The Right Level of CEO Ownership & Salary at Exit

At DAN Fund, we’ve become enamored with CEO’s that take low salaries.  They tend to be far more frugal, they have a real urgency to grow the business and exit, they get to cash break even quicker, and they require less cash to grow which means less dilution for all.  In short, we’ve found that CEO’s with lower salaries tend to outperform those with higher salaries.  Of course, there are exceptions even in our portfolio, but the above tends to hold true and we are no longer investing in companies where CEO’s take salaries beyond what’s necessary to reasonably support themselves.   

 

In our own portfolio, we have 9 companies at which the CEO’s make anywhere from $35k to $300k and own 6% to 22% of their business.  We may add a 10th fast growing company in NYC at which the co-founders take a salary of only $75k each and have not required a lot of investor capital.  As a result, they own 29% of the business each. 

 

In order to better understand where salaries should be, we decided to take a look at the salary data of the CEO’s of 52 well recognized publicly traded tech companies that could be considered startups in the past 15 years. We wanted to answer two questions: i) upon exit/IPO, what’s an appropriate salary; and ii) what is the common level of ownership.  The results and observations are below. 

 

    Year of Owner- Salary Bonus Options Total
Company CEO S1 ship Comp Comp Comp Comp
2U Christopher Paucek  2013 2.50% $300,000 $450,000 $4,086,606 $4,836,606
Acacia Murugesan Shanmugaraj 2016 3.70% $246,750 $122,045 $13,363 $382,158
Appfolio Brian Donahoo 2014 36.50% $250,000 $1,763,000 $369,000 $2,382,000
Athenahealth, Inc. Jonathan Bush 2007 5.30% $298,077 $0 $81,921 $379,998
Atlassian Scott Farquhar 2015 37.20% $264,862 $23,041 $0 $287,903
BazaarVoice Brett Hurt 2011 14.30% $250,000 $141,092 $0 $391,092
Benefitfocus, Inc. Shawn Jenkins 2013 13.36% $510,513 $0 $370,420 $880,933
Box Inc Aaron Levie 2014 4.10% $150,833 $38,750 $87 $189,670
BroadSoft, Inc.  Michael Tessler 2010 3.70% $276,058 $191,120 $493,176 $960,354
Castlight Health Giovanni Colella 2014 8.10% $200,000 $0 $41,661 $241,662
Cornerstone Adam Miller 2011 18.00% $310,000 $0 $3,664,591 $3,974,591
Cvent, Inc.  Rajeev Aggarwal 2013 16.00% $365,796 $97,020 $803 $463,619
Demandware Thomas Ebling 2012 4.10% $275,000 $0 $211,680 $486,680
Fitbit James Park 2014 10.90% $221,179 $80,000 $7,543,446 $7,844,625
Five9, Inc.  Michael Burkland 2014 6.00% $366,212 $49,462 $1,932,377 $2,348,051
GoPro Nicholas Woodman 2014 42.50% $800,000 $1,003,200 $49,591 $1,852,791
HortonWorks Robert Bearden 2013 6.80% $166,667 $166,667 $727,292 $1,060,626
Hubspot Brian Halligan 2013 4.90% $238,183 $1,212 $132,376 $371,771
Instructure Joshua Coates 2015 12.40% $1 $0 $0 $1
Intralinks J. Andrew Damico 2010 2.60% $325,000 $227,000 $11,921 $563,921
Jive Software, Inc. Anthony Zingale 2011 7.56% $255,769 $0 $2,761,632 $3,017,401
Lifelock Todd Davis 2012 3.70% $408,462 $0 $239,277 $647,739
LinkedIn Jeffrey Weiner 2010 4.10% $250,000 $1,242 $211,055 $462,297
LivePerson Inc. Robert Loscascio 2000 27.30% $108,000 $50,000 $0 $158,000
LogMeIN, Inc. Michael Simon 2009 7.95% $265,000 $299,118 $72,686 $636,804
Marin Software Christopher Lien 2013 8.80% $275,000 $0 $2,735,708 $3,010,708
Marketo Phillip Fernandez 2012 6.60% $325,000 $308,750 $1,852,900 $2,486,650
Match Group Sam Yagan 2016 0.00% $500,000 $600,000 $3,719,992 $4,819,992
Medidata Solutions Tarek Sherif 2009 8.90% $360,000 $448,000 $58,136 $866,136
MindBody Richard Stollmeyer 2014 11.20% $360,000 $106,484 $699,668 $1,166,152
MobileIron, Inc. Robert Tinker 2014 5.00% $270,000 $0 $13,500 $283,500
Nant Health Patrick Soon Shiong 2016 56.70% $0 $0 $0 $0
Netsuite Zachary Nelson 2006 3.60% $300,000 $12,591 $143,000 $455,591
New Relic, Inc. Lewis Cirne 2014 27.30% $240,000 $127,435 $0 $367,435
Proofpoint, Inc. Gary Steele 2011 6.87% $300,000 $127,500 $816,884 $1,244,384
Qualys, Inc. Philippe Courtot 2012 39.56% $300,000 $103,500 $0 $403,500
RealPage, Inc. Stephen Winn 2010 54.00% $400,000 $250,440 $0 $650,440
RingCentral, Inc. Vladimir Schmunis  2013 19.60% $325,000 $146,453 $3,166,531 $3,637,984
SalesForce Marc Benioff 2003 31.60% $1 $0 $0 $1
Secureworks Michael Cote  2015 0.00% $456,924 $3,328,038 $0 $3,784,962
ServiceNow Frank Slootman 2011 5.58% $150,000 $116,218 $0 $266,218
Shopify Tobias Lutke 2015 14.62% $339,055 $0 $0 $339,055
Splunk Godfrey Sullivan 2011 8.10% $250,000 $500,000 $0 $750,000
SPS Commerce, Inc. Archie Black 2009 3.10% $276,000 $29,728 $103,406 $409,134
Square Jack Dorsey 2016 24.40% $3,750 $0 $0 $3,750
Textura Patrick Allin 2013 9.10% $455,000 $698,926 $677,899 $1,831,825
Twilio Jeff Lawson 2016 11.90% $299,783 $15,000 $1,938,769 $2,253,552
Ultimate Softare Scott Scherr 1998 4.90% $200,000 $0 $318,809 $518,809
Veeva Systems Inc. Peter Gassner 2013 13.50% $225,000 $0 $0 $225,000
WorkDay David Duffield 2012 53.40% $33,280 $1,500 $0 $34,780
Xactly Chris Cabrera 2015 6.60% $342,000 $124,231 $0 $466,231
Zendesk Mikkel Svane 2013 7.10% $200,000 $74,906 $0 $274,906
               
               
Median   2013 8.85% $287,892 $104,992 $6,750 $492,520
Average   2012 16.07% $266,100 $264,958 $582,782 $1,113,839

 

 

 

-The spread of ownership levels is wide, ranging anywhere from 0% on the low end to 57% on the high end.  The median ownership level is 8.85% which given the size of these companies, makes every founder a millionaire many times over.  If you’re a founder at a Series A level business, don’t overly stress about dilution if your ownership is low: a good board needs to refill the option pool with every round of which you should be allowed to take part.  As you can see from the Options Comp column in the table, even founders at the IPO/Exit level take significant share issuances the year before the IPO (the CEO of Fitbit was issued $7mm+ worth of options before exit). 

 

-Salaries also have a wide range with a median of $288k.  They’re as low as $1 taken by Marc Benioff of Salesforce (that’s not a typo) to as high as $800,000, taken by Nick Woodman of GoPro.  I can tell you as a VC, we’re definitely attracted to founders who take low salaries and look to equity as their primary mode of comp.  Very rarely do we get involved in businesses where the founder takes a high salary ($100k+)

 

Keep in mind the salaries listed above are for CEO’s that have built businesses about to go public, so those salaries have increased over time to a median of $288k.  They certainly didn’t start there and at the Series A level were much lower.  As a founder, my recommendation is to take a modest salary ($100k, or only what you really need so you’re not worried about the light bill) and don’t take pay increases unless you really need one for family purposes.  Instead, ask for equity increases; a good VC should sign off as we love seeing founders want more equity, not cash.

 

In conclusion, pay yourself frugally and make sure your pay increases are really coming in the form of options.  Not only will you attract more capital given your low salary, you’ll have a far more lucrative exit when those options are cashed out.

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