate their way to success. In addition to reducing the CEO’s contribution to the burn rate, the CEO’s salary is often the benchmark for compensation packages of most employees, so lower CEO salaries cascade through the company.
Second, founders own more of their businesses at the same stage which means less ultimate dilution should the business raise more capital. This is likely a product of higher valuations at earlier stages.
In aggregate, these figures point to a friendly enterpreneurial environment, one in which founders can command higher premiums for their businesses, trade salary for equity and bet big on their own success.