When I first launched Deane Financial, my fearless and forward-thinking fiancée had decided to upskill and pivot into tech. After successfully completing both UX/UI Design and Software Engineer boot camps at some of the most well-respected and disruptive institutions, she’s now on the market. If you’re a Millennial in tech, it’s likely you’re also excited about the fast-moving startup culture, growth opportunities, and the chance to work on something high impact. If you’re deciding on an offer at a startup, one of the most critical factors you’ll need to consider is compensation.
Believe it or not, compensation is commonly structured differently at startups as opposed to more mature and established companies. In fact, even the life stage of a startup can significantly impact compensation, risk, potential upside, and work-life balance. The significant difference between startups and traditional businesses is that startups often operate in conditions of uncertainty. In essence of a startup, you might be managing unfinished products, working with undefined business models, or unproven strategies.
Negotiating Your Benefits
At this point, it’s no secret that tech is a lucrative industry. After all, it’s partly the reason my fiancée chose to pivot into the space. As we’ve recently been vetting employment opportunities, we’ve noticed one thing for sure: There are special considerations to make when negotiating your offer at a startup, and it’s best to acknowledge the whole package, not just your salary. Compensation goes far beyond your regular paycheck.
When weighing job offers at startups, look at factors like bonuses, equity, health care and retirement plans, transportation costs, and schedule flexibility (e.g., working from home, vacation time, pets at work, etc.). Generally, the earlier stage the company is in, the lower the salary and benefits will be, but the higher the equity will be. As the company matures, the scales begin to tip in the opposite direction. However, there is no one size fits all. The value of each variable dramatically depends on the stage of a company’s growth, the role, and your previous experience.
Word of advice: Know your worth.
If you’re joining an early-stage startup, stock options are frequently part of the compensation and gives you a potential share in the growth of the company’s value. Essentially, stock options give you the right to purchase a specified number of shares of the company’s stock at a fixed price during a particular timeframe. Although the accumulation of wealth through equity can make you financially well, it’s in your best interest to develop a holistic approach to stock compensation. For many Millennials in tech, this can represent a tremendous wealth-building opportunity.
As the company raises more funding and progresses through the life stages of a startup, you should be earning a fair-market value salary. It’s a plausible idea to sign an agreement with your employer to guarantee a pay increase once the company has more capital. Trust me; there’s merit in understanding the fair market value of the position and putting a price tag on your background and experience. Leverage resources like Angel List’s salary and equity tool to learn what employers in your city are paying for similar roles.
Think Like An Investor
Not all startups are created equally. The likelihood of a startup succeeding should be another vital factor worth thoughtful consideration. Early to mid-stage startups are usually investing in growth and development, so it should not be surprising if they’re not profitable companies yet. However, if there’s one thing we’ve learned from startups that recently IPO’d – it’s still essential that the unit economics make sense.
Because the valuation of the company is determined by a handful of private investors sharing the same interests, it would be imprudent of you to accept that valuation at face value. Instead, examine the growth rate. Evaluate the strength of the team and the market. How well does the founder and team understand the problem they’re aiming to solve? How promising is the market? Does the company approach sustainable growth thoughtfully? When deciding on an offer at a startup, these are all critical components.
If you’re offered a senior role, you might have the leverage to ask some of the more difficult questions. After all, it’s only fair that you get a shot at interviewing the company also.
Here are a few key questions to ask:
- What is your path to profitability?
- How much fundraising is required to get there?
- Will employee shares get diluted? If so, by how much?
- What is your burn rate?
- What is your expected runway?
An intriguing and noteworthy question to ask: suppose there was a significant downturn in the financial markets tomorrow, and raising another round of funding was not a viable option. What would you do? These questions may be offputting for some startups, but the best founders and hiring managers expect transparency and confidentiality on both ends. Remember, not all startups are created equally. If they are willing to answer these questions, they’re probably a great company to work for in terms of transparency and culture.
Purpose Over Profit
Working in the startup world can be one of the most fulfilling, exhilarating, and frequently challenging journeys of your life. When deciding on an offer at a startup, it’s more about aligning your vision and interests with those of the company and less about the benefits offered. At a startup, your work matters. You should genuinely be passionate about the mission, your day to day work, and the impact you are creating in the world. My mother used to tell me if you love what you do, you’ll never have to work a day in your life. For startup employees, if you love what you do, you’ll still have to work hard, but when you’re driven by a purpose, you reap the rewards in multiples.