The early-stage startup CEO salary gap is worse today than it was in 2019, even after a record-breaking funding year in venture capital.
At the beginning of the pandemic, early-stage female startup CEOs took a disproportionately higher pay cut than men, according to data from startup accounting firm Kruze Consulting. While female startup CEOs’ salaries have since crept up since the initial plunge, the boom times of 2021 didn’t close the pay gap created by the pandemic. In fact, the pay gap is four times wider in 2022 than it was in late 2019 for early-stage startup CEOs.
“Women have raised their salaries back up, but we still have this tremendous gap, which is kind of weirdly really persistent and weirdly large in my mind,” said Healy Jones, Kruze’s VP of Financial Planning and Analysis.
The pay gap between early-stage male and female CEOs was only $5,000 in 2019. Now, it’s $20,000, according to Kruze’s analysis of over 250 startups' pay data. More than 40 of them are female-led companies.
The COVID-19 pandemic was the first shockwave to CEO salaries. In its study, Kruze Consulting found that female CEOs took on average a 30% pay cut in April 2020 in response to the pandemic, and it took months for pay levels to climb higher. Male CEOs, on the other hand, didn’t really see a pay cut during the pandemic. Those who did accept lower pay were washed out by the CEOs who gave themselves raises, Jones said at the time.
Despite a record funding environment in 2021, the pay gap between male and female CEOs has only widened. Women are making on average $5,000 less than they did pre-pandemic: $138,000 in Q4 2019 versus $133,000 in Q1 2022.
Male CEOs, on the other hand, have seen their salaries increase by $10,000, growing from $143,000 in Q4 2019 to $153,000 in Q1 2022, according to Kruze’s data, which covers early-stage venture-funded startups across multiple industries from biotech to SaaS to fintech.
One explanation could be that male-led startups raise more money, and startup CEOs tend to rise in line with the amount of funding the company has raised. But even taking that into account, using Kruze’s startup CEO salary calculator for average amounts raised by men versus women in the data set showed the gap should be roughly $5,000, not the $20,000 it is today. Jones said he was “dumbfounded” by the persistence of the gap.
With a looming downturn already spooking companies to re-evaluate their cash flow and trim costs where they can, there’s rising concern that women could fall further behind. Venture funding to female-founded companies cut in half between the first and second quarters of 2022, according to PitchBook. Many companies are making hard calls to reduce costs, including layoffs and pay reductions.
The challenge for founders is that there’s very little transparency into what founders should be paid, minus surveys from firms like Kruze or Pilot (which analyzed 176 responses). And if they do receive advice from venture capitalists, it can often be conflicting.
This week, Vitalize’s Justin Gordon asked founders and investors what pre-seed startup founders should be paid — a stage at which a founder doesn’t necessarily have a board to consult.
Some investors like Worklife’s Brianne Kimmel argued that pre-seed CEOs and founders should get paid at least $100,000. “Investors who want founders to pay themselves poorly are indirectly saying only rich people should start a company,” she tweeted. “Rent, childcare, gym membership, therapy, and taking time off to recharge all add up.”
Other investors embraced the “ramen-poor” mentality typical of startups and said anything over $100,000 was a red flag for a business, even advocating for $0 in some cases when people can afford it. “Anything under $100K is ok. Above it and will raise eyebrows,” investor Andrew Gluck tweeted.
It’s common to see pay variability in the pre-IPO markets, Renegade Partners’ head of People Susan Alban wrote in an email, so she advises founders to look at companies in similar financing stages to determine what’s fair. While Kruze’s data is focused strictly on cash compensation, equity is another huge part of a potential pay day for founders and another area where they have to be careful to approach it fairly.
“The more bespoke a situation is, the more opportunity for bias, because that's where the inequity creeps in and you see a lot of inconsistencies in equity,” Alban said.
In today’s market, there’s going to be a lot of conversations around how to cut costs. It’s easy for founders to feel the call to sacrifice when employees are feeling the pinch, so that may be a time for investors to step in and make sure that they’re not unfairly shortchanging themselves.
“I am concerned that women are going to pull their salaries back more than that if history is a guide,” Jones said. Hopefully, with a warning to be on the lookout, history won’t repeat itself.