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2009 Startup Executive Compensation Survey Opens

I've mentioned this survey several times before, but this time I bring news of the 2009 survey opening to participants.  This year the survey covers five countries (China, India, Israel, UK and US) in two industries (technology and life sciences).  If you are CEO or CFO of a startup company in any of these countries/industries then I encourage you to participate in the survey.  It doesn't cost anything to participate (other than the 30-60 minutes it takes to complete the survey) and the benefit is that you get the full results once they are published.

In years past, the results were published in a PDF and a hardcopy book, but starting in 2009 the results will be published online via a password protected, members-only site (so participating is really the only way you can get the results).  I think the 2009 data will be very interesting as it will reflect the effects of the overall economy as well as provide global comparisons.  Don't miss the opportunity to get the 2009 data...take the survey now!

If you haven't seen the results of this survey before, I'm including both of last year's unabridged reports results below.  It's actually pretty simple, yet since the data is otherwise so hard to find it's pretty powerful.  Basically the survey collects salary, cash bonus and equity information for the top executives in private companies (mostly venture- and preventure-backed companies).  The survey also collects information about the background of the executives and of the company (like location, size, funding, industry, etc.).  The report is then able to give ranges of compensation based on these attributes.  

First, there is the 2008 report for the technology industry focused on the following positions:

Technology

• CEO
• President / COO
• CFO
• CTO
• Head of Engineering
• Head of Sales
• Head of Marketing
• Head of Business Development
• Head of HR
• Head of Professional Services
• Board of Directors

And here is the full 2008 report for the life sciences industry focused on the following positions:

Life Sciences

• CEO
• President / COO
• CFO
• Chief Scientific Officer / Head of R&D
• Chief Business Officer / Head of Biz Dev
• Head of Clinical Research
• Head of Regulatory Affairs
• Head of Manufacturing
• Head of Sales (& Marketing)
• Head of Marketing
• CTO
• Head of Engineering
• Head of HR
• Board of Directors

There are some things that immediately jump out of the data.  One is that company founders have a significant discount in terms of cash compensation (but obviously a premium in equity).  Another point is that the equivalent role in a technology company is compensated at a lower level than in life sciences.  

So if you are a startup CEO of CFO (whether you have venture backing or not) please take the time to go complete the survey and you'll get the 2009 results for free.  And also you can do a friend a favor and forward this post to them so they can fill out the survey as well.

Law Firm Wilson Sonsini Now Preparing Term Sheets For Free

No, this isn't a recessionary move to give away unbilled lawyer time nor is it some sort of shift to being a pro-bono only firm.  Today, Wilson Sonsini announced the launch of a "term sheet generator."  It's basically a web tool that creates draft preferred financing term sheets for startups.  I got a preview of it a couple of weeks ago and my review is that it is really impressive!

The way the tool works is that you answer a bunch of questions (north of 100) and then when you are complete it gives you a perfectly formatted Word file term sheet.  Most of the questions are structured as "select from" several options often with an optional to "write your own."  The beauty of having the option to select from "standard" options is that WSGR has included some market data, e.g. what percent of term sheets in up rounds in 2008 included this term.  Last year, I spent a lot of time attempting to reverse engineer this data based on a small personal sample size.  Obviously, WSGR has a much larger sample size and the fact that they make it public (in aggregate) is impressive.

Publish at Scribd or explore others: Business & Law financing Term Sheet

The Term Sheet Generator originated as an internal tool for WSGR attorneys to rapidly generate draft term sheets which they would polish up and then deliver to their clients.  Not surprisingly, WSGR Partner Yokum Taku, who I've previously written about, is the key co-conspirator behind making this tool public.  I exchanged email with Yokum about this tool and I wanted to excerpt a few take aways from that conversation:

• Apparently this is the first of many online document generator tools that WSGR intends to make publicly available on the web.  There are three categories (startup, equity financing and bridge loans) so we can expect more to come.
   
• I would have thought that internally there would have been a debate about giving away for free what they used to charge for, but Yokum insists this did not come up.
   
• The biggest challenge in building this tool is that each branch in the question tree is associated with unique verbiage.  Building that must have been crazy.

So I think this is a brilliant step toward "open source law" which I've been advocating for a while.  I am certain there will be hundreds (ne thousands) of lawyers who will use the WSGR Term Sheet Generator to create draft term sheets for use with their clients.  In fact, I bet Google Analytics will quickly show Yokum and his colleagues at WSGR that his real userbase for this tool will be other attorneys both at firms and inhouse.  What this tool really wants to evolve to is having an open, wiki-style back end where practitioners can change and comment on the myriad of options and verbiage which would keep the tool evergreen based on the best crowdsourced legal opinions.

In the meantime, I wouldn't be surprised to see some sort of watermarking of term sheets created by the tool that would allow WSGR to offer discounted legal fees if they created the draft term sheet using the tool.  It would certainly reduce WSGR's time/costs as they would know the underlying terms

Global Nuances of Startup Compensation

I mentioned in a previous post how I'm an adviser to the folks behind the annual survey of startup executive compensation and how this year the survey is expanding to include China, India, Israel and the UK.  So for the past few weeks I've been talking to venture capitalists, entrepreneurs, CEOs and other industry participants in these countries and learning a ton about the local startup ecosystems.

One thing that has surprised me is how prevalent the "American" model of entrepreneurship and venture capital is in these countries.  The notion of entrepreneurs starting companies and having substantial ownership then hiring employees who also have ownership in the company and then raising capital from outside investors is universal.  Of course, when it comes to compensation there are always things unique to the local business culture.  Some of the more interesting things I've learned include:

1. Salaries in Israel are described monthly.  So instead of saying $120K per year, you'd say $10K per month (in Sheqels, of course).  And it's not always clear whether it is gross or net of taxes (you have to ask).
    
2. In India and China there is no preferred stock.  This one really surprised me but apparently in India and China VCs don't get a different class of stock with special rights and privileges.  However, apparently it is not unusual for investors to demand side letters that confer much of the rights customary in a typical US preferred security, effectively creating a "synthetic preferred stock."  I wonder if these have been tested in any courts...anyone had personal insight into that?


3. In India and the UK there seem to be two types of startups. There are the "Old School" type with a Managing Director and having limited equity ownership by management and employees and the "American style" startup run by a CEO and with compensation schemes that would be recognizable here in the US.  I'm still a little hazy on how to tell one type from the other.  Anyone have any color on this?

It will be really interesting to see how compensation compares across countries.  That's not what the survey is intended to do, but we should be able to compare a few things (like equity ownership).  I'm not aware of any comparable study like this in the US (let alone globally) so I suspect we'll learn a lot from the results.  The CompStudy survey will open up sometime next month at http://www.compstudy.com/ and will include surveys for China, India, Israel, UK and US each in IT and life sciences.  If you are interested in participating (or promoting) the survey please comment here or send me a private email.

Startup Executive Compensation Study Going Global

For several years now you've heard me rave about the annual survey of executive compensation at venture backed startups done by J. Robert Scott, Ernst & Young, WilmerHale and HBS Professor Noam Wasserman.  Well, I guess all that raving has gotten me a role in advising the backers of the survey on the next generation of the survey: CompStudy 2.0.

If you aren't familiar with it, the survey asks about 300 questions of around 1,000 startup companies.  The questions focus on cash and equity compensation for executives (about 20 titles covered) and board members and then it looks at a bunch of attributes of the executives and the company.  For example, founder vs non-founder status (big difference in comp), geographic location, headcount, funding, revenue, etc.  The end result is that whether you are a hiring manager, investor or candidate the survey is a valuable tool to understand and negotiating compensation.

There are a lot of really exciting things about the upgraded study that I can't yet talk about (more on that later), but one of them is that the survey is going global.  For the past 9 years, the study has covered the US only in two sectors (IT and life sciences).  But in 2009, the survey is going to be expanded to China, India, Israel and the United Kingdom.

So I'd love a little help from my readers here.  As part of tailoring the survey for each new country I'd like to be able to speak with several investors, CEOs and CFOs (or other folks knowledgeable about executive compensation) in each of China, India, Israel and the United Kingdom.  I checked Google Analytics and there are quite a few visitors from these countries (okay, not so many from China...yet) so please comment here or reach out to me (fn@altgate.com) if you can help.

If you can help me out by answering a bunch of questions and helping tailor the survey I'll make sure that you get access to the survey results in exchange, not to mention being eternally grateful.

Randy Komisar on Failure

Failure seems to be the topic of today.  Came across this gem of an interview with KPCB partner Randy Komisar.  Before you poopoo Randy's advice because he's a VC, know that he's got quite the track record as an entrepreneur (including some impressive failures, most notably GO which is chronicled in Startup). 

Anyway, there is a great quote toward the end of this interview where Randy says, "You can learn from someone else's failure, but the only way to really get your money's worth is to fail yourself."

Randy is an excellent speaker.  The full interview is less than 10 minutes and is worth a view for entrepreneurs and investors alike (note this interview was done in 2004).

Extraordinary Popular Delusions & the Madness of Crowds

Extraordinary Popular Delusions & the Madness of Crowds is one of my favorite books and included in it is one of my all time favorite quotes:

Men, it has been well said, think in herds ; it will be seen that they go mad in herds , while they only recover their senses slowly, and one by one! - Charles MacKay, from EPD&MC

That's as true now as it was in 1841 when Charles MacKay published his tome.

The book is written as a series of stories in three categories: "National Delusions," "Peculiar Follies" and "Philosophical Delusions."  Each little story is 10-50 pages in length and the entire book is nearly 3 inches thick.  I confess that when I first bought the book in 1999, it took me a full year to read it as it sat in my "reading rack" in my bathroom.

The three stories that the book is most famous for are the "economic bubbles" specifically, tulip-mania, the South Sea Company bubble and the Mississippi Company bubble. 

Each of these bubbles was based on irrational exuberance driven by "new rules" and innovation in the absence of any oversight or regulation.  And, of course, each bubble crashed leaving most people disillusioned and poor.

The true moral of the story is that if you don't know history you are doomed to repeat it. 

But even that doesn't go far enough. 

I read this book in 1999 at the height of the internet bubble and still wasn't smart enough to short the market in time.  And then 5 years later, I bought a house at the height of the real estate bubble!  I hear that I'm not alone.  I guess some people never learn...   

So as penance I'm going back and re-reading this great book and as part of my public service I want to ask you to also read this book.  Recovery from a bubble is a very individual task (as opposed to the very public mania of how we got into this).  Take this opportunity to reach out to someone you know who got caught up in the credit bubble and recommend this book.

Top 10 Posts From 2008

As ranked by traffic to website during the year (as opposed to when it was written):

1. The Science & Art Of Term Sheet Negotiation
2. 5 Reasons Convertible Debt Sucks  
3. Venture Debt For Startups  
4. Due Diligence - What To Expect  
5. How To Blog Like A Pro  
6. How Liquidation Preferences Work  
7. 2008 Startup Compensation Survey  
8. 10 Tips On Negotiating With VCs  
9. 10 Web 2.0 Tips: $75  
10. Killver VC Pitch Deck

Not much to learn here.  That's actually about what I would have guessed had I not seen the Google Analytics numbers.  Although in 2008 I did learn that this is called a "sneeze page."   Who knew?

Year End Management Changes

Last December I wrote a post about how December is the time of year when a lot of startup Boards decide to make management (read CEO) changes.  I was reminded of this as I was reading a TechCrunch article about how Dan Nye is out as CEO of LinkedIN.

In this case the founding CEO Reid Hoffman is back as CEO (he had previously been kicked upstairs to Chairman).  This is reminiscent of Yahoo bringing Jerry Yang back to be CEO (in that case they did it knowing that a potential sale was on the horizon).  I wonder if LinkedIN is thinking the same thing?  Or perhaps they're just kicking the ball down the field to see if another, more capable CEO candidate frees up next year as companies wind down and merge.  Despite how high the bar is for M&A today, I think there is still a market for companies like LinkedIN (that generate cash) and there remain buyers on the sidelines with cash (like Microsoft and their $37 billion).

If you find yourself facing a similar situation, take heart.  It's been almost 2 years since I walked out the door of my first founder/CEO gig and I have to say that "things appear a lot smaller in the rear view mirror" than they do in front of you.

Link To A Great Blog: Riverture by Marc Herson

A friend of mine, Marc Herson, recently started a blog called Riverture and I recommend it.  Marc is currently an Executive-in-Residence at Softbank Capital (which, by the way, is what prompted me to start Altgate) and previously was a senior executive at Sony BMG Music and prior to that a lawyer in South Africa.

Marc is coming out swinging with posts like this one on whether or not you should raise cash now.  Here is the RSS feed.

Startup Board Management Tips

Last year I wrote about board management tips based on my own experience as CEO and that of a couple boards I was on on behalf of investors.  Last night I attended an event put together by Clark Waterfall, a local headhunter (BSG Team Ventures), where about 30 startup CEOs spoke with each other about board issues.

It started out with a brief panel discussion and the panel consisted of:

1. Jim Mahoney, CEO Novomer
2. Scott Griffith, CEO Zipcar
3. Jill Smith, CEO DigitalGlobe

By way of background, all three panelists are second, third or fourth time CEOs of venture backed startups.  Novomer is an early stage (Series A) biotech company.  Zipcar is a later stage (about $120MM revenue) and venture backed with an A-list investor group.  And DigitalGlobe is a later stage company ($200MM revenue and recently filed their S-1).  So here are some tips on startup board management from the panel and the other CEOs at the event (in chronological order of how they were discussed):

1. Be inclusive.  Invite key members of management team to participate in board meetings.  Your CFO will likely be in most of all the meetings.  Other executives will participate as appropriate for the agenda.  Jill made the point that it's easier to have "spot invites" as opposed to "standing invites" because that avoides creating the expectation of attendance for your management team.


2. Focus on strategic.  Every CEO in the room agreed that the biggest board issue was how to get out of the tactical and into the strategic.  All of the panelists and several other CEOs said the number one thing they do to focus on strategic is to schedule the board meetings for the morning and then also schedule a mandatory board dinner the night before.  The dinner provides a forum to ferret out any issues behind the issues.  Scott mentioned that he would fire off emails to his team after the board meeting and then they'd come to the meeting with any new data / slides. 


3. Invest in the board.  Consensus that board management takes 10-15% of CEO time if business is going well and can take up to 50% if things aren't.


4. CEO is firewall.  The management team shouldn't get unnecessarily get dragged into board issues.


5. Be transparent.  Good news travels fast and bad news travels faster.  Scott talked about how a couple times per month he would send informational "no action required" emails to board members to keep them abreast of issues.  Don't sound defensive.  Check with colleagues if your message sounds defensive.


6. Plan to sunset directors.  Scott and Jill described how they had set up staggered three year terms for directors.  This is obviously harder to do with early stage professional investors, but worth discussing.  One tactic suggested for early stage companies is to identify a rock star potential director and bring them to the table in the context of, "we need to make room for this person."


7. Measure board effectiveness.  The panel advocated scheduling time to assess board effectiveness.  Scott mentioned how Zipcar had brought in some consultants to help with this and it was worth it.

The session closed with a brief discussion about managing a board in an economic crisis.  Nothing major came out of that other than the obvious point of get ahead of the issue in the short term propose an appropriate cost structure, particularly if that includes cuts and then address strategy.

2008 Startup Compensation Survey

The latest version of this annual comp study compiled by J. Robert Scott in collaboration with Wilmer Hale, Ernst & Young and Prof. Noam Wasserman at HBS is out.  If you haven't heard of this report before, I've been writing about it for a while.  It is by far the best source of compensation data for startups.  The report is a result of a survey of 340 venture-backed startups in the US.  The report details compensation for the top 10 or so executives and cuts the data by geography, revenue, headcount, industry segment and more and includes ranges for salary, bonus and equity.  You won't find a better source.

In 2008, base salaries are up about 5% over 2007 but bonus payouts remain flat.  Equity compensation is hard to assess on average, but it looks like it's about the same or slightly less.

You can get a summary of the report from the comp study website.  The unabridge report is very detailed (70+ pages).  If you're interested in a copy, email me email Noam who will send you one if you commit to participate in the next survey.

Onvert - Online Extrovert

onvert [on-vurt]

–noun 

1.	an outgoing, gregarious person...online.

2.	Psychology. a person characterized by extroversion online; a person concerned primarily with the online social environment.

I've been talking to friends and colleagues about a job I'm trying to fill for my company, that of Community Manager.  The role is becoming more common with the explosion of online communities and it's basically a host/moderator/expert/facilitator for an online community.  What I've found is that interviewing a candidate in the "real world" is not very effective at assessing whether someone would be effective in the role.  Often times, it feels like interviewing a fish on the beach instead of in the ocean.  It turns out that a lot of people who are "online extroverts" are "offline introverts."  So that's what's led me to start using the term "onvert," i.e. someone who is an online extrovert.  By definition, you need to "interview" the candidate online to make the appropriate assessment.  That's one of the reasons why, in the job description, I discourage people from sending in a resume and instead to show me their online body of work. I'm curious if anyone else has seen this.

Startup Marketing Advice

Mike Speiser has a great post over on his blog on how to trick out Google AdWords.  I've found that AdWords takes a lot of patience to make it work.  Anyway, Mike's got some good tips.

Sales vs. Web Dude

A bit long, but one of the funniest videos I've seen this year.

How To Promote Your Web 2.0 Community

Remember in 3rd grade when, if you liked a girl, you would trip her in the playground and steal her milk carton?  Well, here's the Web 2.0 marketing version of that.  It's actually the funniest story I've read in a while.  The short version is that some online community site in the UK claimed to be pissed off at some of their users so they dropped the site and put up a splash page telling their users to go away (and dropping a few f-bombs in the process).  I'd like to hear what Seth Godin has to say about that marketing tactic...