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I am the founder (100% ownership ) of a Startup which is launching a site ( Presently in stealth mode ) and addresses an UNMET Market need ( I hired developers on need basis and have spent my own $$ and countless hours building what we have now ).

Market Size is 100 Billion $. Pitched to few angels ( NOTABLE) who seem to be very much interested but are waiting to follow than to lead . I started to build my sales pipeline. Initial demo with one of the client's c level executive went very well who asked me to provide a proposal so we can move to the next stage. Others have expressed interest in licensing our platform to run verticals as well.. we are getting ready to launch and are not waiting for Angels or VC's to come in and are on target to building traction . we are close ( 2 Months) to being a revenue generating company and Making a mark in the industry with our offering. That being said , we are looking to bring in a CEO level person to join our team who has past experience in a management role , who will be the face of the company and engage in discussions with c level executives , Raise Series A capital,Establish Partnerships, handle all the corporate matters - Company valuation , Company strategy , steer the company to become the next LEADER.

This person already believes in our vision . Of the four CEO level candidates we talked to , this person understands the potential of our concept/technology and has shown great excitement to join our team.

My question(s) 1. What should be the equity that I should be giving this person ? 2. Should the vesting be time based or performance based or a combination of both 3. Cannot pay salary - should the salary be deferred ? or this person should work for equity ? 4. Should the salary be at some % of the industry based CEO salary ? if so what percentage? 5. Should the equity be part of the option pool or founder shares? 6. Would this person be a co founder or just a CEO ?

While I can wait to bring in this person after the first sale , I rather prefer this person to be part of our team now due to our - Time to Market positioning - Lined up discussions with angels - Lined up demos of our product/platform

Any answers would be greatly appreciated.

Thanks

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Just be aware that CEO is a big corp and CEO in a startup are two completely different things, a big name CEO with a strong background in big companies is likely to be completely useless in a startup - before hiring the CEO read this: bhorowitz.com/2010/04/28/why-we-prefer-founding-ceos than read everything else on that site. – Nir Nov 3 '10 at 12:36
lost me at "stealth mode" read the Lean Startup -_- – BhargavPatel Mar 5 '12 at 12:21

5 Answers

up vote 4 down vote

Ask the VC did a great post in '07 about what are the typical startup compensation levels. Many still believe that they are still valid, others say its not. I'll leave it up to you to make the decision. ;)

The report states that a CEO / Non Founder has an median cash comp of $225, 2-7% ownership (median 5%)

what? what about pre-funding levels, you ask?

same group wrote in a pre-funding post that "Often we see founders and early CEOs not take any cash compensation until the company achieves a funding event. Remember, your previous level of compensation at your last job is not really relevant when you are just starting out a company."

in addition, "Our experience is that the pre-funding salaries usually settle into a discount of 25% to 50% from post funding salaries."

Trading cash comp for equity is always an option as well - depending on how economically stable the prospective CEO is. That will impact his / her vesting agreement as well.

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up vote 2 down vote

www.compstudy.com has a great report that surveys actual Exec compensation data across startups. Noam Wasserman does a lot of research for it and he has a blog on related topics too.

I've seen 5% give or take but haven't seen data on the differential if you take out salary.

Sounds promising. What industry?

Here's the link to the 2009 report, they send it to you via email: https://webforms.ey.com/content/vwWFPreview/US/en/2009_Comp_study_report_in_technology?OpenDocument

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GIVE HIM OR HER NOTHING!!! – Frank Nov 4 '10 at 2:38
up vote 1 down vote

Give him/her as little as possible. I am firmly against executives getting % based on signing on. I think equity should be performance based. This is different for a public company that revolves more about stock price rather than actual performance and profitably. But for a newly formed company make it limited.

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What is usually given ? common stock for this person entering at a late stage of the startup as a ceo or options? Any suggestions? – LAV Nov 20 '10 at 4:33
up vote 1 down vote

Sounds like the identical issue we faced. Exactly the same. We actually did go to that next level and gained contracts from industry leaders. All done without a high level CEO but with merit of what we built. In our space we are a business driven app with bundled services operating in a 370b global market,not exactly a popular social network game or app so the VC market didn't jump to take the lead although many "follow". To compound this we as a group are techies not finance people, to learn the lingo and the method of this private equity business would detract our efforts from what we really do. We often have felt it maybe easier to go out and get a "hired gun" or "BIG name CEO" to help bring us expansion capital. We have learned it may not be.

Without specifics it is tough to answer this question but broadly speaking what we found is if the product is solid you maybe able to leverage the financial power of an early adopters of your product to expand. We are exploring this avenue and have to say it has been much more receptive to speak to clients that see the benefit within their space rather than what we call outsiders from the equities market.

All we can suggest is to scrutinize what exactly your group's expectations are of this CEO and surely keep them in line with compensation. ALWAYS best to vest over time for retention purposes. If your prospect shares the vision and sees the potential upside He/She will make it easy for your alignment and look to the future for their payday. Hope this helped and drop us a line anytime. best of luck.

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up vote 0 down vote

If you want to attract some of the best talent in the industry who will leverage your business, an equity based compensation model will be the ideal offer for the post of a CEO. The equity need not be given upfront. You can issue stock options to the CEO which will vest over at least a 4 year period. It is better to draw up a stock option plan rather than issue shares out of the founders pie. This will ensure that all the restrictive covenants in a stock option plan such as transfer related restrictions, re-sale to the company at the time of resignation, can be implemented. I am not sure if a CEO will be willing to defer compensation completely. If a CEO is expected to share the risks along with the founder, he/ she will expect equity upfront. I suggest you understand what you can and cannot offer to a CEO and then approach the candidates you have in mind. Hope this helps.

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