The Startup Offer: What to Consider, for Founders and New Hires
What You Should Know, Questions to Ask, and How to Work the Perks
Written by Emma Silverman
Congratulations! You’ve been offered a role at a startup. You’ve gone through the interviews, met the team, and now they want you to join them on their journey. Being offered a position is a meaningful accomplishment in and of itself — and the beginning of a new adventure. You’re raring to get going. But then the “standard” paperwork arrives, and there isn’t anything standard about it.
Startup offers differ significantly from those extended by established companies. In this article, we’ll discuss the most important questions to ask, criteria to consider, economic expectations, the basics of equity and more. Employees, this is your guide to nailing the negotiation. Founders and hiring managers, you should have answers prepared to these questions to create a great candidate experience. With transparency and alignment around these considerations, you’ll come to the best agreement (and outcome) for everyone involved.
Questions to Consider When You Receive Your Offer
- What is most important to the offer?
- What is and isn’t negotiable (for you, and for the company)?
- How do you value the full compensation package? How much cash and equity should you ask for? How do you value your equity?
- How do you assess the risk of accepting the role?
- What don’t you know? Do you need more information to make a decision?
- What is your path forward?
Of course, every offer, and every startup, is different. Your individual offer details will depend on the company’s size and stage, as well as your role. There are, however, several solid guidelines you can go by to negotiate the right terms for everyone.
Your New Role: Define and Align
While every industry follows basic guardrails on role specifics, you’re not likely to find a single source of truth regarding your “level” (i.e. analyst, associate, manager, director, VP and the ever-ambiguous “head of”). What’s key is to make sure you a) position yourself in a way that best reflects your experience, and b) confirm your level is aligned with the company’s internal benchmarks. These benchmarks will serve to define your compensation structure, performance expectations and career progression, so it’s critical to ensure that they match your level of experience and skill. If you’re under-leveled, you’ll be frustrated. If you’re over-leveled, you may find it far more difficult to set yourself up for success.
The bottom line? It’s all about getting the level of your job internally aligned within the structure set by the company. But how, you might wonder, do you make this happen? By asking questions. How are the levels defined? By years of work experience? Skill set? Something else entirely? Is the definition consistent across all roles? What is the compensation range for each level? Which range aligns with your expectations? What will your title be? (Our two cents: these days, your actual title doesn’t mean nearly as much as the work and thought leadership you demonstrate.)
Accept the growing pains: even if the startup you’re planning to join is in the growth stage (i.e. having reached a certain level of scale, but still raising capital to accelerate), they are likely in the process of refining their approach to organizational structure and the levels within it. The right company hierarchy is a challenging balance to identify and achieve, especially when that company is steadily building teams and adding people with new or unique skills. Needless to say, working at a startup (and negotiating your offer) requires flexibility, compromise, and openness to change on both sides of the table. The good news: if you’re working with solid, people-focused leaders, you’ll find that the back-and-forth will be reasonable and fair. Be firm on what matters to you most, make sure your experience is aligned with your level, and exercise patience. You are, after all, joining a growing company, and with growth comes growing pains.
A note on promotions: when considering your offer, take a look at the company’s promotion cycles. For example, if the role is at a lower level than you’d hoped, you might negotiate consideration for early promotion, (e.g., after 6 months.) Make sure you have a clear definition of your eligibility for promotion, a realistic but aggressive timeline, and a thorough understanding of the benchmarks required to get there.
Your Startup Salary
Many people assume that working for a startup automatically means a pay cut, but this is not always the case. Startups are just as focused on retaining top-tier talent as established corporations. Depending on your experience and potential, you might even expect a pay raise by joining a startup, especially if the company is later-stage, highly profitable, or recently closed a large round of funding. In these cases, it’s likely they have cash on hand to offer compelling and competitive salaries. If not, then it’s time to talk about equity (a little more on that, shortly). Ultimately, when evaluating your startup compensation, it’s important to look at the total package in order to make a decision.
A lot can go into a startup salary beyond dollars, so it’s especially important to consider all the ways of getting to the number you want.
- Base compensation: while it’s not everything, starting salary remains important. You need to earn a number you can live on comfortably. (Remember, equity is an upside, not a guarantee.)
- Annual increases: most startups don’t have an endless supply of money to promise annual compensation increases. A typical model reserves 10% for annual increases across the company, which means top performers fall near the 10% range, those in the middle, 5–8%, and those at the bottom, 2%, in line with inflation. That said, unless you are told otherwise by the company, you should not typically expect more than a 10% annual increase when joining a startup.
- Cash bonuses: these are also dependent on the profitability of the business. Bonuses may be tied to company performance, they may be guaranteed, or they may be off the table entirely. At many startups, equity grants are more common.
- Promotions: a promotion is likely your best opportunity for a meaningful step-change in your base compensation.
If you’re transitioning to a startup from a high-paying corporate gig, you’ll likely see a dip in your base, but that dip may be balanced by multiple positive tradeoffs: greater work-life balance, a like-minded culture, increased flexibility, more vacation time and the opportunity to be part of building something that excites and inspires you. But also, equity.
Equity: What It Means and Why It’s Valuable
In the simplest terms, equity is a non-cash payment that provides a degree of residual ownership in a firm or asset, usually stock options, for the recipient. Equity, when offered as part of your compensation package at a startup, can represent tremendous financial opportunity, but it’s also a complicated and confusing world to navigate. The best way to get your bearings is to ask about the equity type, amount and vesting schedule, which will help you thoroughly understand your individual equity package. There are also several good resources online you can leverage to learn more (we like Carta). Coming soon: a follow-up piece in which we break down equity in more detail.
For now, it’s important to know the fundamentals, as well as take time with your individual stock agreement to make sure you’re 100% clear on what you’re getting. If you can afford an employment lawyer, it’s always helpful to have them look over your stock agreement (and any other documents included in your offer) before you sign on the dotted line. Seriously.
Type: there are several different types of equity, but the most common are stock options and restricted stock units (RSUs), although RSUs are more common for later stage hires. These have key differences in conditions and tax implications, so it’s critical to know exactly what you’re being granted and how it translates.
Amount: Your equity grant will depend on the level of your job and the stage of the company when you join. Early hires often see larger equity grants, because they’re taking a greater risk and playing a key role in building the foundations of the business — and at the early stages there is often less cash for salary.
Vest: Since most employers leverage equity as a retention tool, it rarely all vests at the same time. You’ll want to fully understand the particular vesting schedule of your equity package. While it varies, a common approach to the equity package is a 4-year vesting schedule with a 1-year cliff, (i.e. none of your equity vests in the first year, and a quarter of it vests upon your 1-year anniversary of employment with the company). From there, equity vests on a customary schedule, (e.g., monthly, quarterly). Some companies have accelerated vesting options, which means that vesting of some or all of your shares is accelerated in a liquidity event, but these terms are usually reserved for early hires, founders and executives.
No matter how promising the role, working at a startup inevitably carries a certain level of risk. Before signing your offer, understand everything you can about where the business is going and the plans to get there. This is particularly important for early-stage companies, where the risk is greatest, but it’s also true of growth and late-stage startups. And while the startup you’re considering may not proactively share all of the following information, (in fact, some of it may be confidential), it is perfectly appropriate to ask about it. Here are a few questions to get you started:
- When was the company’s last capital raise?
- How much runway, (i.e. months before insolvency) do they have?
- Is the company planning another round of fundraising and if so, when?
- What key milestones must be reached before the next raise?
- How close is the company to reaching those milestones? Does your role directly impact any of them?
- Is the business profitable? Will it likely be able to self-fund at some point, and if so, when?
- What does the company envision as far as an exit or liquidity event? Does it anticipate a sale, and if so, who are the potential buyers? An IPO, and if so, what is the planned timeline?
Working the Perks
Like all companies, there is a wonderful world of additional perks that startups may offer, and these can play a meaningful role in your overall compensation package. Remember to ask about the following and other incentives:
- Healthcare plan and anticipated out-of-pocket expenses
- Commuter or other transportation benefits
- Expense policy
- Meals covered by the company
- Paid time off
- Parental leave policy
- WFH policy and return to in-person work/post-pandemic plan
- Equipment/technology, especially if the company is remote (e.g., office equipment, laptop, stipend for home office setup)
- Additional benefits: learning stipends, health and wellness budget, childcare, pet care, sabbatical, discounts from company partners — and the list goes on
Joining a startup is an exhilarating, challenging and fascinating experience in which to develop professionally, connect with other like-minded entrepreneurs and build something truly important from the ground up. When considering your offer, remember, most of all, that the team is everything. Make sure each member fosters a culture of collaboration, openness, mentorship, diversity, equity, inclusion — and a constant willingness to set their employees up for success. If all of that is already in place, working out your offer might just be easier than you think.
TMV is an early-stage venture firm that invests in purposeful startups reimagining the future.
If you are building an innovative business of the future or if you are an investor who believes in the power of community and operational commitment, we want to hear from you. Find us at firstname.lastname@example.org