Startup CEO Pay on the Rise

A sluggish economy usually means stagnant pay. But for CEOs of venture-funded startups, the dismal exit climate appears to be having the opposite effect.

Today, VC-backed CEOs earn more than they did 10 years ago, according to a study by the National Venture Capital Association and executive search firm Spencer Stuart.

In a survey of venture investors, researchers found that 47% of respondents said that they are paying CEOs comparably greater cash compensation and granting more equity.

The survey followed up on a previous one carried out in 2001, with findings showing that a mix of static and changing attitudes among VCs toward management teams of startups they fund.

In both the 2001 and 2010 studies, venture capitalists said they considered the strength of the management team as the most important factor in deciding whether to fund a company, followed by market sector.

As for CEO compensation, VCs told surveyors higher pay is in part due to the longer-term nature of the role today (i.e. no more three years from inception-to-IPO) and because today’s CEO roles require executives with a broader skill set.

Or, as Deepak Kamra of Canaan Partners told surveyors: “There are many more experienced people around today, but it was in some ways easier to attract a good CEO in the past because of the kinds of exits people were getting and the speed withwhich they were getting them.”

“Now, we look for patience and the ability to stick it out — you just don’t see the guys who want to score an exit in two years and then return to their winery anymore,” Kamra says.

In addition, venture capitalists note that employment contracts including negotiated severance packages have also become more common for CEOs and other senior managers than they were a decade ago.