Table of ContentsBase Salary vs. Equity
Compensation at Startups vs. Big Tech
The Rewards and Risks of Equity Compensation
Real World Equity Compensation Outcomes
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Base Salary vs. EquityWe get it: you want to earn as much money as you reasonably can. We want that for you, too. That’s why we wrote this guide to help you understand your total compensation package. It used to be true that most startups, especially in the early stage, could not come close to matching the base salaries (cash) that are the norm at more established companies. Recently, more investment in startups combined with greater fundraising in the early stage has led founders across industries to raise salaries in order to attract and retain the best talent.
Even young companies can come close or even match corporate competitors. Meanwhile, studies of corporate pay across industries show American salaries have stagnated for the last decade or more. Currently, a new grad has a fair chance at making the same or slightly less in base salary at a startup, as compared to a similar position in Big Tech.
Corporate tech recruiters do a great job enticing new grads to the safety and stability of their companies. That stability includes their stock price, though. Employees in corporate tech may be offered generous equity with little chance of it losing value, but it will not have the exponential growth that has turned several former startup employees into millionaires in just a few years.
Compensation at Startups vs. Big TechHere is a comparison between compensation in a Series A startup versus a Big Tech corporation, using the average entry-level pay for software engineers as an example.
|Compensation Structure||Series A||Big Tech|
|Bonus||None||10K - 20K|
|Equity (projected, vested over 4 years)||0 - 1M||120K - 180K|
As you can see, compensation packages at Big Tech do put more liquid cash in employee’s pockets annually. It will take a few years, but the equity from a startup compensation package can yield exponentially more wealth — if the startup is successful. There is always risk that any startup could fail and their equity value go to zero.
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The Rewards and Risks of Equity CompensationBecause startup employees have access to equity compensation with much higher growth potential than companies that are already public, it’s possible for stock assets to make up for and surpass any deficit in base salary. Whether you sell your shares quickly or hold onto them in hopes they gain value after an IPO or acquisition, receiving equity in a successful startup is an opportunity to grow generational wealth.
However, startups’ equity compensation is much riskier than big tech. Equity offers from public companies are of stock that is already being traded on the market. Startup equity is based on valuations, which is less tangible than public stock. Not every startup is guaranteed to succeed, let alone become the next unicorn. Some fail and the equity becomes worthless before employees have a chance to cash in. That said, even a startup that does “just okay” can net employees thousands of dollars on top of their base salaries.
Real World Equity Compensation OutcomesFor an entry-level software engineer at an early stage startup, the base salary typically ranges from $100K to $120K. Then, there are 3 scenarios for equity:
- The equity grows 10x and higher
Early grads who joined Uber when their valuation was $1 billion reaped the rewards when the company grew to $76 billion valuation ahead of its IPO. That said, exponential equity growth is the “unicorn” scenario— a rare thing.
- The equity grows 5-10x
Middling equity growth typically occurs if a company gets acquired or an employee joins a later-stage startup a few years before an IPO. However, an early grad who joins when the valuation is $100M still gains if the company gets acquired for $500M.
- The equity goes to 0
Equity compensation becomes worthless if a startup shuts down before making an exit or IPO. If an early grad joins when the valuation is $50M but then the company runs out of money and shuts down midway through the employee’s vesting schedule, the employee will not receive their equity compensation.
It is evident that the difference in salary between startups and Big Tech is actually very minimal. Today’s entry-level employees and new grads can receive competitive offers from both sides of the tech industry, but accepting a position with a startup could lead to a higher payout in the long-term. Though equity compensation from a startup is a high risk/high reward bet on your future, you can depend on Startup Search to guide you towards companies with high potential for success and great career growth opportunities, vetted by our robust methodology.