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The Evolution of CEO Compensation in Venture Capital Backed Startups

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  • Ewens, Michael

    (California Institute of Technology)

  • Nanda, Ramana
  • Stanton, Christopher

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 re- placeable. 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.

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  • Ewens, Michael & Nanda, Ramana & Stanton, Christopher, 2020. "The Evolution of CEO Compensation in Venture Capital Backed Startups," SocArXiv rku3m, Center for Open Science.
    • Handle: RePEc:osf:socarx:rku3m
    DOI: 10.31219/osf.io/rku3m
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    References listed on IDEAS

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    Cited by:

    1. Rishabh, Kumar, 2021. "Bank as a Venture Capitalist," Working papers 2021/09, Faculty of Business and Economics - University of Basel.
    2. Mayer, Simon, 2022. "Financing breakthroughs under failure risk," Journal of Financial Economics, Elsevier, vol. 144(3), pages 807-848.
    3. Silvia Dalla Fontana & Ramana Nanda, 2023. "Innovating to Net Zero: Can Venture Capital and Start-Ups Play a Meaningful Role?," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 2(1), pages 79-105.

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