Your Startup, a CMO, and that Elusive Question of Equity

First let’s establish as fact, a couple of assumptions.  This is a key role in your organization, at a distinct stage in a specific type of new company; and as a team member so critical, we need to be on the same page as to our context in working through this question.

1. Early stage = pre A. May have some seed funding but you’re still working on product marketing fit; an early stage startup
2. CMO. By many measures, the most important role in the organization besides the CEO (If you disagree, start here first). We’re not talking about a growth or customer acquisition hire, this is the role that distinguishes a business
3. This is a startup so you WILL be under-compensating the role. We’re presuming the ideal, long-term, leadership for this position, someone who wants to take the risk with you, for the upside, and will take lower than market compensation as a result.
4. We are talking about a startup and not a new business – Seeking investment is highly likely; seeking, and the potential, to exit is a certainty (otherwise the equity doesn’t mean anything).

What you have to keep in mind is that a CMO is NOT a growth hacker, an email marketer, an SEO, nor someone who merely knows AdWords. We’re talking about the person who will take the reins FROM the CEO/Founders with regard to Product, Customers, Market, Roadmap, Customer Support, Sales, Competition, the respective budget, decisions, hiring, etc. This is not a VP Marketing.

If you disagree with any of the above, or the hire you have in mind is not suited to that, you aren’t talking about CMO in a startup

With all that in mind, be conscious of the fact that THEY are taking a compensation, AND career risk. The equity grant isn’t a token as an employee, a CxO isn’t an employee so much as they are a late founder. Chief means they are as responsible, accountable, and involved in as much as anyone else running the company.

CMO or not, your startup is still likely to fail and so since this person isn’t a founder, you have to be comfortable with the idea that they are taking as great a risk as you, and deserve the upside of their impact.

You need the best. You need the best committed, passionate, and involved. If you don’t do that, you’re chances of success will go to near zero. I’ve seen it happen time and again; an early stage CxO is essentially a cofounder and a mismatch in this regard is as destructive to the business as actually having a spat with a cofounder.

Get to the point(s) already

Market for a pre-Series A non-founder CMO making market salary is something in the 5–10% range. Post-dilution through Series C, that’ll take you down to about a point, fully de-risked.

But we’re not offering market salary are we?

So, we do the math.

Giving up $Xk per year in cash, over five or so years (early stage CMO isn’t likely your late stage CMO) = X*5 in present value equity given the fact that we’re still not accounting for risk AND the additional time it will take before the company is likely to deliver any return (another 5–10 years).

What does that look like in points? No idea as it depends on present valuation, investment requirements and plans, post money valuations, etc. but easily fair to say 15%+

[photo credit: 2016; Nasdaq CMO Jeremy Skule]