Update - August 2022: We have created an in-depth guide on evaluating startup equity here. There’s a lot to know, so check that out to ensure you’re getting the best startup offer possible. We know it's a lot to go over. Our team of coaches can also help you negotiate so that you don't leave money on the table.
Congratulations, you're about to become part of the crazy, exciting journey called startups. You looked into the company, nailed the interview(s), and have an offer in hand. Now it's time to buckle up and prepare to work super hard in an unconventional work environment. There will be lots of learning and fond memories!
Although startups are notorious for paying below-market rates for various reasons, there's always room to negotiate.
Be aware that this isn't a typical salary negotiation. It is near-impossible to negotiate your way to market rates; early-stage startups especially don't have the finances for it and will probably offer you equity. That said, both your salary and equity packages have some degree of wiggle-room.
With all of this in mind, we've compiled a list of the best ways to negotiate your early-stage startup job offer. After reading this, you'll be far more prepared.
Don't Give a Number Too Early
If you haven't yet gone through the interview process, a bit of advice: don't give a salary number too early. You neither want to lock yourself into too low a salary nor swing so high that it turns the company off.
This is a time to practice your deflection skills! Say something like: "I'm looking for a salary in line with my experiences and the value I bring to your team."
If they press you for a number, give a range. A range shows you're amenable to the company's needs and have done your research. That brings us to our next tip.
Conduct Market Research
First things first: do personal research. Talk with mentors, friends, or anyone who should be aware of your compensation. How low is too low? Figuring out your bottom line before entering the negotiation gives you an anchor and prevents you from getting desperate.
Additionally, figure out what similar positions at similar startups pay. This gives you a benchmark that is actually accurate; comparing this startup position to one at a large company doesn't work. We've got a handy tool for comparing salaries that can be used to look into similar startups.
When considering your salary, look into the startup's financial status. Did they just receive funding? What does their future look like? Your salary won't mean anything if the company goes belly-up in a few months. Crunchbase is a great tool for finding data on a company's financing and valuation to better inform the viability of your offer.
Also, note that a company that just received funding has more cash lying around, which may be reflected in your salary. Conversely, a startup whose funding is drying up and is likely to enter another funding round soon will have less cash on hand to pay new hires.
After all of this research is done, come up with a pay range. First, start with your midpoint, or the salary you'd expect to see if the employer thinks you are fully capable of performing all parts of the job. Your range should be 75%-125% of that, so 25% on each end for the midpoint.
Here's an example: say you're an entry-level marketer whose midpoint is $60,000. You'd expect a salary range of $45,000 - $75,000.
If the company has a bright future ahead, it may be worth accepting a lower salary for more equity, bringing us to our next point.
Remember the Equity
Your offer almost certainly comes with equity. If not, it's worth asking when this becomes an option for you. There's no need to accept below-market rates and longer hours without any potential upside. In theory, you're working at a startup because you believe in it, so you want to be positioned to reap the benefits of its success.
First things first, let's discuss the common forms of equity.
- Restricted Stock Units (RSUs) - These are the least risky to you, as the company promises to give you shares when they IPO, or go public. This helps you avoid paying taxes on your stake now. Note that this comes with some restrictions, whether it be when, to whom, or how you sell this stock.
- Stock Options (ISOs, NSOs) - In this instance, the startup gives you the option to buy shares at a discounted price. While you are still paying for your stock, this deal assumes that the share price will increase as the company becomes more valuable and you'll make a return on your stock. These are less stable than RSUs, but if handled correctly, they have significant tax advantages and are the more popular option.
Remember that startups answer to shareholders of all kinds, including founders, investors, board members, and you, the employee. Unless you're a founder or early investor, your equity will likely be a small percentage (typically between 0.2% - 0.4%, unless you're a really early hire), but that can be a large number when sold if the company takes off.
Note that if you're being issued shares, you'll want to ask for the number of outstanding shares to understand your percentage of the company
In addition, reference your Crunchbase research here, as older companies with more investment rounds will be offering you more diluted equity. Why? Because so much equity has already been given away.
Besides uncovering the equity percentage you're being offered, try and figure out what the company would be worth if it succeeded. Are there some comparable companies out there in a similar niche? How big is the market share? Will this startup be first to market?
One of the reasons startups can get away with cutting 20%, 30%, or even 40% off market pay rates is because of the upside offered by a vesting package. Make sure the equity you're being given is fair.
A Quick Note About Vesting
When people refer to vesting schedules, they're referring to a period over which you are granted your equity. If a startup were to give you that 0.2% stake outright, what's to stop you from quitting the next day? This keeps incentives aligned.
The most common way of distributing equity to an employee is to vest monthly over four years. In other words, each month you're at the startup, you receive 1/48 of your equity.
A term often paired with vesting is the cliff period. It's not uncommon for a startup to put a one year cliff period in place. This simply means that you, as the employee, won't start receiving equity until the end of this one-year cliff period. This gives the employer a chance to evaluate you as an employee before giving away equity.Â
Pick One: Salary or Equity?
You can't have your cake and eat it, too, so when it comes time to negotiate, pick which aspect of your offer you want to work on.
Think about your own personal needs. If you're more risk-averse, consider negotiating the salary in exchange for less equity. Come prepared with data and back up your counteroffer with evidence.
If you genuinely believe in this company and think it will succeed, go for equity. Again, data is crucial to back up your claims.
When it comes down to deciding what to negotiate, it's also essential to look at where the company is. There are three possible scenarios:
- If this is an early-stage startup, you don't want to value your equity as money you have now. Almost all startups fail, and even the best VCs are right only about 20% of the time. This means your equity is more likely to be worthless, and you should plan to live entirely on base-salary.
- If this startup is fast-growing, successful, and not-yet-public, it's safer to assume your equity will at some point be worth something. Although nothing is guaranteed, this is a scenario where negotiating for more equity could make sense. Keep in mind that it will be many years before you cash in.
- Lastly, if the company is post-IPO, equity is very volatile, but it is as good as money. In this case, it really is up to your personal preference. Equity still carries a degree of risk (i.e., will this dramatically increase over the years, or will it decrease?).
No matter what you choose to negotiate, make it all about business and the value you add to the team. What are your past experiences? What skills make you the best candidate for the job? Remember, negotiations are about convincing the other party about your value.
Although it may seem impossible, negotiating your startup job offer is doable. Armed with this information, we hope you get yourself an even better offer!
If you're still unsure, book a session with us, and we'll make sure you get the best offer possible.
About The Author
Caroline is a freelance writer and Cornell graduate who loves writing about a wide variety of topics, including startups and careers. She specializes in telling startup and small business stories through all kinds of content. To learn more, visit her website