CEO compensation in venture-backed firms

We hypothesize that because fast-growing young companies must raise money in private capital markets that contain significant financing frictions, the CEOs of such firms will be compensated for successful fundraising. Using a sample of 1585 private venture-backed U.S. firms, we find that the cash pay of entrepreneur-CEOs is increasing in both the quantity and quality of financing secured and is more sensitive to successful fundraising the more challenging and difficult is the fundraising task. Successful fundraising also increases the gap between the pay of CEOs and other executives. Finally, we show that while VC financing dilutes the CEO's fractional equity ownership, it increases the dollar value of that ownership. (C) 2009 Elsevier Inc. All rights reserved.