2020
Working Paper
HBS Working Paper Series

The Evolution of CEO Compensation in Venture Capital Backed Startups

By: Michael Ewens, Ramana Nanda and Christopher Stanton

Format:Print
| Language:English
| Pages:66

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

Citation

Ewens, Michael, Ramana Nanda, and Christopher Stanton. "The Evolution of CEO Compensation in Venture Capital Backed Startups." Harvard Business School Working Paper, No. 20-119, May 2020. (Revise and Resubmit at Journal of Finance.)