Compensation in Startups
Working for a startup involves lower pay. However, employees get equity, hoping for long run gains. According to Payscale, the average salary for startups is $101,000 per year.
Some well-funded startups with resources pay well and provide benefits. Early stage startups typically pay $80,000-$85,000 annually. They may not afford healthcare or 401(K), but offer equity and compensation. Don’t be put off by lower salaries.
What do startups do? Startups develop unique products, bring them to market, and make them irresistible for customers.
Startups require $150k-$250k seed funding for leverage up to 10% equity. Venture capitalists invest in engineering startups, providing financial resources to pay well.
Rippling HR software pays $505K yearly with $240K base, $260K equity. Not best work-life balance but growth opportunities. Aims to be employee source of truth with impressive breadth.
Well-funded late-stage startups pay more, up to 51.3% for developers. Flushed with funds, they attract talent from established public companies. Proven business models can sustain high salaries.
Factors Influencing Startup Pay
Not all startups pay well, and your experience will depend on various factors:
- Company size: Smaller startups might have a lower budget for salaries, but they often balance this with other benefits.
- Location: The location of a startup can affect the salary levels it is able to offer.
- Industry: The industry a startup is in can also affect the salary levels it is able to offer.
Additional Benefits
In addition to potentially higher salaries, there are other benefits to working in a startup. These benefits include:
- Salary increases: While you might be willing to take a pay cut initially, your startup salary should rise as the company earns more funding from investors.
- Equity: In exchange for lower salary, you may decide to accept a greater equity stake in the startup.
Startup vs Big Tech Salaries
Do startups pay high salaries? Well-funded late-stage startups with a proven business model can sustain high salaries. Recent research by J. Daniel Kim on the starting salaries of MIT graduates finds that venture-backed startups pay c. 10% more than established companies.
Do startups pay less than big tech? Early-stage startups do not pay more than big companies, in fact, they tend to pay 30% less than the market average. However, late-stage startups tend to pay more than bigger companies, and people can expect to earn up to 11.5% more at a late-stage company. Working for a startup can be difficult but it tends to be more rewarding because you are closer to the decision and it looks great on your resume.
Larger firms paid more than smaller ones did, and younger companies appeared to pay less than older firms. When the researchers compared similarly-sized firms by age, in various industries, they found that—contrary to popular belief—startups offered higher wages than older companies. The effect of a company’s age on a worker’s income was unexpected.