One of the many challenges for early-stage technology and science-driven companies revolves around compensation for founders. When a start-up is created, how do those there at the beginning get compensated? When there isn’t any cash in the bank yet, and there may be a period of time where products are in development, do founders get compensated, and if so, how? When angel investors seed the company, what happens then? Founders usually will get cash compensation, but perhaps not at the same levels as when the company later gets venture capital funding.
We were asked by one of our clients to help determine appropriate compensation parameters for an angel-funded enterprise. From this, there were clear norms that emerged–
Looking at a half-dozen angel-funded companies in the New England region (Boston, Massachusetts, New Hampshire), we assembled some data that helped inform the above mentioned principles.
Note that there are rarely more than 2 founders. Therefore, two can initially split the equity 50/50, and even with significant dilution, still end up with a meaningful equity stake after either angel, venture capital rounds, or both. If a higher number of co-founders split the equity pool, fully diluted equity stakes can dwindle to amounts that make it hard for those founders to retain meaningful upside in their enterprises at later growth stages.
Just food for thought for those who are creating new companies in today’s market conditions.
During a moment in recruiting history when most executive search professionals are suffering, our practice in for-profit education has been thriving. Part of the reason is what I call ” board fatigue”–PE or VC partners and other board members who’ve grown impatient with the CEO of a portfolio company. In some cases their dissatisfaction is known to the CEO; in others, for various reasons (such as accreditation issues in the postsecondary education market), the board has chosen to conceal its desire for change, even from the sitting CEO.
The call to me typically begins, “We’re thinking of replacing a CEO. But we need this to be done in confidence. Can you do it and still be effective?” The answer, of course, is, “Yes, but first give me one good reason why you don’t sit down with your CEO and discuss why the change is needed.”
Answers vary, but the most common is, “We don’t want to lose momentum or cause uncertainly within the company,” i.e., “We’re afraid that news the CEO is being replaced might affect morale and revenues.”
This may be true, of course, but before embarking on a sub rosa search for a replacement, consider these issues–
• Are you sure the situation cannot be resolved without the CEO being deposed? Have you tried everything to turn him/her around? Is the problem focused on a few concerns–work ethic, slow decision making, failure to address a single overriding market challenge, etc.–or is it overall leadership?
• Are there intermediate steps you might take to at least put the CEO on notice? “Probation”? Come to Jesus? Sabbatical? Revisiting compensation?
• Could the problem be resolved by bringing in the right support, e.g., a COO or new CFO?
• Could the CEO be moved into a different to position, allowing you to bring someone in above him/her? Would your CEO accept demotion to President and COO, for example? Could the CEO be moved into a Chairman role?
• How can you present the decision to replace in such a way that the CEO sees the wisdom in your decision? Obviously the CEO has a financial stake in the company’s success. Might it be that he or she will be relieved? See this as a win-win?
• How valuable could the CEO be in the process to find the replacement? Do you want him/her to play an active role, and would s/he be effective in this role, if properly motivated?
• What are the risks if word gets back that a search is being conducted for a new CEO?
• What are the risks that a disgruntled CEO could sabotage the search process? Agree to participate in interviewing, then blow candidates out of the water?
• What effect will conducting the search in confidence have on the overall quantity and quality of candidates? On your ability to secure the best among these?
• How and when do you expect to inform the CEO what’s going on?
• What role will the departed CEO have in the transition process once the new CEO is named?
Second Wind’s (http://www.secondwind.com/) mission is to advance the use of wind data to make wind energy profitable for the businesses and investors who create wind energy plants, painless for the operators who work with wind energy equipment and practical for the businesses, consumers and utilities that benefit from wind energy as a low-cost and environmentally desirable source of power.
Second Wind prides itself on technology innovation with its in-house hardware development and software engineering talent. The company continues to develop ground breaking products related to wind data.
Thirty four employees staff Second Wind’s headquarters and manufacturing facility. The company has an industry-wide reputation for innovative, reliable technology and excellent customer support. Inc. magazine recently ranked Second Wind on its first-ever Inc. 5,000 list of the fastest-growing private companies in the country. The company’s ranking was based on its 27% revenue growth from 2003-2006 and was the only business-to-business wind organization in the energy industry category. In December 2007, Second Wind secured $4 million in second round financing from Good Energies, a leading global investor in the renewable energy and energy efficiency industry.
Second Wind has been growing steadily, with annual sales of about $7M in 2008. Their clients include the largest developers and operators in an industry with a 30% annual growth rate.
History
Second Wind was founded in 1980 by Walter Sass and Kenneth Cohn. Engineers who have been friends since grade school, they decided the emerging field of wind energy provided an opportunity to leverage their engineering skills to benefit the environment. They recognized that, to succeed, the industry needed more than wind turbines. Wind developers also needed software and hardware to measure wind accurately at prospective sites and to monitor turbine performance at established wind farms. The company’s first headquarters was the spare bedroom in Sass’s home.
Second Wind established a presence in wind resource assessment in 1981 by introducing the first data logger designed specifically for wind energy prospecting. In 1985, the company introduced their first wind farm monitoring system. In 2007, Second Wind launched the TritonTM sonic wind profiler, designed to re-invent sodar for wind profiling.
Market Opportunity
Wind energy is growing at 20-30% annually. The market is global, with 17 countries having attained over 1,000 MW via wind. Of the $37B invested in wind energy in 2007, 2% was for wind resource assessment instrumentation and services, or $735MM. 8,000 met towers were installed for prospecting, power performance and operations. Target markets for wind assessment include large, medium and small developers as well as services firms.
The pressing need for viable alternative energy sources that do more than just supplement coal fired power-stations is driving advances in the development of wind energy. A major hurdle in establishing successful wind farms is the difficulty of attaining accurate site evaluation data. The Triton Sonic Wind Profiler addresses this challenge. Designed to measure wind-speed at heights of up to 200m without the need for erecting costly and less effective masts, the wind profiler utilizes a technique known as Sodar (sound detection and ranging) that measures sound wave echoes in the atmosphere. The technique is not dissimilar to Sonar detection used by submarines underwater.
In evaluating a suitable site to establish a wind farm, measurements need to be taken over a period of at least a year. This has been achieved, until now, by using a meteorological mast or met mast – a tower equipped with anemometers and other weather instruments. These masts are limited to a height restriction of 60m; any taller tower requires aircraft warning lights, which complicates assessment of a site for a turbine 75-80m high. Another complicating issue is the masts’ high visibility, which can raise public concerns before the site has been properly evaluated.
Relying on precise measurements of frequency and time delay from sound pulses that are bounced back to the transmission unit by wind turbulence, Sodar technology provides a virtually invisible tool which measures wind speed and direction at heights up to 200 meters. The Triton system also overcomes some of the problems associated with existing Sodar technology by remaining effective even in poor weather and delivering easy to interpret wind data without an on-site presence.
Triton also boasts innovations such as a hexagonal transducer array and a tri-lobed acoustic enclosure that increase accuracy by improving signal-to-noise ratios and beam focus, rugged construction making the unit effective in all weather conditions and able to correct measurements when used on uneven ground.
The Products and Customers
TritonTM Sonic Wind Profiler re-invents sodar technology for wind assessment. It captures accurate wind data from any height, in any weather, at any location, without being attended. Readings look like anemometry results, with no expert analysis required.
SODAR (SOnic Detection And Ranging http://en.wikipedia.org/wiki/Sodar ), or sodar, is a meteorological instrument which measures the scattering of sound waves by atmospheric turbulence. SODAR systems are used to measure wind speed at various heights above the ground, and the thermodynamic structure of the lower layer of the atmosphere.
Sodar systems are like radar (radio detection and ranging) systems except that sound waves rather than radio waves are used for detection.
Sodar sends an audible “chirp” up through the air, and wind turbulence sends a portion of the sound back toward the ground. By precisely measuring the frequency and time delay of the chirp’s echo, the sodar device measures the wind speed and direction at various heights.
Sodar technology is commonly used for “site profiling” at the end of the prospecting process for potential wind farm locations. It measures above the 60-meter height of most meteorological masts, assessing wind at actual turbine heights. In addition, sodar is more portable than masts and can be moved to determine ideal turbine placement.
Current sodar products have multiple limitations for wind profiling. They require on-site support to
operate, and deliver wind data in formats that require expert interpretation. Readings must be carefully analyzed to filter out “side lobes,” or sound artifacts from nearby trees and buildings that can produce inaccurate results. Most current sodar products also must be covered in rain or snow to avoid damage to the sensitive microphones and speakers.
Benefits of the Triton Sonic Wind Profiler
Numerous Triton innovations address the shortcomings of existing sodar products for wind profi
•More accurate data. A hexagonal speaker array (patent applied for) focuses sound beams more
effectively than previous designs, which improves signal-to-noise ratio accuracy and decreases
disruption. The array is housed in a tri-lobed acoustic enclosure, which reduces the chance of
sound artifacts disrupting data.
•Unattended use in any location. A solar array and battery can provide adequate power for the
Triton unit to operate for prolonged periods of time, depending on available sunlight and amount
of use. Bundled with new Skyserve satellite wind data service, the Triton profiler delivers
accurate wind data to any computer from any location in North America.
•Ready-to-read data. Unlike other sodar products, the Second Wind sodar delivers easy-to-read
data that is similar to data read outs from conventional meteorological towers.
•Works in any weather. The unit is made of rugged plastic with stainless steel components and
sound absorbing material that functions when wet, unlike foam. Internal temperature sensors and
a propane heater also allow Triton to operate in icy conditions.
•More portable and less obtrusive. At six feet tall, Triton can easily be towed by a pick-up truck.
The unit has internal controls to compensate for uneven ground, and a built-in GPS and compass
identify the time and location of data as it’s captured. Because of better acoustics, it is also less noisy than other sodar products.
The Position
Reporting to the VP Global Sales Peter Gibson, the Director Eastern European Sales will be responsible for the planning and execution of sales activities for Second Wind in Eastern and Central Europe. The Sales Director be focused on direct sales of the company’s Triton SODAR device and services.
CEOs and executive leaders of innovation-stage companies often ask themselves what is the best approach to employee appreciation, productivity and retention.
We’ve all heard the stories around the lengths some venture capital-backed companies go in their efforts to service the needs of their employees. What started as the water cooler and drip coffee pot, fast-growth companies have super-sized, continuing to up the employee pampering ante– installing company-paid cappuccino machines and Kurig coffee makers with what appears to be an endless supply and variety of coffees and teas. Keeping well-stocked office kitchen pantries with either favored junk food, healthy snack choices, or both. Catering lunch, breakfast, dinner, sometimes all three meals plus a midnight snack that rivals food options found on luxe cruise liners. Car valet services, onsite dry-cleaning pick-up/drop off, massages, yoga, concierge services, onsite daycare/nanny service, bring-your-pet-to-work options. And on and on and on, the calories and comfort food arms race continues its grim march toward caffeine OD and adult-onset diabetes.
However, there’s a moral and dilemma CEOs often face when trying to strike the right balance of perks and austerity.
The argument for pampering: In the new knowledge-worker driven economy, there is often precious little machinery or automation. So every time an employee walks out the door to Starbucks, Dunkin’ Donuts, the sandwich shop, or the drycleaner, the corporate engine slows down a notch. Therefore, the logic emerges that if you can remove all interruptions for employees, you’ll get far more in productivity out of them than junk food and pampering you put in to them.
The argument against: It’s expensive. It creates a sense of entitlement in employees. It creates a false sense of prosperity in a company that may be pre-revenue and in need of several more rounds of funding before it can stand on it’s own two financial legs.
Some might say that economic recessions pound the potential for excess back to square one. OK, so perks have slowed down a bit after each economic set-back in the last decade, starting with the Internet bubble bursting and post-Y2K malaise, the aftermath of 9/11 on the U.S. economy and, most recently, the banking sector melt-down. However, after each setback it seems a new “floor” gets set that’s just a bit tonier than the last one.
So how do CEOs handle this arms race in employee perks you ask?
Below are a few lessons learned and secrets shared by a number of CEOs who know a bit about the word “value” in serving up employee perks-
Perks Case Study A:Intra-office “micropreneurship.” The secret of the concession license
One venture-backed CEO wanted to offer some of the perks, but not all when it came to stocking the pantry. So, rather than facing an all-or-nothing approach, the CEO decided that a business principle was in play that could be exploited in a win-win-win fashion– what the company had as an asset was the equivalent of a monopoly. He reasoned that employees were a captive audience. If the CEO offered the “vendor concession” contract to an aspiring employee who wanted to make a few bucks, the company would offer exclusive stocking/inventory rights to that employee to stock the pantry. However, in trade, the employee had to agree to offer below-market pricing on food and beverages, and also manage the “SKU requests” that the employees would log from time to time regarding food selection and preferences. His formula in a nutshell looked like this:
- win for employees-as the got a below market food and beverage offering, the equivalent of a “company subsidized” pantry offering
- win for the “intra-preneur”-who was given the food concession to run, and could make a few extra bucks running the business
- win for the company-the company didn’t have to provide all the food gratis, nor had the headache of fielding all the requests from employees
Perks Case Study B: Serving dinner not as an entitlement, but only to the truly meritorious
Senator Markey addresses the formal-wear only crowd at the JFK Library during Clean Energy Week in November.
An annual event in Boston punches up the fact that we have an incredible cleantech cluster-New England Clean Energy Council’s annual Green Tie Gala.
Although this event took place back during Clean Energy Week in November, I was reminded of it when out in Denver recently. Denver has some great stuff going for it. NREL (National Renewable Energy Lab), University of Colorado with multiple campuses in Denver and Boulder that have significant funding from both Federal and State agencies, and a history of technology oriented companies, albeit with a heavy emphasis on telecom (Qwest, Level 3).
However, what there isn’t as much of in Denver is what some call the “ecosystem.” Others call it the “cluster.” This is a body of people who hold different but overlapping responsibilities in the entrepreneurial ecosystem and whose fusion is its wellspring–
Academics: These are those most often with the new disruptive technology or science breakthrough that serves as the seed of a new company
Business entrepreneurs: those who have experience taking the seed of an idea, and building a company around it
Investors: The first friends & family, then angel investors, and often venture capitalists or corporate strategic investors who pour money into these new ideas to fund the business entrepreneurs scale the disruptive idea
Professional services providers: These are often the “connectors” in the ecosystem. They’re comprised of lawyers, accountants, executive search consultants, and start-up advisors. They act as the glue between the prior three categories, more often than not introducing one to another, supporting the growth of these companies with their area of specialty
[Footnote: If you compare Boston to Silicon Valley however, Boston is shallower in large technology and sciences companies that serve to spawn "runners" to new start-up companies. The biotech industry is perhaps better in Boston at doing this than the pure technology industry in the last decade, with a growing base of larger biotech and pharma companies including Genzyme, Cubist, Biogen and Sepracor. Medical devices companies also fair better in many ways to large tech, with Boston Scientific, ThermoFisher, and Perkin Elmer. In technology hardware and software, beyond EMC, there are precious few large technology companies left in Massachusetts. ]
Details on the Gala? This year’s Green Tie Gala was held at the JFK Memorial Library in Boston (last year was held at the Museum of Science). There are many organizations in the innovation sector here in Massachusetts that have done a good job at galvanizing a broad cross section of constituents, including the Mass Biotech Council, as well as MITX (formerly MIMC), and the Massachusetts Technology Leadership Council, or TiE Boston (Indus Entrepreneurs). However, we’ve had yet to participate in a gathering of any that approaches that of the cleantech cluster here in New England.
Senator Markey gave the opening address to punctuate the cocktail hour. To a person it seemed, everyone knew everyone. Yes there were a few outsiders (a small contingent from the UK had come over as part of a trade mission coordinated with Clean Energy Week in Massachusetts because of its target rich calendar), yet all of these were welcomed by the larger fold, and the gathering seemed to virtually breathe together as some sort of larger unified body, a cluster with so few degrees of separation that walking from group to group or table to table was akin to going back to your high school reunion…. You knew at least half those sitting at every table. For those who have experienced the annual Nantucket Conference, it is this atmosphere if intimacy and familiarity that presides.
To cap the night off, venture capitalist Chuck McDermott of Rockport Capital led his band in an after-hours session that continued the beat of familiarity both given its leader as well as in its musical selection (Chuck stating that the band only plays “songs popularized before 1960″).
Chuck McDermott, leading cleantech venture capitalist at Rockport, moonlighting as 50's music band leader
We’re often asked how to establish fair market compensation when it comes to CEOs of privately held companies, often with venture capital or private equity backing.
Below is one method that can be employed as a jumping off point for this calculus:
1) “De-risked,” how much is a CEO worth? Is $500 -$1M a year too much? For our purposes here, we’re talking about a talented CEO. Not someone below average, but above the average, one that a retained executive search firm, venture or private equity investor, or board of directors would be proud to put in the role. Rather than pick some arbitrary number, this should be ”market set,” by looking at what someone working for any global 2000 company (i.e. General Electric or other similar) earns annually. From our executive search experience and database of compensation comparables in these companies, base salary is usually between 250K and 400K, depending upon how big the divisional P&L responsibility is, there is usually a bonus that is between 50-100% of base, and an LTIP (long term incentive plan) that-once partial vesting begins-can generate from 100K up to 250K or more a year in cash.
2) So, the cash component of a comparable, including average base, annual average bonus, and yearly LTIP pay-out looks something like this:
Base ~ 300K
Bonus ~250K
LTIP (cash only) ~ 200K
TOTAL: 750K
* This does not include any meaningful RSUs (restricted stock units) that are usually also part of that package, which could add another 200K or more per year in value to a general manager’s package with true P&L responsibility for their division, group, or sector/segment.
* This is also not indexed to geography/cost of living. If the position is in New York City tri-state area (New York, northern New Jersey, southern Connecticut), San Francisco, Boston, London, Singapore, Hong Kong, or Tokyo, a multiplier factor needs to be used to level-set for cost of living increase required for those metropolitan areas.
3) Now, back out the cash portion of a CEO’s compensation for the company that they’re stepping into (say 250K a year in cash in smaller companies as all base, or combination of base + cash bonus). So you’re left with say 500K that needs to be made up in equity, on a per anum basis.
4) Over how many years is the liquidity horizon (and/or vesting rate, 3, 4 ,5 years)? Let’s say it’s 4 years, at net 500K, equals ~$2 million
5) Now, this is with ZERO beta risk factor. Add back the beta risk of an earlier stage company. Let’s assume a global 200 company equals “1.” A CEO role in a privately held, externally backed company is not “1″. It’s probably a multiplier of 1.5, or 2. For a pre-revenue, VC-backed company with high burn rate, it could be as much as in the 3 to 5 range. Note that any illiquid company is inherently risky in terms of cashing in any equity at a reasonable price. Let’s pick a beta risk multiplier of 2.5 times riskier than “average.” So, 2M * 2.5 = 5M. Note that when there are preferences for the investors that create an exit hurdle rate before any common shareholders get paid, beta risk goes up accordingly unless the CEO participates in any exit event via cash carve out or other instrument. As mentioned above, a recent IPO that represents a reasonable market comparable netted a CEO who joined the company 4 years ago $20M. Using this number, the CEO’s compensation was $5M a year, or a beta multiplier of approximately 5.
6) Then, are there any combat pay provisions you need to add in (warts that a CEO or executive team member is required to overcome and vanquish in their role that are above and beyond the normal call of duty)-reconstituting the executive team, or raising an outside round of capital because existing investors are tapped out, or starting up an Asia manufacturing capability that will require the CEO to take a dozen 15-hour flights one-way to get up and running.
7) Finally, you have to look at what likely dilution there is going to be to an initial options grant for the CEO. If you start with a 6% stake in an early stage company in a Series A funding, and you then raise a series B and C, depending upon valuation for those rounds, the CEO will likely end up below 3% as a “fully diluted” stakeholder. There is an argument to be made that any of the management team critical to the success of the company will be “topped off” at later funding events in order to keep them motivated. However, there is no guarantee that this happens. It’s only good business sense to do it. For the CEO, it is more important what s/he ends up with, not how much with which they start.
8) Add water, and stir…
Notes & disclaimers:
* This is not intended to be biased in any direction, to any party, neither CEO candidate, nor company and/or investor.
* This is only one way of calculating compensation, indeed there are many others.
* There is no way an earl- stage emerging/growth company will be able to compensate a CEO in all cash, nor truly be able to offset the risks inherent in this stage of venture. The CEO either accepts this, or is not truly capable of working successfully in this milieu.
* Other than the impact of cost of living adjustments to base compensation, each CEO candidate comes with what we refer to as their own subjective “keep the lights on” cash needs. We calculate this simply as the amount of cash required on a yearly basis to cover their living/family obligations without having to write checks out of savings to cover it. Some CEO candidates may have 3 children in private school or college, while others may have no children and no mortgage. Cash needs therefore may range widely, and need to be adjusted for using equity as a “leveler” (less cash-needy, higher the equity, and vice versa)
* Alternatives to paying bonuses in cash might be to pay bonuses in equity, upon achievement of key milestones for the company
* This same calculus can be applied to the Vice President level as well, subject to appropriate adjustments downward in cash and equity
* In a circumstance where there is a “turn-around” required, equity may not be enough of a certainly to attract a competent CEO for the challenge ahead. In these circumstances, a cash carve-out may be warranted in addition and/or in substitution for a stakeholder role. The cash carve-out may be just for the CEO, or for the key management team required to achieve the turn-around. Often, the cash-carve out structure is a percentage of total sale price over a certain amount, with the possibility for an accelerator depending upon exit/liquidity circumstances/outcome.
* Often the question of anti-dilution comes up in an effort to assure a CEO of a certain percentage of equity upon liquidity. Granting 5% equity to a CEO at a Series A financing with anti-dilution would ensure that the CEO retained his or her stake across the growth and additional funding needs of the company. However, this is rarely a good mechanism, as the CEO becomes less interested in new company valuations at subsequent funding events, and becomes misaligned with the company’s investors.
I had Tuesday to Monday eve in mid-September in a race across the planet to take advantage of British Airways’ generous offer to fly a batch of entrepreneurs wherever they wanted to go in an effort to further each’s fast-growing businesses… at no cost.
My itinerary? Starting from home base of Boston, then to New York’s JFK, through London, with the ultimate destination– Singapore. Total air time one way? 18 hours. Total air and waiting in airport time one way? 24 hours.
What earned me the opportunity? First, membership in the Entrepreneurs’ Organization (“EO,” www.eonetwork.org, formerly known as YEO, or Young Entrepreneurs’ Organization ) a global membership organization that is nearing 10,000 members across more than a 100 chapters. EO is one of a group of leadership organizations, including YPO, WPO, CEO, and several others. Qualifications for EO membership include annual revenues of $1 million or more, and either founder or majority ownership status in your business.
Hailing from the Boston chapter of 100 or so EO members made up of computer software and hardware entrepreneurs, legal and staffing professional services business owners, and a host of other small business founders including franchising, travel, consulting, real estate, and medical devices, I was made aware of the strategic partnership between British Airways and the EO organization. The following paragraph, detailing what a face-to-face opportunity would mean to the growth and expansion of our boutique retained executive search firm, BSG Team Ventures, was what I jotted down–
We have a presence in Boston, New York, Silicon Valley, and London. These are key global innovation centers. However, there is clearly a fifth and/or sixth location to round out our client value proposition of “on the ground coverage in the key innovation centers in the world”– and those are India and Asia. Although there is a term sometimes used that combines the two (“Chindia”), we feel that there is perhaps a need to be able to service our growth-stage clients in each. One alternative is a meaningful position in a location like Singapore, which is equidistant from both these key innovation markets.
The ability to set up a series of meetings with potential partners, and then bring pre-meeting calls and video conferences to an in-person, face-to-face setting, would be extremely meaningful in taking our business from EU-American only, to truly global, capable of better servicing the needs of our clients who continue to demand the need to themselves expand globally.
I had been to Singapore and Hong Kong in 2008 on business, and knew that another trip there would allow us to cement some developing relationships “face-to-face.” In 2008, we completed a VP Worldwide Sales search based out of Singapore, and are now working on another General Manager search based out of Tokyo for a leading global technology innovator. And with the recession of 2008-2009 projected to recover in west-bound fashion this time (Asia first, Europe second, and the U.S. last), China, Japan, and the rest of the Asia-Pacific corridor is important to every business, both large or small like ours.
Having won the right to cash in the BA offer, a plane load of entrepreneurs amassed down at JFK airport in New York. BA was everything they’ve built their reputation on-service-oriented and courteous, only as the British can be-with a send off in the first-class lounge that was rich in food, spirit(s), networking with other entrepreneurs, and a few humor-filled greetings speeches by both British Airways officials and the British government. Example of the power-networking in the BA lounge? I met up with Morgen Newman, co-founder of IdeaPaint, another Boston-based start-up that was a BA travel recipient, with a company out of Babson (my alma mater so plugging here) that has formulated a special paint that can be applied on any work surface that then functions as a “whiteboard,” completely erasable when using dry-erase markers. IdeaPaint is a tool for entrepreneurs that simply brilliant. Most entrepreneurs are visual thinkers, and this now allows us to scribble on every surface…. (“Beware office cleaners-these walls aren’t “dirty”…. DO NOT ERASE!”)
My itinerary and goals for the trip looked like the following: More…
On September 24, 2009, BSG Team Ventures hosted the 3rd annual Charity tennis tournament at Longwood Cricket Club in Chestnut Hill, MA. The format is a la Davis Cup, with venture capitals pitted against entrepreneurs.
We’ve been graced with great weather all three years, and this Thursday was nothing different, with a touch of Indian Summer in the air.
Although the teams were a bit smaller in number this year, many remarked (including the blogger) that there has never been a higher quality of play, or sense of competition.
The beneficiary of the charity tournament all three years has been Tenacity, the brainchild of Ned Eames, who founded it a decade ago this year to use tennis as a tool to help build discipline and academic achievement in inner-city at risk youth. Their 10 year Gala is coming up in the next week or two, so be sure to visit www.tenacity.org to learn more and register. It too will be held at Longwood, and is guaranteed to be a memorable evening with hundreds of supporters sharing food, tennis, and a shared mission together. Ned Eames is pictured below, with one of the Tenacity students, addressing this year’s tournament and conveying his story as to the value Tenacity has brought to his life and his family’s.
This year’s winners of the Longwood Charity Cup 2009 were the entrepreneurs, both the entire team, as well as the play-off match-up of best VC team and best entrepreneur team.
Per Suneby and Doug Denny-Brown played in the finals for the entrepreneurs, against the best VC team from the day’s play, represented by Will Peppo of Revolution Partners and Dan Waintrup. In a fiercely fought super-tie-breaker format, the entrepreneurs brought the Cup home for the year (above pictured winners Per and Doug).
Given the competitive nature of participants, several asked for statistics from the team score cards reported. The format dictated that each doubles team played together for the entire afternoon, and there were a total of 5 teams each, VC and entrepreneur.
The mean total game score for entrepreneurs? 22.6 games per team.
Mean total game score per team for VCs? 16.5 games.
Grumblings from both sides sounded very similar, with a refrain echoed that “[VCs/entrepreneurs] certainly had more time to practice this summer than we did….”
A special thanks to our sponsors, Silicon Valley Bank and Xconomy without who’s support the event would never have happened. Jim Maynard was much missed from SVB, but Jim’s bank colleague, Mike Quinn, held his own, and will clearly be coming back next year with Jim to present a fearsome twosome.
And this year we honor our first female competitor, Lynn Calkins, playing for the Xconomy team, and racking up a total game score with her partner than came in a close second in total team game scores. Thanks Lynn for coming out, and Xconomy for once again blazing the path of innovation in building their corporate team.
Per Suneby and Doug Denny-Brown, winner of 2009 Tournament
Finally, no reflection on the day would be complete without a total two-team photo of all who contributed their time and energy. Note that only one player dared play barefoot. Next year, we’re going to mandate that the last two games of the tournament will both be played shoeless by all teams. It’s an experience that needs to be added to everyone’s “bucket list”….
Every few months we survey the innovation-stage community of CEOs with the goal of leveraging our C-level relationships as executive recruiters to generate collective wisdom to share back. We hope below you find insights that help to run your companies more strategically.
In August, we surveyed our CEO community and had more than 60 CEOs participate. Thanks to all who contributed. The theme of this survey was centered around whether a different strategy is required to succeed post-recovery than that which was in place pre-recession. These CEOs came from those practice areas in which we focus, and included broad based technology companies in the media, software, mobile and telecom sectors, Biotechnology, medical devices, and cleantech / renewable energy.
The 60-plus participating companies were spread across the growth-stage spectrum, ranging from pre-revenue through profitable/shipping product, most being seed-funded through post-Series C, as well as private equity-backed–
To set the stage for the survey questions, when asked when CEOs were expecting the recovery to materially reach their companies, the results were still quite bearish, with more than 50% responding Q2 2010 or later–
Although entrepreneurs are supposed to be eternal optimists, when asked what sort of recovery CEOS expected, again, the majority picked the worst of the alternatives, with more than half opting for a “W” recovery (in graphical terms, a double dip, with the last year starting September 2008 to now equalling the first “u” of the “W,” and another anticipated dip between now and Q2 2010 or later. Almost as bearish, 28% of CEOs chose an “L” recovery, indicating that they felt “recovery” was really better defined as a flatting out of the downward trendline, but no corresponding upward rebound–
The next several survey questions focused on business strategy. 58% of CEOs indicated that they were not planning on pursuing the same strategy after the recession than before–
In executing on their strategies, CEOs responded somewhat intuitively that sales & business development functions would be two of the most important executive level functions that would help them in executing successfully post-recovery. Somewhat less intuitively, the third most important functional area ranked was product development–
The last strategy question posed to CEOs was whether - if a majority of the CEOs were executing on a different strategy in post-recovery than pre-recession – did CEOs feel that the same executive team they had could execute effectively on both. More than a third of CEOs surveyed indicated, no, their current executive teams were not the right teams for their new post-recovery strategies.
As for their companies’ financial condition, 60% CEOs responding indicated they were still burning cash, 15% were cash flow break-even, and 25% were running their companies in cash positive position–
And answering the perennial question as to whether CEOs were planning on raising equity capital in the near future, slightly more than half responded in the affirmative–
In conclusion, the survey pointed up the fact that innovation-stage companies are still very cautious around the economic forecast, have recast their strategies as different from pre-recession in preparation for the recovery, but still have some retooling to do within their executive teams to optimize the chances of outstripping their competitors in 2010.
Thanks again to the CEOs who participated. Knowledge is power. Collective knowledge is actionable.
We are often asked to do some executive compensation “ciphering” on behalf of our clients. Getting an accurate read on market compensation is always a bit of fuzzy math. You can call around to those you think may know or are in those positions now, you can commission a survey, or dig into some of the executive compensation databases that pre-exist. We often do all three on behalf of our clients. However, the below numbers are based on the Dow Jones executive compensation data collected several times a year, targeting venture-capital backed companies in the U.S. The companies surveyed cover early stage seed-round and Series A, through later funding stages, and companies that are pre-revenue through shipping product and profitable. From an industry perspective, the below data is an amalgam of all venture-backed industry sectors in the U.S., including technology (software, hardware, services, interactive media, etc.), sciences (biotech specifically), medical devices, cleantech / renewable energy, and other related fundable venture sectors.
For this bit of ciphering, we’ve focused on three executive compensation comparisons involving CEO compensation–
1) West Coast versus East Coast, and the differences that may exist between them
2) “Founder CEO” vs “non-founder CEO”
3) and early stage CEO compensation vs. later stage companies and associated CEO compensation within
This is always an interesting analysis. Each category of CEO always feels as if the other is getting a “better deal”-CEOs on one coast think it’s likely better on the other, and founders and non-founders often feel the other has a better package. Similarly, early-stage CEOs are often jealous of the “rich cash packages” that they seem to hear about in later stage companies, and late-stage CEOs always feel that early-stage CEOs get so much more meaningful an equity position than they as “hired guns” seem to be able to garner.
Note that below we’ve only included the analysis of the executive compensation data, in other words the deltas. If you’d like more detail and the information on which we based the analysis, please email damador@bsgtv.com with your name, title, company and business email address, and we can provide you with the baseline full report.
Do keep in mind that this is only one set of data. To draw the best comparables, it’s important to do all three data-grabs listed above. Also, this is a “blended” sample set of all venture-backed industry sectors. Some industry sub-segments may pay more or less than others with further parsing.
Highlights of the analysis
In the first “delta” table, we took a look at West versus East for early stage start-up/product development focused companies. What was apparent in this earlier stage company setting was most recently, West Coast early-stage CEOs on the whole have lower cash packages in both base and bonus. In addition, an equity analysis also returns 1-2% less on the West Coast than East in this data set in the lower quartile and median. However, in the top quartile compensation range (those CEOs who have compensation in the top 25% of all CEOs surveyed), West Coast CEOs outearned East Coast in both cash (by only $13,000) and equity (a full 1% more). Another interesting data point is that West Coast CEO’s have more upside in terms of bonuses (an average of 27% of their base compensation) than East Coast CEO’s whose bonuses are an average of 16% of their base compensation.
In later-stage companies where they are already shipping product, West Coast founder CEOs are paid less cash and ultimately hold less equity than East Coast founder-CEOs, except again for the top equity quartile, where West Coast founder-CEOs make up for less cash with +4% more equity on average than East Coast founders. However, West Coast bonuses for CEO are 29% of their base compensation while on the East Coast, CEO bonuses are 22% of base compensation.
West Coast non-founder CEOs (hired guns) make more than East Coast in cash only. Equity is about the same, East vs. West.
On the East Coast in later-stage companies professional president/CEOs are paid less cash and hold less equity vs. similar founder CEOs.
On the West Coast, the pattern that Noam Wasserman at HBS has observed does prove out– that non-founder CEOs get paid less cash compensation, but hold much more equity than their non-founder CEO counterparts (see http://founderresearch.blogspot.com/)
