Amazon is Shipping My Book! "The Founder's DIlemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup"

Amazon started shipping my book on Friday.  The page for it is here.  Today, it hit Amazon's New Business Enterprises bestseller list.

The book’s title is The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. The ad for the book reads as follows:

Worried about being blindsided on your entrepreneurial journey? You face many important decisions about which people to involve in your startup, but people problems are the leading cause of startup failure. Learn important lessons from Evan Williams of Twitter, Tim Westergren of Pandora, and other prominent founders, and from analyses of 10,000 founders who have been where you are trying to go.

In the first review to come out, Publisher’s Weekly called the book “seminal,” “captivating,” and “required reading.”


On the back cover are the following quotes about the book:

“Every entrepreneur faces trade-offs when founding and growing their company. As we discovered at YouTube, those early decisions have far-reaching impacts and lead to unforeseen pitfalls down the road. Noam Wasserman uses vivid anecdotes and deep research to expertly outline the key early choices that define a startup, making The Founder’s Dilemmas an invaluable alternative to real-world trial and error.”
—Chad Hurley, founder-CEO of YouTube

“This book provides the rare combination of practical advice and scholarly research. It gets to the heart of the people issues that can bedevil every, and I do mean every, startup. Issues such as founder motivations, equity splits, and equity control can make or break a company. I guarantee that the price of this book is approximately one-thousandth of what you’ll pay lawyers to clean up your mess if you don’t read it.”
—Guy Kawasaki, author of Enchantment and former chief evangelist of Apple

“Noam Wasserman takes you through every major issue in a startup and shows you how to handle it in a prescriptive, logical way. The Founder’s Dilemmas is for everyone thinking about starting a serious company, with their eye on a big prize, and for the people who invest in those companies.”
—Paul Maeder, Chairman of the National Venture Capital Association, and Founder and General Partner, Highland Capital Partners

“The research that Noam Wasserman has assembled here can help entrepreneurial companies who want to prepare well for their future. The Founder’s Dilemmas is a must-read for anyone thinking about starting a business.”
—Timothy C. Draper, founder of Draper Fisher Jurvetson

“This book offers a rich understanding of the central personal dilemmas that entrepreneurs uniquely face. These dilemmas are tied to particular choices for entrepreneurs that can have subtle and unexpected ramifications. I don’t know of any other book that comes close to examining these specific and important issues.”
—Kathleen M. Eisenhardt, Stanford University, coauthor of Competing on the Edge: Strategy as Structured Chaos

The home page of the new site for the book also features the opinion of Eric Ries:

“Having seen these dilemmas derail countless startups, I wish every entrepreneur and prospective founder would read this book.”
—Eric Ries, author of The Lean Startup

Other resources on the book site include the Detailed Table of Contents and Chapter 1.

Also of possible interest are the early Amazon customer reviews here.

(Update: As of this afternoon, when the book hit the upper reaches of Amazon’s New Biz bestseller list, Amazon cut the price 18%. I’m hoping Amazon keeps the price low, but there’s no telling with them.)

12th Annual CompStudy Survey: Participate by July 31st, Get Free Compensation Data

Our annual Entrepreneurship and Compensation surveys are under way right now. If you participate, you'll get free access to detailed compensation data.

In the coming days, I will be getting back into a regular blogging routine, tackling new founder issues, covering new parts of the issues we've already tackled, and starting to delve into portions from my upcoming Founding Dilemmas book.

In the meantime, we're nearing the end of the 2011 CompStudy surveys.  The surveys focus on private companies in the Technology and Life Sciences industries. We have conducted them annually since 2000. (I collaborate on the surveys with two professional services firms: executive-search firm J. Robert Scott and Ernst & Young LLP.)  Last year, more than 700 private startups participated, giving us an extremely detailed dataset to help you understand the market for executive talent.

As in past years, survey participants will receive free access to our sophisticated reporting/analysis website, including salaries, bonuses, and equity holdings for C-level and VP-level executives.  To qualify for the free access, please complete the questionnaire by July 31st, 2011. Click here to go to the survey site.

If you're an investor (VC, angel, etc.) and you get your portfolio companies to participate, both you and the participating companies will get free access to the site.

If you participated last year, we should be able to pre-fill some of the data that would not have changed, making it quicker for you to participate now. (If you did not participate in the past, participating now will make it quicker for you to do so next year!)

All survey submissions are kept completely confidential; submitted information is seen only by me and the core research team, the analysis site will only show slices for which we have multiple data points, and we do not even list the names of participating companies.

Below is a screen snapshot of one part of the reporting site, showing some of the detailed data slicing you can do.  Focusing on the left-side controls, you can slice the data using the following dimensions (going from top to bottom):

• Geographic region
• Position (the 11 most common C-level and VP-level positions)
• Founder status
• # of employees
• Company revenues
• # of financing rounds completed
• Industry segments

As I described in my inaugural blog post, the core of my research data -- e.g., all of the charts I post here and the econometric tables in the journal papers that underlie my blog-posts -- comes from these surveys. So participating in the survey will help you get scarce private-company compensation numbers, provide data for future blog posts about issues you're facing, and help me continue doing the research that serves as the foundation for this blog, and as the backbone of the upcoming Founding Dilemmas book!

Topics Covered in This Blog (So Far)

Here's the updated "thematic index" to the entries and links in this blog.

*** COMING SOON: NEW ANALYSES FROM
UPCOMING FOUNDING DILEMMAS BOOK ***

"Founders' Dilemmas" MBA Course Content

NEW Post: Course Overview
NEW Post: Introductory Case and "When to Found" Module
NEW Post: "Building the (Founding) Team" Module
NEW Post: New-Venture Hiring Cases
NEW Post: Founder-CEO Succession Cases
NEW Post: Franchising, The Full Life Cycle of a Venture, and Exit Decisions

Rich vs. King: The Entrepreneur's Dilemma

Article: New Article in Harvard Business Review: "The Founder's Dilemma"
Post: Rich vs. King, Around the World
Post: Your Thoughts on Achieving Rich&King?
Post: "Rich vs. King" in HBS's Working Knowledge
Post: "Rich versus King": Charts and Impressions
Post: "Rich versus King": The Core Concept
Paper: Rich versus King (Academy Proceedings 2006)

Co-founder Issues

NEW Post: The Quick Handshake: A Valuation Penalty?
NEW Post: Salary Inequality Among Co-founders: How Common?
Post: The Idea Premium: How Much (Equity) is Your Idea Worth?
Post: Idea People and Their Initial Roles Within Founding Teams
Post: A Second Look at "Idea People" as CEOs: Should vs Do
Post: Equity-Split Results, Part 2: Implications for Team Stability
Post: Equity-Split Results, Part 1: When Do Teams Split Equally?
Post: Splitting the Pie: Jumping the Gun?
Post: Splitting the Pie: Founding Team Equity Splits
Post: Neverland, or Dictatorship?
Post: Founding with Friends, Founding with Strangers?
Post: Equity-Split Adjustments: Not Painful? (third bullet)
Note: "A Note on the Legal and Tax Implications of Founders' Equity Splits"
Case: Ockham Technologies: Living on the Razor's Edge

Founder-CEO Succession

Post: Yahoo's New Founder-CEO
Post: Interview about Founder-CEO Succession
Post: Bridge CEOs, Revisited
Post: Doomed CEOs and Bridge CEOs
Post: Nike, Cyberposium, and Jim Estill: 3 Takes on Founder-CEO Succession
Post: Succeeding at Founder-CEO Succession? (first bullet)
Post: After the Firing: Initial Research Questions
Post: Founder-CEO Succession
Paper: Founder-CEO Succession (Org Science 2003)
Case: Founder-CEO Succession at Wily Technology

Career Issues

NEW Post: The Gender Gap in Startups, Part 1: Women in IT and Life Sciences Ventures
NEW Post: The Gender Gap in Startups, Part 2: Compensation
Post: The Perils of Being a (Successful) Serial Entrepreneur
Post: Harvard Business Online: "Don't Wait Too Long to Become an Entrepreneur"

Entrepreneurial Compensation

Annual survey site: Compstudy.com (for IT and Life Sciences ventures)
NEW Post: Salary Inequality Among Co-founders: How Common?
NEW Post: The Gender Gap in Startups, Part 2: Compensation
Post: New Items on Entrepreneurial Compensation
Post: Founder Discounts in "Working Knowledge"
Post: Executive Compensation and the Founder Discount
Post: Changes in Founder Attachment (second bullet)
Paper: Founder Discount paper (AMJ 2006)
Paper: Entrep. Compensation paper (Academy Proceedings 2004)

Vesting and Other Equity Issues

Post: Unlocking Your Golden Handcuffs: How Common is Accelerated Vesting on Change of Control?
Post: Golden Handcuffs and Vesting: Initial Interpretations
Post: Golden Handcuffs and Vesting: Early Analyses
Post: Golden Handcuffs: Summary of Vesting Data

Hiring Issues

Post: Investors (and Managers) as Headhunters: Sources of New-Venture Executives
Post: Hiring Into -- and Demoting Into? -- Executive Positions
Post: Hiring Frustrations: Can Goliath Work in a David-Venture?
Post: HR 101: Hiring and Scaling Challenges

Building a Board

Post: Board problems: Even numbers? Multiple founders?
Post: “Do I Have an Effective Board of Directors? (How Can I Tell??)"
Post: Building a Board: Mentorship? Monitoring?
Post: Building a Board: The Impact of Company Stage
Post: Building a Board: Composition by Company Stage
Case: Ockham Technologies: Living on the Razor's Edge

Investor Issues

Post: Due Diligence As a One-way Street
Post: Due Diligence on Your Investors, Revisited
Post: Thanksgiving Dinner ... With Your Investors (or, "Funding from Friends and Family")
Series: "Upside-down VCs" (internal VC structure and hiring decisions)
- Part 1 (The "First Morning" That Sparked It)
- Part 2 (The Costs Versus Benefits of Junior Hires)
- Part 3 (Synthesis of Comments)
- Part 4 (Other Factors, and Performance Implications)
Series (by Matthew Louie and Cali Tran): "Investor/Entrepreneur Value Expectation Gap"
- Part 1 (Project Overview)
- Part 2 (Entrepreneur Results)
- Part 3 (Entrepreneur vs. Investor)
- A Postscript (Entrepreneur-Investors)

Other Topics

Post: Looking for (Movie) Suggestions: Your Favorite Founder Scenes?
Post: A Look Back, A Look Forward ... and a Request
Post: A Note on My Research Approach and Data

Thanks again to everyone who has been actively participating in this blog-dialogue -- I really appreciate your input!

This Thursday: Annual CompStudy Webcast

Apologies for my blog silence since the summer began, but I have been hibernating in my "book cave" writing my first book. After I finish the manuscript, I will be blogging about its content and some of the new analyses from it. For now, the one-line preview is that its working title is Founding Dilemmas, and that it will tackle the most important early decisions founders make that tend to get them and their startups into trouble down the road.

My most recent blog-post was about the launch of our 2010 CompStudy survey. As a bookend to that, this Thursday we are doing our annual webcast to unveil the results of the 2010 survey. Below are the details for how to tune in.

Executive Compensation: Insights from the 2010 CompStudy Startup Survey

Date: Thursday – October 14, 2010

Time: Technology CompStudy webcast — 11:00 a.m.-12:30 p.m. Eastern
Registration: http://webcast.ey.com/thoughtcenter/?pid=2959

Time: Life Sciences CompStudy webcast — 1:30 p.m.-3:00 p.m. Eastern
Registration: http://webcast.ey.com/thoughtcenter/?pid=2960

As startups seek to control cash burn while still seizing strategic opportunities and upgrading talent, the need for a compensation plan that supports business objectives becomes critical. Decisions made today in regard to the mix of cash, equity and incentive compensation will have long-term impact.

How are industry-specific dynamics within technology and life sciences affecting compensation trends? Are your compensation programs effectively structured to keep your top talent in place and motivated in today’s economic environment? How do you compare to your peers?

Join us on October 14 as a distinguished panel of representatives from Ernst & Young, J. Robert Scott, the Harvard Business School and leading venture capital firms reviews the results of the global 2010 CompStudy survey and discusses the key takeaways for technology and life sciences companies in separate webcasts:

• Technology CompStudy webcast — 11:00 a.m.-12:30 p.m. Eastern
• Life Sciences CompStudy webcast — 1:30 p.m.-3:00 p.m. Eastern

About the CompStudy survey

CompStudy is produced by professionals at J. Robert Scott and Ernst & Young in collaboration with academics from the Harvard Business School and covers the US, UK, Israel, China and India.

Now in its 11th year and covering more than 25,000 executives at 5,000 startup companies, CompStudy is the longest running, most comprehensive survey of its kind.

The survey provides in-depth compensation benchmarking data across a number of variables, including financing stage, company size in terms of revenue and headcount, founder/non-founder status, industry segment and geography.

These webcasts are relevant to CEOs, CFOs, HR executives, investors and board compensation committee members as they prepare 2011 executive remuneration plans.

For more information about these webcasts, please contact John de Yonge, Associate Director, Ernst & Young Venture Capital Advisory Group, at john.de_yonge@ey.com.

11th Annual "CompStudy" Compensation Survey: Want to Participate (and Get Access)?

Our annual Entrepreneurship and Compensation surveys are under way right now. Do you want to participate and get free access to compensation data?

The surveys focus on private companies in the Technology and Life Sciences industries. We have conducted them annually since 2000, making this the eleventh year of the survey. I collaborate on the surveys with two professional services firms: executive-search firm J. Robert Scott and Ernst & Young LLP.

As in past years, survey participants will receive free access to all of the detailed compensation tables, including salaries, bonuses, and equity holdings for C-level and VP-level executives.

Last year we introduced a much more sophisticated reporting/analysis website (rather than creating a static Compensation Report, as had been done in the past). It was very well received, and we continue to expand its functionality – this year, we’ll offer a “Print-to-PDF” feature on all the charts, for example.

To qualify for the free access, please complete the questionnaire by June 30th, 2010. Click here to go to the survey site.

If you participated last year, we should be able to pre-fill some of the data that would not have changed, making it quicker for you to participate now. (If you did not participate in the past, participating now will make it quicker for you to do so next year!)

In the detailed compensation data, potential slices at the company-status level will include:

• # of financing rounds completed
• Company revenues
• Stage of product development
• # of employees
• Geographic region
• Industry segment

You will also be able to break out the data by founder vs. non-founder (a.k.a. "founder discounts") and other relevant dimensions, to delve into board compensation, and to examine how things change as ventures evolve.

All survey submissions are kept completely confidential; submitted information is seen only by me and the core research team, the analysis site will only show slices for which we have multiple data points, and we do not even list the names of participating companies.

So if you're a senior executive in a private Tech or Life Sciences company and are interested in participating, please click over to the survey site, select your country and industry, and click on "Take the Survey."

If you're an investor (VC, angel, etc.) and you get your portfolio companies to participate, both you and the participating companies will get free access to the site.

As I described in my inaugural blog post, the core of my research data -- e.g., all of the charts I post here and the econometric tables in the journal papers that underlie my blog-posts -- comes from these surveys. So participating in the survey will help you get scarce private-company compensation numbers, provide data for future blog posts about issues you're facing, and help me continue doing the research that serves as the foundation for this blog!

The Quick Handshake: A Valuation Penalty?

When do co-founders split the equity equally, and does an equal split affect their venture's later valuation?

We are currently conducting our annual CompStudy survey. (I'll soon be posting details about how to participate.) Over the last two years, I have enhanced the Founding Team section of the survey, so we can get a deeper view of various founding issues.

The first issue I am revisiting is how founders split equity among themselves, an issue that I first surfaced in a series of posts over the last few years (e.g., Splitting the Pie: Founding Team Equity Splits, Equity-Split Results, Part 1: When Do Teams Split Equally?, Equity-Split Results, Part 2: Implications for Team Stability, The Idea Premium: How Much (Equity) is Your Idea Worth?, and New: "A Note on the Legal and Tax Implications of Founders' Equity Splits"). For these new analyses, I have been collaborating with Prof. Thomas Hellman, and our initial paper has just been accepted for the annual summer-time conferences of both the Academy of Management and the National Bureau of Economic Research (NBER).

In the paper, we take a detailed look at the drivers and the financing consequences of founder equity splits. Below I outline the core results in each of these two areas, and would love to get your input about them (especially about the financing consequences).

Note: For these analyses, we combined the data from the 2008 and 2009 CompStudy surveys, including both Technology and Life Sciences ventures. Across the two years, we received complete survey submissions from a total of 576 multi-founder teams. Dropping 65 repeat respondents in 2009 gave us a full dataset of 511 ventures, which included 1,476 total founders.

Part 1: Drivers of the Initial Split

In the initial models, we examine whether the founders' backgrounds affected whether they split equally (the "1/N" model) or unequally. The core hypothesis is that negotiating an equity split is "costly" (both directly and indirectly), so teams that are relatively homogeneous (e.g., they are "close enough" regarding their years of work experience, prior founding experience or lack thereof, and other factors) should be more likely to avoid the negotiation and just split equally. In contrast, more heterogeneous teams should be more likely to engage in the negotiation, in order to arrive at an unequal split that tries to match equity stakes to expected contributions.

The analyses support that hypothesis, and also suggest that less experienced teams are more likely to split equally. More specifically, the following teams were more likely to split equally:

• Teams with more homogeneous founders
• Teams with lower average years of prior work experience
• Teams with founders who are related to each other
• Smaller teams

On the flip side, the following teams were more likely to negotiate an unequal split:

• Teams with more heterogeneous founders
• Teams with higher average years of prior work experience
• Teams of non-relatives
• Bigger teams

Within the teams that negotiated an unequal split, the following founders received significantly bigger equity stakes:

• Founders who had prior founding experiences (i.e., serial entrepreneurs)
  
• The idea person(s)
• Founders who invested more seed capital

Any thoughts on these results?

Note: When we controlled for the differences listed above (i.e., prior founding experience, idea person, and seed capital), each founder's overall years of prior work experience did not affect that founder's equity stake.

Part 2: Financing Effects

This part of the analysis is a little more tentative, but has interesting initial results. For this, we looked at the determinants of (the natural logarithm of) the venture's pre-money valuation during its first institutional round of financing. Of our full sample, 298 ventures had raised a round within 3 years of founding, and were included in this analysis.

The question was whether the founders' equity split (equal vs. unequal) was linked to their pre-money valuations. In these models, we controlled for the following factors:

• The founders' levels of pre-founding work experience (mean serial-founding experience, mean years of work experience, mean number of idea people, mean seed-capital invested)
• The founders' heterogeneity of pre-founding work experience (i.e., the coefficient of variation of the four variables listed immediately above)
• The founders' prior relationships (family, friends-not-coworkers, prior coworkers, strangers)
  
• Team size
• Time until first institutional round of financing

(We also included dummy variables for the venture's location, industry, and the year in which the round was raised.)

The variables that were significantly linked to a lower valuation were as follows:

• Equal equity split
• The co-founders were friends-not-coworkers before founding (borderline significance)
• Higher variance of co-founders contributing to the initial idea

The variables that were significantly linked to a higher valuation were as follows:

• Larger initial founding teams
• More co-founders contributed to the initial idea

We next focused on the "equal equity split" result. We separated it into "quick-equal splits" (the proverbial "Quick Handshake," where the founding team spent a day or less negotiating the equal equity split) and "slow-equal splits" (the teams who spent more than a day negotiating, but still ended up splitting equally), and reran the models. This showed that the negative impact of equal splits is almost entirely attributable to the quick-equal splitters (which had a significant and negative impact on valuation) and not to the slow-equal splitters (not significant).

We do not believe that there is a direct effect of the quick-equal split on valuation -- i.e., that it is the split itself that causes a lower valuation. (Please comment if you disagree!) Instead, we believe that the quick-equal split may indicate something deeper (more indirect) about the founding team: a preference to avoid tough discussions, an inability to negotiate effectively, or some other negative trait regarding individual characteristics or team dynamics.

*** Any thoughts on this linkage between quick-equal splits and firm valuation? ***

Next Steps: At the venture level, we're trying to quantify how much the valuation is affected. At the founder level, we're also trying to estimate how much money the strongest equal-splitting founder leaves on the table (compared to if that founder had gotten the full unequal stake s/he deserved). Looking forward to posting those results...

Salary Inequality Among Co-Founders: How Common?

I have accumulated a backlog of interesting questions posed to me by founders and investors (and by my students!). For many of them, my quantitative CompStudy data should be able to provide some answers. In this post, I will tackle the first of those questions.

In my past analyses of entrepreneurial compensation, I have focused on founder vs. non-founder salary differences (e.g., the Founder Discount), on founders' equity splits (the Idea Premium, how teams split, when they split equally, and the potential implications for team stability), and on related issues (e.g., vesting and golden handcuffs). However, I recently got a question from a member of a founding team, asking how often co-founders are paid the same salary -- i.e., founder-vs.-founder salary differences.

To tackle this question, I combined my annual datasets from 2005-2009 (including both Tech and Life Sciences ventures), and focused on the ventures that still had at least 2 co-founders working as members of the venture's executive team at the time of the survey. I ended up with a dataset comprised of 2,815 co-founders from 1,148 ventures.

Across these ventures, 26.7% of the time, all remaining co-founders were being paid the same exact salary.

However, this differed by 2 important dimensions: the number of rounds that had been raised by the venture, and the number of remaining founders.

Number of Rounds Raised

As shown in the chart below, the percentage of equal-salary co-founders was much higher when the venture had raised one or no rounds (37% equal salaries), than when it had raised multiple rounds (dropping to 27% after the B-round and 19% after the C-round).

Note: Across the 1,148 ventures in these analyses, 43 ventures were pre-investment, 264 had raised one round, 367 had raised two rounds, 270 had raised three rounds, and 204 had raised four or more rounds.

Number of Remaining Founders

The chart below shows how the percentage of equal salaries differed based on how many founders were still working as executives in the venture, focusing on whether there were 2 remaining founders or 3.

For ventures that had raised no rounds or one round, there was little difference in the percentages of co-founders with equal salaries. However, from the B-round and onwards, if there were 2 remaining co-founders, the chances that they were being paid the same was much higher than when there were 3 remaining co-founders.

How Unequal Were They?

For the co-founders who did not have equal salaries, how much of a gap was there between them? Across all of the unequal-salary ventures, the median percentage difference between the highest and lowest paid of the remaining co-founders was 29.6%. In other words, the highest-paid remaining co-founder made 29.6% more than the lowest-paid remaining co-founder.

The chart below shows that this median difference is actually relatively steady across stages of financing, varying from a high of 34.8% to a low of 28.6%.

The final chart breaks out this median salary difference by whether there were 2 vs. 3 remaining founders. For every stage of financing, ventures with 2 remaining founders consistently had lower salary-inequality than did ventures with 3 remaining founders -- not a surprise, given that the more people involved, the more likely the divergence regarding the importance of their roles, their levels of commitment, and other factors that should affect compensation.


Next Steps

In future analyses, I'd like both to develop these analyses into more-rigorous regression models, and also to examine whether there's a linkage (negative or positive) between equal equity splits and salary equality among co-founders. Looking forward to posting those results to this blog.

However, I'd also love to hear what related questions or potential analyses came to mind for you. Please post your thoughts on the results above and/or your requests for other future analyses!

CompStudy Highlights: "Live Tweets" from the Webcast

Earlier this month, we had our annual webcasts to launch the 2009 CompStudy Reports for Technology and Life Sciences ventures. During the webcasts, I live-tweeted (via my @noamwass Twitter account) about interesting data tidbits and comments from the panelists. Below is a synthesis of those raw tweets. If any strike you as particularly interesting or surprising, please comment about it!

Notes:

• Before each tweet, I indicate whether it came during the "TECH" webcast or the "LS" (Life Sciences) one.
• Because of Twitter's 140-character limit, some of them are a little more cryptic than I would want.
• "Flash polls" are real-time polls of the webcast audience.
  
• To access the archived webcasts, you can go here for the Tech webcast and here for the Life Sciences webcast.

Founders

• [LS] % of CEOs who are founders: 70% in LS ventures that raised 0-1 rds, plummets to 45% when 2-3 rds; research: http://bit.ly/8Tc5MP
• [TECH] The 2 positions with more founders than non-founders: CEO (62% founders), CTO (59%); all others below 50%
• [TECH] Positions with lowest % of founders: CFO (11% founders), Head of HR (2%)
• [LS] Within executive positions in Life Sciences ventures, 53% of CEOs are still founders, 61% of CTOs; all other positions below 50%
• [LS] Exec positions in Life Sciences ventures, LOWEST % of founders: 6% VP-HR, 6% VP-Manuf/Opns, 7% VP-Sales, 8% head of Clin. Res.

Sources of Hires

• [TECH] How ventures found their CEOs: In 2008, 23% came from investors (3rd highest source); In 2009, 45% from investors (highest source)
• [LS] % of non-founding CEOs found by investors in LS ventures: 18% in 2008 (#4 source of CEOs) -> 42% in 2009 (#1 source)
• [TECH] Advice from panel (Aaron): As upturn starts, have to start pulling triggers a little quicker for both sides of hiring (co, hire)
• [LS] Sources of hires in LS ventures: For all non-CEO/non-CFO positions, CEO-as-source-of-hire has increased in 2009 by at least 14%
• Online comment from John Otroba, about upturn: "Challenge will be that most cos. have gotten into very bad hiring practices & selection criteria."

Cash Compensation

Salary

• [TECH] Average private-co. Tech CEO salary for 2009: $231K; potential bonus: $93K
• [TECH] First time in last decade that cash comp is flat within private Tech exec teams (even worse than in dot-com bust)
• [TECH] Diff'c in non-founder CEO comp between ventures with 1 or fewer rounds raised ($204K salary) & CEOs w/ 4+ rounds ($250K): +$46K
• [LS] Difference in non-founding CEO comp: In ventures w/ 0-1 rounds raised, $267K avg salary; w/ 4+ rounds raised, $303K ($36K higher)
• [LS] Life Sciences non-founder CEO comp: $273K salary in 2008 -> $285K in 2009
• [LS] 2nd-highest salary in Life Sciences ventures: General Counsel ($238K in 2009)
• [LS] Flash poll: 48% expect salaries to be flat in 2010, 30% expect increase up to 5%
• [LS] Comparison to other public-co study (200 multi-nationals): 75% expect to keep pay flat, 15% small increase, 10% expect decline
• [LS] Jonathan Fortescue: Surprised LS execs got the raises they did; "obvious that LS cos. march to a diff drummer than the IT cos."

Bonus data

• [TECH] 2009 is the first time that bonus as % of total comp has decreased (a little); did so across all positions except HR
• [TECH] After Head of Sales, next highest % for bonus: CEO potential bonus is 38% of base salary, Head of BizDev is 37% of base salary
• [TECH] Head of Sales: 2009 potential bonus is 61% of base salary; 2008: bonus received was 39% of salary, unachieved bonus was 26%
• [LS] Diff'c in non-founding CEO bonuses in LS ventures: 0-1 rounds raised = $75K avg bonus; 4+ rounds raised = $96K ($21K higher)

Bonus approaches

• [TECH] Aaron Lapat: Early-stage clients holding off instituting bonus systems until after they've reduced uncertainty sufficiently
• [TECH] "Discretion by the board" re: bonuses can introduce morale problems (esp in downturn) if employees perceive it as very subjective
• [TECH] However, in downturn, having that discretion is even more critical
• [LS] Panelist: As co. matures, bonus as % of base pay increases; we'll hopefully be able to delve into that more deeply next year
• [LS] Flash Poll about structure of bonus plans: 37% balanced scorecard, 22% purely discretionary, 12% milestones/non-financial metrics
• [LS] Panelist: "When you have a lot of variation in predictability, you see more discretion being applied with bonuses"
• [LS] Panelist: Pay programs should have positive motivational effect; can wreck that by having bad/no communications about the program

General compensation

• [TECH] Comparison to recent public-co. survey: Private ventures more optimistic abt comp increases for FY2010 than are public companies
• [LS] Panelist: TOTAL comp in LS ventures is down, given companies going away and existing ones reducing staff
• RT @compstudy Steve Hatfield of E&Y "Comp figures might be up, but total comp still down when accounting for decreased headcount"
• [LS] Audience Q: Will substantial layoffs in Big Pharma put dnwd pressure on small-co comp? A: Will have bigger effect on mid-tier cos

Equity Holdings

Individual equity stakes

• [TECH] Non-founding CEO equity holdings in 2009: median of 5.1%, mean of 5.9%
• [LS] Non-founding CEOs in LS ventures: own median of 4.5% of equity, mean of 5.8%
• [LS] After CEO, next highest equity holdings: COO (median 1.5%), CTO (1.1%), R&D/CSO (1.0%)

Team equity stakes

• [TECH] "The top 10 positions surveyed in this report hold on average 18.2% of the company, up from 15.7% in our 2008 edition"
• [LS] "The top 13 exec positions surveyed in this report hold on avg 17.6% of the co., down slightly from 18.16% in our 2008 edition"

Equity pool

• [TECH] Poll of webcast viewers: At 45% of their ventures, <10%>25% is reserved
• [LS] Flash poll, about size of current option pools: 42% of webcast audience have pool of <10%,>20%
• [TECH] RT @compstudy Laura Sachar: "Pressure to increase option pools as poor economy pushes liquidity events onto the horizon"
• [TECH] Laura Sachar: Challenges for founders, non-founding execs, existing investors & new investors to agree how to refresh option pool

Mix of equity vehicles

• [LS] In LS, mix of equity vehicles has changed very little between 2008 and 2009 (a little more change in IT ventures)
• [TECH] Emphasis on using incentive stock options (45% of all equity vehicles used): Driven by tax efficiency of acquiring the option

Golden Handcuffs: Severance and Vesting

Months of severance

• [TECH] 59% of non-founding CEOs have severance packages; Laura Sachar: surprised it's not even higher
• [TECH] All other positions are <50%>
• [TECH] Duration of severance packages: for CEOs, median of 6 mos (mean of 6.8); similar for COOs; all other posns have median of 3 mos.
• [LS] Mos of severance in LS ventures (almost all posns: median 6 mos) are signif higher than in IT ventures (almost all: median 3 mos)
• [LS] Mos. of severance in LS ventures: CEO median 10.5 mos (9.2 avg); Head-ClinRes 6 mos (7.4 avg); Head-R&D 6 mos (7.3 avg)

% of executives with severance packages

• [LS] % of execs in LS ventures with severance pkgs is consistently higher than % of execs in IT ventures with them
• [LS] % of non-founding execs with severance pkgs in LS ventures: 71% CEOs, 76% COOs, 57% General Counsels
• [TECH] RT @compstudy Perception of executive severance as "pay for failure" getting more scrutiny at public companies

Vesting

• [TECH] Panelists: Increase in performance-based vesting rather than time-based; dominantly for CEOs, but good idea for VP-Sales, too?
• [LS] Panelist: With downturn, execs negotiating harder for themselves re: change-in-control terms
• [LS] Is a shift toward performance-based vesting rather than time-based, except in earliest-stage cos that find it hard to implement
• [LS] Panelist advice about vesting: Evolve it as company does based on future milestones, or to manage retention (cascade the terms)
• [TECH] Audience question about vesting; for my past analyses of vesting terms, see http://bit.ly/8QAQf4, http://bit.ly/865RAo

Downturn

• [TECH] Flash poll abt plans: 37% hiring freeze, 26% shift comp pkgs to pay 4 perf'c, 21% RIF, 10% comp reductions, 7% more offshoring
• [LS] Flash poll abt plans in LS: 42% hiring freeze, 22% RIF, 19% shift comp pkgs to pay-4-perf'c, 10% cut comp, 8% more offshoring
• [TECH] Flash poll abt 2010 plans for capital-efficiency measures: "None planned" 22%, 44% plan mult'l measrs; cut admn expnse only (16%)
• [LS] Flash poll abt plans for "upgrading positions" this yr in LS ventures: 5% CEO, 12% CFO, 17% Biz-dev, 13% Sales, 37% no upgrading
• [TECH] Audience Q about severance: Shouldn't it continue to go up in 2010, as more people take jobs and demand it?
• [TECH] Panelists: In downturn, having severance program helps execs stay focused on building venture rather than looking for a diff job

Parting Shot

• [TECH] Advice from panel (Bryan): "Don't underestimate the power of psychic compensation"