Startups as a Career and Transparency on Equity Grants
Generally speaking, there’s a major lack of transparency around startup equity in the tech world. Often the people who can write about options and salary are VCs / founders who feel they are too dirty to share or can’t properly obscure individuals and stories. It feels like most conversations about equity and pay stay between friends in back rooms.
Recently AngelList Talent added some transparency with their recruiting tools, which is nice to see, but many jobs have a very nebulous equity range (e.g. 0.0 – 2%).
Here’s a basis for how equity is commonly granted to employees in early startups:
- Expect from 0.1% to 1% of a company in a bell curve distribution for joining a seed or series A funded startup. There are outlying data points on both extremes.
- I often hear reports of MBA types asking for way too much equity. They feel because they “have experience” they should be coming in for 2%, whereas the role should probably command 0.2 – 0.5% under typical circumstances. Because everyone knows “a friend of a friend” — see below – I see this disconnect a lot.
- I’ve seen hires in seed as well as series-A funded startups get upwards of 2-4% of equity. This is rare and only happens when everything “lines up” – e.g. the person has a long standing relationship with the founder, helped as an advisor / investor or in a prior life, and generally is bringing something very unique that goes way beyond their paper resume.
- Keep in mind there is no real board or option pool at seed financing that cares too much about how founders split this up, but at the A round you have a board investor approving grants, and they have been doing the same thing for years.
- One point specific to business hires: if the business co-founder feels like you complement him or her extremely well, they may be much more generous with equity. This is another post in and of itself, but there are usually two types of business founders: the “sales” or “operational” one. One embraces business / ops jobs within the company and the other hates them and prefers to be always closing deals and doing external things like sales. If you complement the founder well and are a perfect fit for the role, you can often convince them to give you equity at the high end of the range because you will offload the things they hate to do.
- In all of the above examples, expect pay at seed companies to be negligible to $100K max, and only normalize after series A. I didn’t want to focus on pay here, more on stock and ownership, so am glossing over this but it’s obviously also important as a decision criteria.
One really interesting career-related pattern comes out of all this:
If you are optimizing for money and you don’t want to found a startup, you need to approach learning and making $ at a startup in very different ways than the choices a VC would make. While a VC can invest in say 30 different companies across a fund (5-ish year horizon) in hopes of finding the next Google, you cannot work at 30 different early stage companies in your entire career.
The obvious calculation here is time. If you don’t pick winners then you may waste several good years, and not have much to show in terms of money or success either.
This is why as a prospective employee it’s important to think about whether the company is de-risked or not. When a company raises an A round, it’s not de-risked to the same degree that the options grants are reduced. Chris Dixon covered this here. I agree that a “bad time” financially-speaking is probably joining a startup right at completion of the A round when the company has some momentum and hype but hasn’t reached revenues or real product-market fit.
You also need to narrow in on what you are seeking. If it’s $ (if so you could be doing startups for the wrong reason) then you may want to learn a lot by hacking away, creating deep relationships in the industry you are interested in, starting a company, etc then going somewhere that is series B or C funded and entering its major growth phase (skipping early companies all together).
Take Dropbox, Airbnb, Uber, or Square 12-24 months ago. To make up a number in a reasonable range say an employee gets 0.05% equity, but the valuation goes 10x. Then by that example, your $200K stake could turn into $2M (if the company goes from $400M to a $4B valuation which roughly approximates what each of the above companies did in about a 1 year spread). This is much more money than if you get 0.5% equity of a company that sells for $50M.
There were plenty of people who got rich off going to Google even right at the IPO when the company was worth $40B with this strategy, even though they were not early employees. In fact I had a friend who chased big companies pre-IPO with this strategy and on his 3rd one hit it big with Google.
Btw, I am in no way saying that you should be chasing a carrot of getting rich by working at startup companies. The truth is building things in modern tech can be much more exciting and fulfilling than the alternative (working in mature industries or advising / consulting where you spend all your time marginally improving things and you’re not building anything).
But it’s a good exercise to weigh the financial upside you’ll have as being a “part owner” in relation to experience gained and future career optionality depending on company maturity and stage.