Alright, did you get an offer to join a startup? Or maybe you are looking for a new career path. Are you fed up with years of wage slavery at huge corporations? Maybe you just graduated, looking for the first dent you'll make in the world. Perhaps you and a few friends are about to embark on a new voyage to discover a trove of digital treasures. So you're wondering if you should take that ever sought after leap of faith and join a startup? Maybe start your own?
If you answered yes to any of those questions, one of the top concerns is the experience you'll have, and the things you will learn. But after that, the next thing you might think about is how much money you'll be making. And that's what we'll be talking about today.
Let's talk about the various phases of a startup. These phases will be very relevant to the total compensation you get from your startup endeavors. Startups go through lots of phases during their total lifecycle. Let's define a startup lifecycle as the following steps:
|Phase||# of People||Funding|
|Idea||You + couple founders||$0-50,000|
|Seed||Founders + couple employees||$100,000+|
|Series A, B||Founding team + early staff||$2-15 million|
|Series C-E||Early staff + Mid sized team||$20-300 million|
|Series G and beyond||Veteran staff + thousands of others||$500 million+|
Your compensation will vary wildly depending on when you join, and when you leave through out the lifecycle. And of course, your role when you join the organization.
There are many entry and exit points. The most ideal timing is you starting the company, growing it to a massive size, and then IPO'ing or selling it. If you can achieve this extremely rare feat, you will receive all the monetary gifts our society can offer. But this applies to less than 1% of the population. So let's look at how it plays out for most people.
Early Staff (Series A, B)
Most people who join a startup will enter during the Series A or B phase. They are probably the first few engineers, first product person, first designer, first marketing professional, key sales or business developers, or other required professionals to help take over critical portions of the business. These people are usually filling the role a founder previously used to do.
The typical compensation package for early staff members is a relatively normal salary (maybe a bit less), and a hefty stock options package. The stock options will also have a very desirable strike price. The only problem is that the options value is highly volatile at this time. They could shoot through the roof, or fizzle out after years of hard work.
If these people stay with the startup through the whole lifecycle, they can get nicely rewarded. In best case scenario, the early staff is with the company through a big IPO or acquisition. In average case scenario, the startup will get acquired somewhere in in Series C-E. The financial rewards will breakdown like this
Best case: $1M to $100M+
Average case: $100K to $1M+
Worse case: Get a salary, maybe some stock compensation from an acquiring company
Mid Sized Team (Series C - E)
Many people will join a company during its growth phase. This usually means the company has already moved past the Series A or B round, has raised a few millions dollars, has really proven product market fit, and is well on its way. At this point, the company is usually hiring pretty aggressively, and is equally aggressive about its impact in the marketplace. Many people of various skills will be brought in during this time. However the certainty of success is still unknown, and the value of the stock options is not as great as it once was. The options strike price will be higher, and you will be exposed to less upside.
The typical compensation package for someone who joins during this phase is a nice, market-rate salary, and a decent stock options package but nothing like early staff.
Best case: $1M+
Average case: $10K to $100K in stock, plus salary
Worst case: Salary
Employee #1000 (Series G and beyond)
So you're getting aboard the hype train. The startup you are joining has raised hundreds of millions of dollars. Or, hell, maybe even a billion dollars. This company is being talked about everywhere you look. Everyone wants to join. Everyone will be rich. It's the next Google! But you are one in a sea of many. It doesn't really feel like a startup, but everyone around you keeps calling it one. You're getting paid a great salary, but you don't really understand your stock options. The recruiter keeps saying it's worth a lot of money, and it'll be worth more in the future.
The typical compensation for this role is a market-rate salary (maybe a little below), and stock options with a high strike price or RSUs (restricted stock units). If you decide to join a company at this stage, you need to be mentally prepared for a lot of unknowns. You may go into this thinking it's a sure thing, but it is not. The company can still fail at this stage, or the value of the company could be massively reduced. Your options will have a huge strike price, and will create a large tax liability if you choose to early exercise them. Overall it is going to be a very complicated situation. You should only join this if you really understand what you're getting into, or if you are ok with simply receiving the salary offered.
Best case: $1M+
Average case: $10K-$1M
Worst case: Salary
The scenarios we just covered are the most common scenarios. When you join a startup, it's most likely you are going to fall in one of those categories. Now we will cover two more scenarios, both of which are very rare, and can yield enormous results, or catastrophic failure. Let's start with employee #1.
So maybe you have a couple of friends who decided to startup. They've put in their own money, or maybe they have a small amount of seed funding from an angel investor. You decide to join at this phase because you can tolerate the risk, and you are really excited about what the startup is doing. This can play out in lots of ways.
First thing to keep in mind is that you will do an enormous amount of work, just as much work as the founders, but you will see less upside, and less risk, than the founders. However it can still be very lucrative. You will most likely get a small salary (the founders probably are not getting any salary), and if you lose your appetite for the startup, you can still walk away.
In the extremely rare chance that the startup becomes a huge corporation, you should expect your role to change a LOT. You will probably get a lot of bosses over the years, and you may not agree with all the business decisions that will be made. But as long as you are treated fairly, and the company is very successful, you will be set for life. But the compensation will vary wildly, and at this stage, it is anyones guess what will happen. You will be in for a very long journey, and it won't be easy.
Best case: Enough money to never work again
Good case: The company is acquired and you get a job with a decent stock package
Average case: You have a decent job for a couple of years and the startup fails
Worst case: You receive little salary for many years, you grind it out really hard, and the startup fails.
Ok, So you decide to start a startup. You have dreams of being the next Steve Jobs or Mark Zuckerberg. You're going to make it big, you're going to change the world. This is the mindset most founders have, and that's good. As a founder you will need to be extremely optimistic, because the road ahead is extremely rocky, and will be filled with extreme uncertainty. If you make it, you will be world famous, you will have wealth for generations, you will change the world. But 99% of founders end up with nothing but good experience, and maybe a network of connections.
Typical founder compensation is zero salary for a few years, and dumping your whole life savings into the startup. You will grind hard for funding from angels and VCs, and you will always be worried about making payroll. A lucky few founders will take their startup to Series A or B, but most founders will fail within the first couple of years. The extremely rare, chosen few, will take their startup all the way to Valhalla, and never have to do anything else ever again.
Best case: The next Steve Jobs, Bill Gates, Mark Zuckerberg
Average case: Fail within the first couple of years
Worst case: Grind it out for years, miss payroll for your employees, lose all your savings, alienate your friends and family, maybe get a divorce, and fall into a deep depression
So there you have it. Those are the typical routes most startup employees take, and the typical exits. There are many combinations of entry and exit points for a startup, and your experience will not be the same as anyone else. Being part of a startup can get you an incredible learning experience that money can't buy. It can get you wealth like no other. It can setup you up for incredible success, or incredible failure. But many people would not have it any other way.
Dev/Code/Hack is a technology and business blog by me, Par Trivedi. I'm a software engineer and I've been writing code and managing teams for over a decade. This blog serves as a way to share thoughts and ideas about the tech/startup community, and also to educate newcomers to software development.