VC-backed CEOs earn more today than they did 10 years ago, according to a study released last week by the
In a survey of venture investors, the report found that 47% said that they are paying their portfolio company CEOs comparably greater cash compensation and granting more equity.
The survey followed up on a previous study 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 and because today’s CEO roles require executives with a broader skill set.
“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 with which they were getting them,” Deepak Kamra, general partner of
He added, “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.”
Canaan General Partner Stephen Bloch estimates that salaries have crept up about 5% a year for the last five or seven years.
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.
Pay-for-performance incentives are also popular, VCs say.
“Having a CEO who says, ‘I’m going to get this done in this time frame on $10 million,’ and having their compensation linked to that [goal] aligns interests and makes all the difference,” Anand Mehra, a partner at
Other survey questions addressed the type of experience venture investors prefer to see for startup CEOs.
When seeking talent for emerging sectors, such as cleantech, with a limited CEO pool, 2010 survey respondents said they favored proven venture-backed CEOs from unrelated sectors (58%) over sector entrepreneurs with no CEO experience (31%) or industry leaders from large companies who lack experience in an entrepreneurial environment (11%).
The study also revealed that these longer timeframes to liquidity are spurring VCs to develop boards of directors that more closely resemble those of public companies, with more independent directors brought on for expertise that strategically complements the rest of the board.
However, putting together a strong board has gotten costlier. In particular, surveyors found, directors of VC-backed company boards are showing less willingness to work for only equity compensation.
“One thing I’ve seen is that more and more board directors in private companies want to be compensated in cash, because it’s time-consuming and the liquidity paths have been lengthy,” Bloch says. —Joanna Glasner