Whether you’ve founded a startup or are working with a startup, you know it’s a full-on journey. The ability to act on your ideas and disrupt an industry is exciting. In this process, everyone being compensated fairly is a non-negotiable.
Here’s what you need to know about the different types of compensation that are common for startups, including salary, equity, and perks.
In general, it’s important to know that working with startups (especially an early-stage company) means you take a pay cut, no matter what role you take on. However, you can expect a slice of the pie in terms of equity (see below).
Another consideration is the state of the market. If you’re following the pulse of venture capital, you know that traditional fundraising has been cooling off in the last two years.
With this, startups have been reducing their headcount in order to lengthen their runways. According to data collected by Carta from 40,000 startups, layoffs are still happening, but to a lesser degree in looking back at 2022.
All things to bear in mind.
Average Salaries for Startups
How much can you expect to get paid at a startup?
According to ZipRecruiter, the national average in the United States for a startup salary was $94,050, as of October 2023. On an hourly basis, this comes out to $45.22.
Obviously, the role you have affects the salary expectation. Here’s a breakdown of average salaries based on some essential hires in a SaaS startup, as an example. The below amounts are not far from what you would expect in a seed-stage startup with a valuation of around $10M.
- Chief Technical Officer: $192,871
- Product Manager: $153,698
- Software Engineer: $130,000
- Head of Sales: $250,000
A note on the Head of Sales role specifically. Sales tend to be a higher paying role at startups, due mostly to taking a commission on top of a base salary.
Do founders take a salary?
This is a big question. Even before the question of “What’s the average?”, a lot of startup CEOs question whether they should pay themselves at all.
I’ve known several founders with different approaches to this. Some pay themselves a livable wage based on funding. Prior to funding, or in the case of bootstrapped founders, they work a day job or rely on life savings to keep from dipping into available funds designated for employees and other expenses. For example, one of them just sold a property to fund their company’s growth.
The answer to “Should you pay yourself?” is yes, especially if you’re asking someone from Silicon Valley. However, it’s always up to the individual startup founder to figure out what’s best for themselves and the financial health of their company.
In general, taking a salary is key for not only for peace of mind and paying the bills, but also providing the perspective and bandwidth needed to not cave to the first (usually lowball) acquisition offer. There are implications for not paying yourself, so be aware.
According to Kruze Consulting, the median startup CEO salary in a seed-stage startup is around $130,000, which holds true whether you’re a technical or sales founder. For every additional $1M raised, founders will then add an additional $4-5k in salary.
Years of experience are another factor for employees.
According to Wellfound (previously AngelList), a mid-level employee with around 4 to 6 years of experience can expect a salary of around $80k. Meanwhile, the average salary for an entry-level employee with less than three years of experience, hovers around $50k.
Plus, you can’t forget about startup interns coming in with the lowest salaries.
The average on ZipRecruiter is $17.17/hour, with the range being $8.17 to $26.44.
Speaking from my intern experience, my pay was $25 per hour to start and I had an allotted 15-20 hours per month. Later, my hours and rate increased, so by the time I parted ways with the team, I worked in a more full-time capacity and made roughly $48k (in line with Wellfound’s chart above).
Median Salary by Stage and Location
Salary will vary from stage to stage as the company gains more funding (seed to Series H and post-IPO). With later stages, also come venture capital or angel investor funding, larger companies and deals, more traction, and a higher capability to offer competitive salaries.
For example, if you were looking at the CTO role, you would see a jump in annual salary given each stage.
Series A: $174,000
Series B: $250,000
The location of the company and employees is another aspect of determining a salary.
The cost of living will play a big role, and whether an area is a major startup hub. Here are a couple of locations across the United States to give a benchmark of what startups are offering employees with an average of 3 years of experience.
New York: $120k
San Francisco: $119k
A big question for founders and co-founders is: Do remote employees receive similar pay?
Answering one way or the other is up to a startup team and their views on this. In terms of the average for a remote employee, $97k is what Wellfound is seeing. In terms of determining the salary, here are a couple of ideas:
One option is basing pay around the company’s headquarters. However, consideration can still be given to the employee’s residence. Say the headquarters is in Boston, but an employee is based in San Fransisco. The founder may add a location modifier to take into account the higher cost of living. Another option, that’s fairly common, is to take the route of paying global employees based on a livable local salary. Buffer has a salary calculator that shows off transparent pay based on region and local market rates, so that’s worth checking out.
With these options, consider the impact on payroll and make sure to consult a professional to weigh your options, especially when hiring internationally.
This is a key part of what makes working at a startup attractive, especially at an early-stage startup. When you join at an earlier stage, more equity tends to be in the hands of the founder, and as an early employee, you can be granted a higher number of options.
However, equity tends to be likened to a lottery ticket. It can equal a big payout for a team when a company makes it big, or it can be worth less than the lottery ticket you bought from 7-Eleven.
Keep in mind that dilution occurs in the later series fundraising process (A through H) when investors gain their share.
Equity as Part of a Startup Employee’s Compensation Package
As an employee, the amount of equity received can vary. The general range is 0.5% to 2%, and that higher end is exceedingly rare.
Why such a small amount?
Giving out a fraction of a percent helps in the long run of fundraising through various rounds. Founders will typically aim to retain a majority share but will set aside a pool of shares to be divvied up amongst employees, alongside equity for investors.
In reality, this percentage actually looks like shares, options, or stock, and there are a ton of ways this can be sliced and diced depending on the company’s game plan (i.e. acquisition, IPO, etc.)
These are a couple of common options:
Restricted stock units (RSUs): For employees, these act as “golden handcuffs,” since they come with a vesting schedule. A variation of this is known as double-trigger RSUs, which also include performance-based restrictions on top of vesting. The tradeoff is that a person can exercise full rights, aside from selling stock that hasn’t yet vested.
Stock appreciation rights (SARs): This is a deferred incentive option that makes an employee a shareholder of the company. When the company’s stock appreciates, the employee gets paid out. In this way, they’re similar to employee stock options for publicly traded companies. The difference is the employees don’t pay the exercise price and receive the equivalent of the increase in stock.
Incentive stock options (ISUs): This is an option that’s usually reserved for major employees and executives. This allows those individuals to purchase stock with a built-in tax advantage. These ISOs are issued on a grant date, where employees can buy the options and then decide when they want to sell. There’s also a vesting element, typically around 3 years.
Nonqualified options and phantom stock: These are programs that allow employees to “receive” the stock without it changing hands, and executives tend to prefer this because they own stock without assuming the risk that comes with buying shares. However, full voting rights are not transferred, so true ownership doesn’t come into play here. Due to their restrictions, these programs require a bit more time and accounting oversight to set up.
Perks & Benefits
Like salaries, the benefits at startup are not going to rival corporate entities. Until startups reach a major growth stage, options like dental, vision, and disability coverage are non-existent. Child care and retirement are areas where employees and leadership have to find a personal fix.
The obvious reasons are the runway and the sheer amount of work required to set up these benefit programs and manage the accounting and legalities. There’s a big reason established companies have HR teams. It’s a ton of work to keep tabs on everything.
When you’re just starting out, it may be easier to think about helping employees get the training they need. Many of the early startups I worked with were more than willing to chip in for online training. Others would send me books throughout the year, or finesse a discount for a conference ticket.
Common Perks & Benefits Offered By Startups
When you’re at the point where you can start to think about offering more benefits, here are a couple of cool ideas for perks that employees actually want:
Flexible Work: However, you feel about synchronous collaboration and in-office time, know that you can still make that work and offer a little flexibility. This also helps in hiring globally and supports those with disabilities. Giving employees flexibility and space to do the work they said they would do, goes a long way in building out an accountable work culture.
Paid Family Leave: Retaining great people involves taking care of them when their family grows and needs care. This is how you actually institute the idea of “we’re a family” without the icky overture. While you would obviously be unable to offer a year of paid leave, startups like AeroFS offer anywhere in the range of 7-10 weeks and include part-time work to reintegrate.
Paid Vacation & Vacation Bonuses: I’ve been part of startups that offer unlimited vacation time, which is great in the early phases, although our teams rarely took a vacation. (Research shows this happens a lot.) As you grow, consider full-on paid vacations, and supporting your team in going somewhere that expands their worldview with a vacation bonus. You help them take time off and come back refreshed with a new perspective. An example of this perk is FullContact.
Flexible Coaching & Support: Whether it’s making time for mental health or self-care, there’s power in giving your employees the space to cultivate their emotional, physical, mental/emotional, and spiritual health. Today, there are platforms that support this. For example, Juno offers a point system allotted to each employee to pick which coaching and benefits they want for themselves, so it’s a one-size-fits-many approach.
An easy way to see what perks people want?
- Ask your early employees about what’s meaningful to them, and make sure to reassess when you bring more people on board. This can be an anonymous survey.
- Take a look around at your competitors and what they offer.
When you’re ready to start offering benefits and equity, Remote is a platform that I’ve come across that helps set this up for distributed and remote teams (aptly named). I have no affiliation with this company, but I’ve shared it with founders previously.
Overall, it’s safe to say that startup compensation will be less cushy than a job at a FAANG company.
While it might be a little consolation to your bank account (founders and employees alike), the softer compensation side of working with startups is being part of the early culture and flexibility. There’s limited red tape and bureaucracy, and future adjustments to compensation are personalized. It’s a rollercoaster of funding and uncertainty, and knowing what to expect or even what to negotiate, is half the battle.