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The Evolution of CEO Compensation in Venture Capital Backed Startups

Michael Ewens, Ramana Nanda, Christopher T. Stanton

NBER Working Paper No. 27296
Issued in June 2020, Revised in August 2020
NBER Program(s):Corporate Finance, Productivity, Innovation, and Entrepreneurship

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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Document Object Identifier (DOI): 10.3386/w27296

 
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