Early-stage startups often have a tight budget, especially before they’ve raised significant venture capital. Of course, your employees deserve a fair wage for their knowledge and hard work. However, you also don’t want to run out of money before you become a venture-backed company.
One figure, in particular, is crucial to know: the average startup CEO salary. Because CEOs are usually the highest-paid employee, drawing a salary that’s too large can drain your financial resources. On the other hand, startup founders and CEOs deserve adequate compensation, like any other member of the business.
Knowing the average startup CEO salary is crucial to determine proper compensation for your employees. Below, we’ll investigate some of the factors that go into the average annual salary of a startup CEO.
How much does a CEO of a startup make?
Startup executive compensation can be difficult to assess fairly, especially when CEOs are in charge of setting their own salary. You need to strike the right balance during life as a startup founder—not living in the lap of luxury, but also not eating ramen every night.
Some in the startup community believe that CEOs should draw a modest salary, at least for companies in the earlier stages. Entrepreneur and venture capitalist Peter Thiel, for example, believes that the best predictor of startup success is a low CEO salary:
“The lower the CEO salary, the more likely [a startup] is to succeed. The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money.”
Thiel also estimated that the average annual CEO salary for companies in the seed stage was between $100,000 and $125,000.
This opinion is backed up by data from career websites. According to ZipRecruiter, for example, the average salary for the position of “startup CEO” is just over $110,000 per year. Salaries ranged from the 25th percentile of $43,000 to the 75th percentile of $156,000, with the 90th percentile at $274,500.
Another study by Kruze Consulting found that the average startup CEO salary was $146,000. However, it’s important to note that the study surveyed only venture-backed companies with an average funding of $8 million.
Below are some of the factors that may influence a startup CEO’s salary:
- Company stage: CEOs at an early-stage startup may have a lower salary than those at a late-stage company. This is especially likely if the early-stage startup is a part-time passion project.
- Funding and cash flow: How does funding impact the salary of startup CEOs? Companies that have raised more money, or that have already started to turn a profit, can afford to pay their CEO more.
- Location: As a general rule, salaries are higher in places with a high cost of living, such as Silicon Valley, New York City, or London. (These areas also tend to be where many tech companies are clustered.) However, the growing trend toward remote work may alter this equation. Startup CEOs who telecommute from a cheaper location may be willing to draw a lower salary.
- Industry: Startup CEO salaries may also depend on the company’s industry, which influences how much funding you can raise. For example, tech founders working in sectors such as AI or biotech are usually better-paid than startup founders in industries such as agriculture or education.
- Company culture: Some startup CEOs may draw a low salary to set an example for the company and establish a culture of lean efficiency. By paying less in salary and more in equity, CEOs can also incentivize themselves and their employees to ensure a successful exit.
What is typical CEO equity in a startup?
Of course, salary is just one part of a startup CEO’s total compensation package. Equity, too, is an important consideration for how much startup CEOs are paid. So how much startup equity do CEOs typically receive?
When determining CEO equity, one important factor is founding status. Is the CEO also a founding member of the startup, or has this person been hired after the company gets off the ground?
Startup financial advisor David Ehrenberg suggests that 5 to 10 percent is a fair equity stake for CEOs who join the company later. Research by SaaStr backs up this suggestion. The average founder/CEO holds roughly 14 percent equity at the company’s IPO, while an outside CEO holds an average of 6 to 8 percent.
This discrepancy is because startup founders begin by holding most or all of the equity in their company. However, these initial holdings become diluted over time as more employees join the startup and as the company raises venture capital. Founders who serve as CEO thus hold more of a stake than CEOs who were not part of the founding team.
CEO equity and salary are typically inversely proportional to each other. Startup CEOs who draw a larger salary may choose a smaller equity stake to compensate, and vice versa. Additional equity stakes may also be part of the CEO’s compensation—for example, an extra 1 percent in equity for each year as CEO.
Still, there’s no “one size fits all” answer here, and most startups are open to negotiating both salary and equity. CEOs who are considering joining a startup should know how to evaluate a stock option grant and other parts of their compensation package.