Compensating for a Startup Life
When you’re an entrepreneur or running a startup, you’re well aware of what the financial stakes are. But if you’re a potential employee, you may not be quite sure of what the compensation in a startup will be like.
Each startup will be different, but it’s important that you examine what you need from a job, compensation-wise and decide if a startup company is right for you.
Compensation will likely be lower, and the benefits will almost certainly be less robust than what you would receive from an established or larger company. BUT there are other non-cash options to be considered.
For example, think about employee stock option plans (ESOP). Because most startups recognize that they can’t pay at or above the market, they will often provide ESOPs. As an early employee, these can be very valuable. For the startup, you give your employees a chance to be a part of your growth and to tie their loyalty to your business. For employees, receiving stock options allows you to be a part of the future of the company and benefit from the growth. Depending what stage of the company is at, you may want to negotiate for more stock options, or an accelerated vesting schedule.
A common vesting schedule that many startups have is 48 months. That means that, for example, if you are granted 48,000 shares you have the right to purchase 1,000 shares per month. So as part of your negotiation, you may ask for a shorter vesting schedule, like 24 months.
Other options to negotiate with, if the startup is short on cash, would be items like paid time off/vacation, remote work situation, flexible hours, etc.
A few other things you may want to ask when you’re a potential employee of a startup:
When did the company last raise money?
How much runway does the company have? What are the future funding plans?
What was the valuation of the company at the last financing round?
How big is the market opportunity and what traction has the company gotten?
I think you want to know this to assess whether the company can get big enough for your ESOP to be worth anything. When you’re trading your current earnings potential for ESOP, you’re indirectly investing in the company. Thinking like an investor when choosing a startup to work for is important - how much are you giving up, and in exchange for how much of the company? What could that turn into?
Are you ok with your job/role being fluid and working on a variety of things that may be outside the job description? Depending on the stage of the company, and the amount of other employees, it can be an all-hands-on-deck situation, and you need to be prepared for that. Geoff Charles illustrates the situation really well in this thread.
Do you get along with the founders? Startups are hard and if the founders/management team are hard to work with, the grind of solving problems daily will be much harder.
These aren’t questions you would normally ask in a job interview, but as we know, the start-up world is very different. As this Twitter thread says, think like an investor and ask those questions.
At the end of the day, working in the startup world is an amazing experience. If you have a financial cushion and the personality/constitution to stomach the rollercoaster of working with an early-stage company, the experience will be incredibly rewarding. You’ll work hard, innovate, learn so much, and grow and be challenged each day.
*Photo by Marvin Meyer on Unsplash