      SaaStr · 2013-01-18
      · 4885d
    

The Dilutive Cost of Hiring an Outside CEO in SaaS: A Financial Analysis

Jason Lemkin analyzes the significant equity dilution that results from hiring an outside CEO in venture-backed SaaS companies. While not opposing outside CEOs categorically, he warns that the combination of CEO equity grants, anti-dilution protection, increased capital raises, and hiring of senior executive teams can leave founders with minimal ownership. The article recommends carefully evaluating whether a COO or other senior help might be a more cost-effective alternative.

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Metrics in this report

Executive Team Dilution

5%

total from 4-5 VPs

Outside CEO entourage equity impact

Executive Team Size

4-5count

typical entourage size

Executives hired by outside CEO

Minimum Exit Value for Acceptable Dilution

1000$M

threshold

Exit size where outside CEO dilution becomes worthwhile

Outside CEO Equity Grant

6-8%

standard market

VC-backed SaaS companies hiring outside CEO

Outside Capital Ownership at Exit

80-85%

typical outcome

VC-backed SaaS with outside CEO at successful exit

Remaining Founder & Employee Equity

8-15%

combined pool

All founders and employees after outside CEO and multiple raises

Senior Executive (VP) Equity Grant

1%

minimum per executive

Outside CEO's hired executives