Startup employees don’t earn more

Image by Sebastiaan ter Burg. License: CC-BY-SA 2.0

Since the average startup founder who makes it to Series A earns more than a large company employee, many believe that early-stage startup employees also earn more (albeit less than founders). Dustin Moskovitz has even claimed that startup early employees have better earnings prospects than founders.

We’ve looked at the data, and this does not seem to be true on average. There are strong reasons why people might want to work at a startup (e.g. career capital), and it’s true the employees of the most successful startups will earn more; but someone deciding between working at a startup vs. a bigger company should rarely be making the decision based on income. On average, startup early employees earn at most only a little more than developers at larger companies.

Three estimates of how much startup early employees earn, including both equity and salary

According to AngelList, early-stage backend developers, for example, generally get about $110,000 in salary and .7% equity (salary data from Riviera is similar).

While the startup salary data is fairly clear, it’s hard to know how to value the equity portion of their compensation. Below are three different methods for doing so, which all show that developers at early-stage startups at most earn only a little more than they would at a large tech company.

1) Using average exit values

Let’s assume the 0.7% equity stake will eventually get diluted down to .35% at time of exit (a typical amount of dilution from Series A to exit).

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What I learned quitting my job to found a tech startup

Ben West

I’ve been earning to give as a software developer for the past several years, and it started to become clear that I could make more money in a different job. But I was torn between a finance career which put my math skills to use and founding a company where I might achieve the vocational equivalent of winning the lottery.

I eventually decided to pursue entrepreneurship because I thought it would better build career capital, i.e. it would prepare me for a wider variety of future careers. After four months of running a company that idea still doesn’t seem completely idiotic, but it doesn’t seem completely true either.

I’ve encountered several people who are in similar positions, so I’d like to give an overview of my motivations (particularly the ones which haven’t been discussed here before), how I went about my career change, and of course how I should’ve gone about my career change. Optimizing for one narrow career path is a bad idea, so I hope this post is useful to everyone, not just potential entrepreneurs.

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