The Evolution of CEO Compensation in Venture Capital Backed Startups

65 Pages Posted: 9 Jun 2020 Last revised: 18 Nov 2021

See all articles by Michael Ewens

Michael Ewens

California Institute of Technology - Division of the Humanities and Social Sciences; 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: June 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 at pay, we find that low cash compensation in the early years can still deter entrepreneurial entry.

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Suggested Citation

Ewens, Michael and Nanda, Ramana and Stanton, Christopher, The Evolution of CEO Compensation in Venture Capital Backed Startups (June 2020). NBER Working Paper No. w27296, Available at SSRN: https://ssrn.com/abstract=3621801 or http://dx.doi.org/10.2139/ssrn.3621801

Michael Ewens (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

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National Bureau of Economic Research (NBER) ( email )

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Ramana Nanda

Imperial College Business School ( email )

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Harvard University - Entrepreneurial Management Unit ( email )

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

Christopher Stanton

Harvard University - Business School (HBS) ( email )

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United States

National Bureau of Economic Research (NBER) ( email )

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