Early-Stage Biotechs Now Tying CEO Pay Packages to Capital Raises

A tighter venture capital market has affected more than the funding biotechs receive. It’s also changed how early-stage companies structure CEO pay packages, according to Leslie Loveless, CEO and managing partner of Slone Partners, a life sciences and healthcare executive search firm. Because of how funding dipped, she told BioSpace, early-stage biotechs started tying CEO salary increases, annual bonuses, equity topoffs and severance package adjustments to raising capital.

“The big thing that I would say that’s been different in the last year and a half is just how much emphasis is on the capital raise for the CEO, because the company can’t go anywhere without the capital,” Loveless said.

The Funding Environment

There’s more pressure around fundraising now than in 2021, when there was a lot of capital and many companies received funding, Loveless noted. Lately, she said, there have been fewer raises, and they haven’t been as large.

As BioSpace recently reported in an article on biopharma venture capital funding, a March Pitchbook report shared that the industry’s VC landscape saw a “pivotal recalibration” in 2023, with $29.9 billion allocated across 920 deals. This compares to $36.7 billion for 1,152 deals in 2022 and $54.4 billion across 1,610 deals in 2021, according to the report.

The funding environment is starting to improve with some bigger and more frequent venture capital rounds as compared to 2023, according to Loveless, whose firm works mostly with early- and growth-stage companies.

How CEO Pay Packages Tie to Capital Raises

Regarding how early-stage biotechs are now structuring CEO pay packages, Loveless shared a few insights on what CEOs could be offered.

  • Salary increases: Loveless said her firm has seen base pay increases tied to an executive’s ability to raise capital. For example, she said, the CEO might accept a job at a seed-stage company with the understanding that if they raise a Series A round of $50 million or more, their base pay will increase from $375,000 to $425,000.
  • Annual bonuses: Loveless noted that tying bonuses to funding instead of other metrics can make more sense for early-stage biotechs. “When you’re very early stage, and you’re really concerned about raising the capital that you need to advance assets, sometimes that bonus will be completely tied to the capital raise because there isn’t really anything else to tie it to in a discovery-stage company,” she noted.
  • Equity topoffs: Loveless shared an example of how early-stage biotechs tie topoffs to capital raises. A CEO may initially receive 4.5% or 5% in equity. Then, if they raise a set amount of capital, the company will add a half percent to their equity package.
  • Severance package adjustments: As biotechs raise capital and get further into their lifecycles, they can increase severance package length to the point where executives usually get to 12 months, Loveless said. She noted this is up from the three to six months typically seen at seed-stage or Series A-stage companies.

When Biotech Pay Packages Don’t Meet Expectations

Some CEO candidates might balk at early-stage biotech pay packages if they don’t match what they’ve seen or received at established or larger companies. For example, Loveless said, for Big Pharma or Big Biopharma executives moving into biotech, “as much as they think they want to make that move, there can be a little bit of a shock of ‘Oh, wow, OK, I’m taking a fairly significant cash cut to do this in favor of the big equity opportunity.’”

These CEO candidates don’t always fully process an offer until it’s in front of them, according to Loveless.

“Then, you can have this moment of an executive wanting compensation that looks more similar to what they’re used to in Big Pharma and Big Biopharma versus what it looks like when you go to a biotech,” she said. “Sometimes, it’s just not possible to get the two sides to come together.”

The pay package is just one reason a biotech might not be the right fit for a CEO candidate. Loveless said the level of risk that can be associated with the business and the hands-on approach that’s required when building a small early-stage company can also come into play.

“There are a lot of people that are very drawn to the higher-risk, higher-reward scenario that you see in biotech, and if that is what you’re drawn to, great. Go for it,” Loveless said. “But if that is not how you are wired, if that’s not in your DNA, then I would encourage folks to appreciate that about themselves. And don’t go into a negotiation with a biotech wanting them to pay you like they are Big Pharma, because they’re not going to. That’s not how they’re wired.”


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