The world of startups is glamorized in movies like The Social Network, but the reality is that most startups fail.
If you work for a startup company and look to get rich quickly, this will not be your best option.
There are many other ways to make money at your job; however, if you’re willing to take on more risk and don’t mind long hours, then working for a startup may be worth it.
I’m sure that you’ve heard of the Facebooks, Googles, and Twitters of the world. These companies are considered “unicorns” because they have a valuation of over $1 billion. But what about startups?
They’re not as flashy, but there is still money to be made in them.
The average startup founder has an income of $128,000 a year – almost triple the median household income in America.
The reality is that being a marketer for these companies can make you rich!
Whether it’s by working your way up from an entry-level position or starting at one already established company and becoming successful on your terms, it’s possible to get rich working for a startup.
Jobs in startups typically mean working long hours for low pay, but the payoff is the chance of getting equity in the company, which may increase in value as time goes by and earnings grow.
It can’t hurt to be at ground zero of that change-the-world feeling you get when you start your 5 step plan of success.
1. Find a low-paying, non-cash paying job at a startup.
2. Work hard for six months or so, making sure you’re seen as an indispensable member of the team.
3. Take on more responsibility (interview co-founders for positions and offer constructive feedback on emerging growth leads).
4. Ask your CEO what their plans are after raising funding when you have been brought in to make it happen.
5. Keep working there until they hit some billion-dollar exit, and whatever equity you’ve accumulated is worth a million bucks. A rule of thumb is one year at a time; be patient and invest in yourself!
The key to success in a startup is working collaboratively and having good communication skills. You can get rich working for startups by understanding the importance of these two attributes and being able to adapt quickly to changing environments with minimal friction.
Startups are not always an easy place to work, but they offer you the opportunity for exponential growth if you have what it takes!
How Much Money Can You Make At A Startup?
The benefits of working at a startup are well-documented: the opportunity to be a part of something new and exciting, the chance to impact your company’s culture and success, and being surrounded by people who share your passion for innovation.
But how much money can you make? The answer may surprise you.
Salaries for startup employees can be far below or far above the industry standard, depending on the size and type of company.
In general, the salary range for a startup employee is $50k-$150k, making it comparable to most corporate jobs in Silicon Valley. However, many startups also offer equity as part of an executive’s compensation package.
Unfortunately, about 6% of startups will fail after five years or less. The idea that most people are successful in their businesses is not valid.
Startup success rates are more often closer to 1%. Re-selling items on eBay won’t cut it either; if you want consistent earnings these days, you have to own a website and develop an email list selling something people want or need – those are your best chances for stability in this uncertain economy.
You can make a lot of money at startups, but it may not be easy to get there. Startups are high-risk ventures with the potential for huge rewards.
If you want to earn more than $100k annually in your first few years out of college or have an entrepreneurial spirit that is dying to break free from corporate constraints, starting your own company could be just what you need.
But before you quit your day job and go all-in on entrepreneurship, think about how much time and energy (and cash) it will take before making any real progress towards this goal.
It’s important to consider whether these challenges sound like they’re worth the payoff compared with other career paths you might explore instead!
How To Negotiate Equity In A Startup
Your equity in a startup can be one of the most valuable things you own, so it’s essential to know how to negotiate for more.
The first thing is understanding what your negotiating power is and knowing what you want from the negotiation.
You should also have an idea of where you are willing to compromise on specific points and be able to walk away if needed. This will help make sure that both parties stay at the table long enough for a deal to get done.
You might also want to consider bringing someone else into negotiations with you, like an adviser or lawyer who can give objective advice during negotiations as well as review any final agreements before signing anything.
Equity in a startup is similar to equity ownership in any company. However, instead of “stock,” participation in the company (equity) is usually allocated as shares of both standard and preferred stocks.
Depending on the type of stake you are offered, you may also be entitled to earnings such as dividends or coupon payments from purchasing preferred shares.
If you’re negotiating equity for your time and skills, you must ensure that how much money will be generated from this new venture will allow your share of the pie to matter.
You want to ensure you’re making the best deal you possibly can, not only for yourself but also for your team members.
You’ll need to figure out what is worth accepting and waiting on or negotiating down. Negotiating equity means gauging how much is enough before walking away with nothing versus how much will make a good deal right now without losing everything in the future.
What Should I Do Before Startup Equity Negotiation?
There are several things you can do to prime yourself concerning startup equity negotiation.
Just like any negotiation, the first thing you should do is try to put yourself in your employer’s shoes. Think about what they’re looking for during this process and think about their weak spots.
Think about what is most important to you and why. This will help sort out your relative priorities.
If you’re an early-stage employee, it may be that job security or a higher salary is the essential thing to have for you to accept the offer; if this is the case, then use that as leverage during negotiations and don’t put too much stock in how much equity might be available later on down the road.
Before starting up a negotiation with a potential equity partner, make sure you get the most leverage for yourself.
Know your skills and value as an employee – the company has a huge incentive to pay you according to their own desired salary range, so don’t accept numbers below what you’re worth. Doing this means that more money goes into the pockets of investors rather than yours – unfair considering they didn’t risk any part of their net worth for this venture.
Know how much they value your equity in the company – most people’s offer for equity is deceptive or inconsistent and only really focuses on some “future” but doesn’t mention anything about your restricted stock units or liquidation preferences. This is why it’s essential to know how many shares in the company you will have.
Negotiate at appropriate times – don’t negotiate when you are too stretched and only offer fair terms, but instead wait till you are less busy or have more leverage on your side.
Nail down agreements – negotiate hard to ensure that vague points in the contract are addressed and that both parties are precisely clear on what they will be getting out of their arrangement.
Impose limitations – part of having better leverage can set limits as to who else may join your company down the line if it grows large enough from an investment standpoint.
What Questions Should I Ask During Startup Negotiations?
It would help if you came to the negotiation with a list of questions that address the following points.
1) What is the expected duration of my contract?
2) Can I expect to receive an offer for a permanent position?
3) What is your current turnover rate in this department?
4) How does this company define success for me individually in this position?
5) Does the position have opportunities for advancement or promotion within 18-24 months after the hiring date.
6) If yes, what are those pathways and skill sets necessary for advancement? If not, why not provide an opportunity for job growth or promotion within 6-12 months after the hiring date instead.
Startup negotiation sessions provide an opportunity to gain a better understanding of business practices that would not be revealed in a contract and can’t be readily displayed on paper.
Being comfortable with one’s business ethos is especially important for startups who often do not know how their company will evolve.
Understanding what vision your negotiating partner has for you, knowing their long-term goal, and determining if both parties have realistic expectations are all crucial aspects of negotiation that should be considered before signing any agreements.
What Is The Typical Early-stage Startup Salary?
A lot of people ask themselves how much they should be paid for their work. It’s a difficult question to answer, and it varies depending on the industry, company, country, experience, location, and skillset.
However, some general guidelines can help you figure out what your worth is in the labor market.
The traditional startup salary is primarily based on personal experience, as startups in their early stage are often restricted to specific niches.
Anecdotal evidence suggests the lower end of the spectrum is around USD 60,000 per year for engineers and at least that amount for founders, but these numbers will generally grow with time if a company goes well.
In general, it’s rare to make less than $75,000 per year in a startup – this number could be higher depending on the nature of the position or location. However, some young talent might prefer working for less given the high potential upside. This comes with significant stress and pressure.
How Do Startup Founders Make Money?
There are many different ways for startup founders to make money. One of the most common is equity financing, which means that a company offers shares in their company in exchange for cash. However, if you’re looking to get rich quickly without much work, I wouldn’t recommend this.
An entrepreneur might use other strategies include bootstrapping (using revenue from sales or funding) or selling their product outright as a one-time purchase (known as an enterprise sale).
It’s also good to note that while someone might start making little money, they could earn more based on how well their business does over time and what kind of salary they negotiate with it afterward.
There are five broad categories to how founders make money, namely:
1. Sell a service to clients (for example, do website design or insurance).
2. Perform contract work for the government or another company.
3. Keep stock in the company you founded and wait for it to go public (*very* risky!).
4. Sell shares of your co-founded company with other people who want an equity stake in it but don’t have the time and knowledge to handle all aspects of maintaining a full-fledged business on their own – if they are providing physical products, they are likely using fulfillment services like Amazon FBA.
5. Get a second job (many founders recommend that founders do this as soon as possible).
There is no one proven formula in terms of how you make money. With that said, venture capitalists usually invest in larger companies with higher risk and earlier growth than smaller ones because assuming that is where the big potential payoff would be.
How Much Do Founders Make In An Acquisition?
In general, founders do not see as much a payday in an acquisition as employees and investors, and they will often see much more minor. This is because the company they helped found may have taken on debts as it grew, which will need to be paid for by some or all of the founders before receiving any additional money.
The upside is that there are ways around this, such as vesting options – but these typically require an owner to stay with the company through a specific time frame or timeline (commonly 2-5 years) before vesting occurs so that they can reap many benefits.
Vesting options are non-qualified stock options. They’re not publicly traded, but they provide an incentive for an employee to stay with a company by increasing value only after a certain amount of time has been completed. If the employee leaves their employment before this vesting timespan is complete, they forfeit all future gains from that option.
Conclusion
Equity in startups is often not what people think it is, so don’t assume that because there are more zeros on the end of an offer letter than at your current company that this means you can retire by age 30! Consider negotiating with the founder or CEO about their salary before agreeing to work for them.
You might also want to talk through some exit scenarios and other ways founders make money from their companies besides just salaries.
Your time at a startup is never wasted. Whether you end up making money or not, there’s so much to learn from this experience, and it will look great on your resume!
Glossary
A venture capitalist firm (VC firm) is a company that invests in new companies. Often, these are wealth-originated companies where there are built-in connections to investments or angel investors who have some experience dealing with risk. A venture capital firm follows three principles when selecting an asset (or business idea): good management, new and promising markets, and a product with significant potential for growth.
An early stage startup is a great idea that has just started its production process and does not have any sales yet.
Private equity differs from public equity in that it is restricted to private companies, which excludes stocks of public companies.
A liquidity event is when a company can return money to its investors. A liquidity event may happen when a company is sold, restructured, or goes public.
Angel investment is an opportunity for later-stage startups to get a large infusion of cash from an investor. Typically, for angel investors, cash flow is usually around $25k-$250k per company in a “seed” round.
Startup culture is one in which the environment nurtures risk-taking, creativity, and self-expression. It’s a cultural norm that has to be fostered rather than implored upon.
Portfolio companies are organizations, such as universities and corporations, that invest in other companies.
A founding team is a group of people who typically form the first or original company in a startup. The size of the founding team varies from 3-5 people, depending on the complexity and goal of their project.
IPO stands for Initial Public Offering. Put, it’s when a company needs to raise money and offers shares to the public for the first time.
A big corporation can be defined as a “large company” that deals in different industries or broad industry sectors at once, such as manufacturing, finance, agriculture, etc.
A virtual assistant (VA) is an individual hired to perform administrative, professional, and personal tasks for another person.
An online business is just a company done using computers, the internet, and social media.
A self made millionaire is an individual who has made a net worth of at least one million US dollars.
A promising startup is any company with a product or service in a quickly developing and evolving market.
A successful startup has a group of committed founders who work full-time on the company and who all have complementary skills.
Startup investing is when rich people invest their own or other peoples’ money in a startup. Typically, these are small business owners of private or big companies that have not yet gone public. Some may already have a tech startup, be a software engineer or have an established real estate company, typically an entrepreneur rather than an early employee.
