Venture Pay Reset?

Looking at a piece in the Wall Street Journal covering one of the annual venture compensation studies, I was struck by how out of touch venture CEO pay has become with results.  In ways, it’s simply a scaled down model of what has occurred in public companies.  But there is more to it.

Something happened to the venture industry after 2000.  And it didn’t just happen to the greedy VCs who are often criticized for oversized funds with 2% “I buy a new plane whether you get a return or not” management fees.

The same mentality set in with CEOs and management teams.  Instead of a big exit being everyone’s singular focus, it became a “nice to have.”  Part of this was just facing up to reality, of course.  But part of it grew from a circuit of recruiters and roving “professional venture CEOs“– and of course the compensation surveys themselves.  To hire a top-quality CEO, the story goes, you need to pay above-average salaries (especially if you are in an expensive area like CA, MA, NY!).

I have seen it first hand, and yes, participated in it.  It’s infectious.  One popular rationale is “it’s the VCs money, and they make a $1M+ per year regardless– why should it be different for us?!

That is a far cry from when we were starting Aegis Lightwave in 1999, paying ourselves living expenses, and going down to zero for months on end when cash got short.  Everyone on the team got the idea, and counted pennies.  That frugal culture has persisted at Aegis, and helped make it consistently profitable.

The Web 2.0 generation of startups is resetting expectations— both for VCs and for entrepreneurs.  Let’s hope it translates to other traditional VC-backed industries.

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