The Evolution of CEO Compensation in Venture Capital Backed Startups
66 Pages Posted: 22 May 2020 Last revised: 18 Aug 2020
Date Written: July 31, 2020
We document new facts on the evolution of founder-CEO compensation in venture capital-backed startups. Having a tangible product (“product market fit”) is a fundamental milestone in CEOs’ compensation, marking the point where liquid cash compensation increases significantly – well before an IPO or acquisition. “Product market fit” also coincides with key human capital in the startup becoming more replaceable. Although increases in cash compensation over the firm lifecycle improves the attractiveness of entrepreneurship relative to a contract with flat pay, we find that low cash compensation in the early years can still deter entrepreneurial entry.
Keywords: Entrepreneurship, venture capital, executive compensation
JEL Classification: G24, G32, J33
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