It is a commonly held misconception that startups cannot give raises, and this is, in fact, untrue. Startups may have limited funding and resources, but they are still committed to their employees’ success.
I spoke with the CEO of a startup, and here is what he had to say: “It depends on the company and how they see your role within it.”
Startups can increase your salary in other ways too. You can raise your pay by giving yourself promotions or negotiating for better compensation along with other perks.
Generally speaking, the rate of salary increases is correlated with the startup company size and industry. The larger the company, typically, the higher your salary will be able to grow over time.
Startups that don’t want to offer a competitive wage to maintain talent may offer equity instead in return for lower salaries.
If you’re good at what you do and vendors are willing to take an aggressive discount on what they charge, then there may be room in your budget even if you can’t increase startup salaries (which are notoriously under-market by design).
If you are unhappy with your salary at a startup company, there are some steps you can take to get increased compensation for yourself:
- Ask about the possibilities of getting more responsibility or taking on additional tasks in order to increase your value.
- Talk about how much money other people in similar positions make in the industry.
- Propose different ways that they could compensate you (e.g., equity).
In many startups, salary is usually at least 75% equity with no benefits which means the vast majority of your take-home pay will come from dividends as you pass equity ownership milestones or through stock options if they are successful before IPO (initial public offering) and IPOs can be worth $1 million or more just on paper.
Some entrepreneurs don’t give raises due to company growth and financial status: founders typically invest capital into their startups up-front. They want it to increase, and since profitability isn’t something you see in startups for at least five years on average, these days, staff pay increases are usually scarce to none.
Startups are an excellent opportunity for young professionals to find their way into the workforce. They offer many perks and can be an enriching experience, but they also come with some downsides. One of those is that startups do not typically give raises.
Do Startups Give Signing Bonuses?
The startup industry is one of the most competitive industries out there. So many startups compete for customers and talent that they have to offer incentives to attract them.
This can take the form of signing bonuses, accelerated work hours, stock options, free lunches, or anything else that might entice potential employees or customers.
It’s important to know if you’re considering a job at a startup what this company offers in terms of perks before accepting any position with them.
Startups operate on limited resources, yet they need people that can help them increase (and stay competitive).
With high demand for technology jobs and a relatively stagnant job market, employers increasingly have difficulty finding qualified candidates. This has led many startups to rely heavily on “signing bonuses” (one-time payments) when hiring entry-level positions like engineers or product managers.
Other companies might not have the funds for signing bonuses but are willing to provide equity instead of a prize or make up for it in different ways.
Yet other companies would rather pay their employees more over time because receiving compensation constantly throughout your employment is better than receiving it when you start when you’re just arriving at work and beginning to get used to things.
Finally, some companies even go out of their way by providing exclusive benefits like free parking spaces or shared subscriptions that save employees’ money today or in retirement “bonuses.”
Tech Startup Salaries
Every tech startup has different needs, it depends on the business model, but it’s safe to expect that this is different for each company. Generally, startups are incentivized by equity packages that allow them to acquire top talent without paying competitive wages right away.
Growth will usually follow what you’re being paid comparatively. Still, there can be considerable discrepancies in income between high-performing employees and employees who are just gainfully employed until they come up with an idea of their own.
Standard tech startup salaries fall in the range of $80,000 to $130,000 a year. The median is usually somewhere around $90,000 for employees with some experience developing companies.
The salary will be closer to $85,000 or even less on the low end of this amount. In the high range of this amount, compensation will be closer to $100,000 or even more than that annually.
This is because it’s possible for more experienced developers who may have higher qualifications and might work at a larger company to earn upwards of $130K per year – but just like any other profession where experience matters (i.e., doctors), one would typically expect their annual income increase as they gain experience.
Starting salaries are often meager, but people usually have to invest in themselves by getting experience first to be competitive.
Experience is cheap and can even be free, while salary is expense money paid to the company struggling with adverse market conditions trying to compete for talent. Salary may or may not exceed what you could have made at a full-time job elsewhere.
Experience should come first in the sense that you should go with what’s best for your career, but make sure there are enough monetary rewards to make your working hours worthwhile.
A tech startup salary can be a great experience that may lead to higher-paying jobs in the future.
Remember that salary is just one factor in deciding which company or position might be right for you; make sure that all other factors align.
Pay Cut To Work At A Startup
Working at a startup can be one of the most rewarding career moves you make. There are trade-offs, but they’re worth it for the opportunity to work on innovative ideas.
For many people, there’s also an appeal in being part of something new and potentially revolutionary.
When you work for a startup, it’s not always about following your passion or potential income. Sometimes it’s more about being with friends and having a good time, learning from the experience.
Incentives include the opportunity to find classes in your calling that pay off in lucrative industries outside of startups, start creating a great social circle even if you live alone. Chances to learn new skills that might translate into success at a more established company.
The point is that if you have the right personality for this kind of environment, then working for a startup is worth any downside. It could be just what you need to jump-start your career in a way no other traditional company ever could.
Three reasons as to why taking a pay cut to work for a startup can be rewarding:
- You develop a sense of ownership because you can see the tangible results in front of you, whether something succeeds or fails. This feeling is heightened when you are taking on more responsibility and becoming invested in what you do day to day.
- You get the opportunity to learn an extraordinary amount about how startups work – both what’s easy and tough spots along the way – many resources for this are available online if not from someone else at your company.
- The culture can be intense. Most startups have creative cultures that rely on collaboration rather than competitive ego battles as fuel.
The startup culture is very different from a traditional office. Instead of being in an environment where people are looking to take over your job, you’re surrounded by peers who want to help you get ahead or learn what they can from you.
You’ll find that the work-life balance at startups tends to be better than other companies because employees don’t have as much stress and pressure on them. And generally speaking, founders will give their best team members more equity for taking less money. Hence, it’s not uncommon for someone with a high salary offer elsewhere to turn down a higher pay rate if there’s a big difference in equity offered.
Taking A Pay Cut For Startup
It is essential to assess the opportunity before deciding whether to take a pay cut.
Some startups with fast growth provide opportunities for great bonuses, commissions, and higher equity stakes after only meeting the approval of investors or board members with funding.
Others may facilitate immediate income with little to no ceiling for those willing enough, but the work done now may be performed by someone else tomorrow if you do not invest in your skillset.
Some people take pay cuts in startups to be part of something they believe in, others do it because that is the only place they could get a job, but others do it because that is what you need to survive.
Any salary would probably seem like “a lot” when working very hard for no immediate financial benefits. But if it follows a stable trajectory over 4-5 years (startup employees typically stay on board under employment contracts for this period), then average salaries can be relatively high even at early-stage startups – $100K+.
The downside may be long hours and tight living conditions in close quarters, not much chance of natural light or green spaces at work. And especially for younger people fresh out of college, the benefits don’t reflect what can seem like near-slavery working conditions in exchange for low pay rates at first before the company takes off.
If you consider taking a pay cut to work at a startup, make sure it is worth the risk. Knowing your potential income and what other companies would offer can help you decide if this opportunity is right for you or not.
It’s essential to know how much money you’ll be bringing in before deciding on an employer because many factors come into play when making these decisions.
Why Do I Hate Working For A Startup?
I am a marketing professional with 12 years of experience, and I’ve never met anyone who loves working for a startup. There are so many reasons why it is not the right career path for most people.
All the moving and shaking that goes with a startup environment can be frustrating. You’ll have to work more hours, communicate with people on different levels of the hierarchy, move around during all hours of the day, and always motivate yourself.
There’s too much risk – If you’re someone who doesn’t like taking risks, then don’t work at a startup. It’s an up-and-down roller coaster ride where you can lose everything if your company goes under or fails to meet its sales goals.
You’ll be working 60 hours per week – When you work at a big company, there might be lots of bureaucracy that slow thing down and make it difficult to get anything done in one day.
It seems like every time you get something done; there is always another project to work on.
The deadlines are never specific, and because of that, you don’t know how much work will be coming in tomorrow or next week.
It feels like everything is out of your control, and as soon as you start getting used to one task, there’s already another one waiting right around the corner.
On top of all this craziness, you’re stuck with our desks practically sitting on top of each other, and there isn’t even any space for lunch!
However, there are many benefits to working for a startup company, including talking directly with your manager or founder.
Startups also typically have lower pay scales but offer valuable stocks or shares in their company for compensation instead. Whatever risks you take will likely lead to greater rewards, so if this interests you, then I recommend trying it out!
In the end, it will be worth all of your hard work when you start to see a return on all your hard work. The benefits outweigh any drawbacks, in my opinion, because I’ve seen how much happier employees are and how many more customers you’ll have that care about the company.
Should I Quit My Startup Job?
One reason you might want to quit your startup job is that you’re not enjoying it. Suppose it feels like more of a burden than an adventure. In that case, there are plenty of other opportunities out there, so don’t burn yourself out on one without seeing if anything else catches your eye or talking to your current employer about what’s wrong and how they can help.
Second, and this less likely but worth considering nonetheless: maybe the company just isn’t doing well enough for you to see yourself staying long-term. That could be because they’re struggling financially, or their owners don’t have the dedication to follow through with plans that would turn things around.
Third, if it is because of location, then that’s a good reason. Startups are often inexpensive areas where rents are high, apartments are hard to find, and transportation is difficult since there are fewer options – this could translate into money being wasted on rent.
Some people can maintain their startup job while they work on building up their own company. If you have the time, energy, and money for both endeavors, this may be a good option.
However, if your startup is not going well or has failed – it’s vital that you make sure to take care of yourself first before anything else.
A steady paycheck can help keep your head above water when everything seems like it’s crashing down around you, so don’t underestimate how valuable having one will be when things get rough.
Do Startups Give Signing Bonuses
It’s common for startups to give signing bonuses; however, the bonus size depends on a few factors.
A startup that needs someone to fill an existing position would typically provide a signing bonus equal to two weeks’ salary and another week’s salary for relocation expenses (commonly reimbursed by the moving company).
A company with high turnover may offer more money or other incentives such as stock options instead.
When looking for jobs at startups, it’s essential to ask whether they offer any signing bonuses and inquire about the size and specifics before accepting because it could be different than you imagined or were promised.
There are many reasons why you might want to work at a startup. You may be looking for more responsibility or the opportunity to impact something new and exciting. But it’s essential to be aware of what sacrifices you’ll have to make to get those perks.
When evaluating different offers, think about your current salary and factors that will affect how much money you can earn in the future, like health insurance coverage, retirement benefits, paid time off, etc.
It might be worth it to take a pay cut if you’re looking for an opportunity that has the potential of being very rewarding. However, before making this decision, it is essential to think about all aspects of your situation and make sure you are fully informed on what benefits may or may not come along with taking a pay cut.
Quick Answers To Frequently Asked Questions
What’s the difference between an angel investor and a venture capital investor?
Angel Investors are often wealthy individuals with a lot of money who offer early-stage opportunities to startups. At the same time, Venture Capitalists are professional organizations that pool funds from outside investors for investment in stocks of growing companies.
What CEO salary should the startup founder take?
With equity in a startup, the CEO will often take a reasonable salary that covers their needs. This is a risk they are taking to have a stake in the company.
How does an investor stock option for startup investing work?
Startups use an investor stock option to reward investors, usually instead of money. It’s not the preferred way to incentivize investors because it doesn’t give them any real power. To start with, you can hope that your company goes public and becomes profitable before your option expires- if not, you’ll have forfeited what could have been millions of dollars for nothing other than a few years working on the board or as an advisor.
How does equity compensation for a venture capitalist work?
Equity compensation is a percentage interest in an investment. Whoever owns the equity, including private investors and founders, will reap what benefits there are from owning that fraction of the company’s value.
Can you hire a startup employee based only on seed funding?
Do I want someone who has the skills to bring my company’s product to market? Do I feel like they’ll make meaningful contributions to our team as we move forward? Can they work with investors and be persuasive enough on their end of things that we can secure funding? If these questions don’t scare you away – then yes, hiring on seed funding is possible for start-ups. And it’s not like there aren’t other jobs either. Startups’ sales, marketing, and engineering roles are always looking for good people (and may even offer stock).
Should a startup CEO have a pitch deck ready?
There are no hard and fast rules about whether a CEO should have a pitch deck. One school of thought is that it’s unnecessary for the initial stages but becomes important once an investor is involved or negotiations with strategic partners. Another school of thought is that the CEO should be able to articulate their idea in any situation – no matter how informal – at all times. Whichever way you think makes more sense for your business, keep in mind that if you do choose to create a pitch deck, you’ll need to update it regularly, so it accurately reflects what your company did now rather than six months ago!
DIfference between founder salary and early employee salary?
A founder’s salary is a set amount of money that the founder gets from the company. Early employee salaries are salaried amounts that any employees starting with or before this date will get paid. A founder’s salary often includes stock options, which early employees’ salaries do not. A founder’s salary might be higher because he has been with his company longer and helped grow from an idea to something more successful. Therefore he deserves more money due to all of his work put into it. This would mean that other employees coming on board later may still receive an equivalent raise in comparison but should consider their seniority to what other employees around them are doing.
Difference between common stock and preferred stock?
Common stockholders are the company’s owners and have voting rights that allow them to share in the company’s profits. Preferred shareholders are part owners but cannot vote on company decisions or share in earnings.
Can early stage startup equity be given as employee equity share?
Giving equity as employee equity share is a common practice among startups, and however, this is not a typical arrangement for more grown companies. One of the main reasons this is so unpopular with larger companies is because if employees leave, they automatically have an uncertain percentage of company ownership relative to what was agreed upon at the start–this can be disruptive and even dangerous to their new business partner. In addition, larger companies have many different part-time positions that rotate people in and out regularly, making it difficult to assign individual allocation percentages from within those positions comparatively to everyone else in the company.
What does vesting schedule seed money mean?
When someone invests money into a start-up, their investment is referred to as a “seed round.” If they invest a certain amount of money at the very beginning, that initial sum has this type of setup to accrue risk-free profit.
The company owner receives the “seed” capital from investors and then uses it for any expenses or to hire employees or other project-related costs. The investors are entitled to getting back not only what they initially put in but also proportionately more about each time funding rounds happen and discounts on any shares purchased during those rounds.
What is pre money valuation on restricted stock?
A pre-money valuation is a price at which a new company or business can be purchased. Regarding the restricted stock, this would mean the calculations are done before the shares are distributed and valued instead of after. Typically, if employees have been given equity through “restricted” stocks from their employer, both parties will agree on a fair value before distribution–in other words, prior Pre-Money Valuation.
How do I reach the silicon valley venture capital investor?
There are a couple of ways of doing this, but the most common ones follow these steps:
Step 1) Give your pitch to an angel investor with the hope that they will be impressed with your idea and provide you with a small investment to get a sense of how it would do.
Step 2) Use the money from step one to do customer development, evaluate market applicability, and give you enough resources for diving into more prototyping.
Step 3) Once you feel confident that you have reached step three, contact all angel investors in Silicon Valley and ask them if they could put up money for “up-and-coming” companies who are still looking for their first round of financing.
Can you get a business loan from a VC firm?
Yes. In Silicon Valley, it is common for companies to utilize venture capital as a form of financing instead of taking out loans from banks. This often happens when the bank requires excessive documentation and guarantees before they will provide a loan.
How do I get a venture capital firm series B term sheet?
First, write out an executive summary, including what the company does and the growth plan. Next, draft up a Term Sheet – your offering document – which should include information about how many shares you will offer under current dilution conditions, specifics on how voting rights work, the valuation methodology that has been applied to calculate expected equity value based on pre-money or post-money capitalization data for this seed round of funding (e.g., enterprise computation), vesting schedules for founders versus other employees at your startup, etc.
Difference between a potential investor and an institutional investor?
A potential investor is someone who might invest money in a company but hasn’t committed to it. An institutional investor has lent the company long-term cash and will continue until all of their investments are repaid.
How does a large company do preferred shares valuation?
Preferred shares valuation is a complex and time-consuming task. Corporations buy and sell their preferred shares on the market and use derivatives to hedge risk. This practice complicates estimating an intrinsic value for these shares because share prices cannot be observed for long periods.
Can an accredited investor have company liquidation preference?
Yes. Liquidation preferences are often seen as an advantage for investors because they’re paid before other shareholders. The downside to company liquidation preference is that it can hurt the performance of the remaining business if the investor pulls out too quickly and there’s not enough reinvestment capital left. Nevertheless, I believe that at least providing preferential treatment to long-term holders with a relatively small stake is worth it for most entrepreneurs, especially when you consider how vital any credibility or “signaling” benefits might be later on in life with future investors.
What is a convertible note capital?
A convertible note is a debt instrument with low-interest rates given to early-stage companies. It converts to equity when the company gets funding from a VC or other investment group, usually after two years. Converting the note has advantages because it provides an income tax deduction for losses incurred so far. Still, it also triggers paying taxes on any gain in the company’s valuation achieved while holding these securities.