Salary at Venture-Backed Companies - Perceptive.ly

Salary at venture-backed tech companies is a topic that is not talked about often, but I’d like to shed some light on it because I believe it is more important than most people acknowledge. Ideally, management teams are driven by a desire to solve a problem and change the world for the better and salary is of minimal importance. But in reality, salary is a major motivating factor for many tech entrepreneurs and employees. The decisions that the board of directors and management of a company make regarding salaries can have a major impact on the long-term trajectory of the company.  This is something that may not be apparent to operators of companies, but it has become apparent to me during my time as an associate at North Atlantic, where I get to see the inner workings of all of our portfolio companies. It is important to note that my experience is with companies that have annual revenues of more than $5 million, so this piece does not apply directly to seed stage startups, although I imagine similar dynamics are at work.

Salary is a tricky nut to crack. If you offer too little compensation, you may not attract the talent that you need to be successful. But if you offer too much compensation, management and employees may begin to feel fat and happy and lose the motivation to maximize long-term value for shareholders. It is essential for companies to create a great culture by finding a happy medium: high enough salaries to attract quality talent, but not so high that the management team may be less inclined to stay hungry, work hard and take risks. 

As a board member, how do you figure out that happy medium to pay senior management team? And as a management team member, how do you figure out what to pay employees? The answer is that unfortunately there is no clear answer, and this is still very much an unscientific process. It is often a combination of asking around to peers, and possibly using some lightweight products like Salary.com or Indeed (http://www.indeed.com/salary) to get a sense of what the market price is.  Other startups have launched products to attack this problem as well. Most recently AngelList offered its own salary product for startups.

The reason that the process is so inefficient is that salary is still a very politically incorrect topic to discuss. Even the most transparent private tech companies, like HubSpot, make all their company information, except salaries, available to the entire company. Why does salary information have to be private? I don’t think it does, and I am convinced that it should and will become more transparent in the coming years. Salary should be a measure of how much value one is adding to a company, and that information should not be a secret.

Ultimately, there needs to be a more efficient way for stakeholders to determine salary for employees. I don’t have an answer for what that is yet, but in the spirit of more transparency surrounding salaries in tech, below I have listed the average salaries of CEOs,  President/COO/CRO, CFOs, CTOs,  and VPs of Sales at NAC portfolio companies. I encourage other VCs to do the same, as this information will benefit the whole tech ecosystem. This is obviously a limited sample size, but I believe it is fairly representative of “expansion stage” B2B technology companies, as NAC currently has portfolio companies throughout the country (San Francisco, Boston, Orlando, Durham, and Albany). If companies are consistently paying management teams 30% away from these averages in either direction, there is likely a problem at the company.

AVG CEO - $260,833

AVG President/COO/CRO - $223,333

AVG CFO - $196,071

AVG CTO - $185,429

VP of Sales - $175,833

The scope of this essay does not go beyond salary. Obviously, at venture-backed tech companies, the other big component of compensation is equity. Equity compensation is generally pretty straightforward: the more equity compensation at the early and expansion stages, the more motivated management is to create long-term value. High salary and low equity ownerships is rarely a good situation.