The Evolution of CEO Compensation in Venture Capital Backed Startups

66 Pages Posted: 22 May 2020 Last revised: 18 Aug 2020

See all articles by Michael Ewens

Michael Ewens

Columbia Business School; National Bureau of Economic Research (NBER)

Ramana Nanda

Imperial College Business School; Harvard University - Entrepreneurial Management Unit

Christopher Stanton

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 31, 2020

Abstract

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

Suggested Citation

Ewens, Michael and Nanda, Ramana and Stanton, Christopher, The Evolution of CEO Compensation in Venture Capital Backed Startups (July 31, 2020). Harvard Business School Entrepreneurial Management Working Paper No. 20-119, Available at SSRN: https://ssrn.com/abstract=3607524 or http://dx.doi.org/10.2139/ssrn.3607524

Michael Ewens

Columbia Business School ( email )

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HOME PAGE: http://michaelewens.com

National Bureau of Economic Research (NBER) ( email )

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Ramana Nanda (Contact Author)

Imperial College Business School ( email )

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Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

Christopher Stanton

Harvard University - Business School (HBS) ( email )

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Morgan 270C
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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