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What does an engineer at a startup do?
Engineers often play a very important role at startups – and, at the earliest stages, often building the core product that the company is centered around. As a company grows and achieves what people often refer to as ‘product-market fit,’ the need for engineers often increases as the company aims to scale its initial success and bring on more customers.
As a startup engineer, expect to flex different skills, especially depending on the size and stage of the startup. For example - even if your background is in front-end engineering, don’t be surprised if you’re encouraged to work on both the front-end and back-end, do QA (quality assurance) for the product, and potentially even sell the product to potential buyers! As founders often express, early team members are expected to “wear lots of hats” until the company is stable enough to start to hire specialists for every role.
This varied experience is why joining a startup, especially early in your career, can offer you tons of learning opportunities. Interested in becoming a Product Manager? Looking to break into machine learning? Provided this passion project aligns with the startup’s pain points and goals, your manager will likely encourage you to step outside your comfort zone and take holistic ownership of solving these problems.
Obviously, as the startup continues to grow, there’s a chance your role’s scope could narrow as more team members are brought in to cover different positions – this is usually a good thing and a sign that your startup is growing!
Ultimately, the most important thing to remember when working at a startup is to not be afraid of failure. In order to get to the next level, the startup will need to take big leaps forward. For example, if the company has $10K in revenue, going to $11K doesn’t help it much to become more sustainable. Instead, the founders (and you as a great team member) need to think about how they can get to $100K or $500K! As a team member this means you’ll need to make sure you’re working on projects that have potential for high-impact (commonly described as ‘high risk, high reward) – not just the projects that are right in front of you. For example - thinking outside of the box about how to create a faster, lighter-weight version of the startup’s product that you can test and get feedback on quickly – which means when you go to build the full product you’ll do so with more confidence in what you’re building.
This often means taking risks and pushing yourself to dive into new spheres of learning. Remember - we typically learn the most from the hard, challenging moments, not the easy ones!
How does this compare to what you might do at a big tech / FAANG company?
At a big tech company, it’s more likely your manager will have a firm idea of what your work will entail, and you’ll be encouraged to stay within that sphere. There will be less picking up the slack, and more focusing on fine details, ensuring every part of the corporation is working seamlessly to create consistently high-quality products.
There are more opportunities for deeper learning on what your primary role will be, but less potential for shallower learning about many other roles. It’s far harder to transition from software engineering to product management at Meta than it is at a 20-person startup, especially if there’s a need for PMs at the startup that isn’t being met.
Scope and scale of work is also a big difference between being a SWE at a startup versus larger tech company. At a company like Amazon you might work on a product that tens of thousands if not millions of people use regularly. However, you might be a part of a team of hundreds of employees who work on this product together and your scope might be fairly small. Whereas at a startup, you might be the only engineer and be responsible for building the entire product! However, the product likely has much smaller adoption and maybe is only seen by a few customers every week. The trade-off between scale and scope is an important distinction between a career at a startup vs. big tech company.
One thing that’s consistent across both big and small companies is the track for promotions. If you want to get put at the next level or your dream position, the best way for you to achieve that is by beginning to work as if you’re in that position or level. That way, when you approach your manager in the future about a promotion, you’ve already demonstrated your skill set within that level through proactive work.
What’s the compensation structure at the average startup?
Compensation at startups is generally broken down into base salary and equity, with some companies offering annual bonuses. Signing bonuses aren’t guaranteed, but we have seen them before — and will discuss them more below!
Base salary tends to make up the majority of annual compensation for the average startup employee - since signing bonuses aren't as common, and equity is very likely going to be illiquid (meaning you won’t be able to access it until the company has some sort of exit like a sale or IPO).
Company cash flow typically determines the base salary an engineer at a startup will receive. On average, startups are less competitive on base salary than you would find at a more prominent tech company, like Google or Microsoft.
Startups will often justify this in two ways:
- “The experience, growth, and responsibility you’ll find here will be much more meaningful than what you would find at a later-stage company.”
- “The equity you’re being offered has a serious upside that will end up being much more valuable down the line (like 10x or 100x!) than what you would find at a later-stage company.”
At the earliest stage companies (typically known as pre-seed, seed, or Series A), the likelihood of having a fixed annual bonus is fairly low. Many companies will give out bonuses at the end of the year based on company performance, but it’s not typically something the company commits to for each new hire. Meanwhile at Series B and later-stage startups, the company has likely been established for a longer period of time and might be more willing to extend performance-based bonuses to employees. These annual bonus percentages are typically non-negotiable, and, depending on the level of seniority you are, could range from 10 - 25% of your base salary.
Remember - an annual bonus isn’t just based on your performance, but the company’s performance as well. Even if you perform exceedingly well, if the company isn’t, you likely won’t get 100% of your bonus that year.
Stock, or equity, is a big part of how early-stage startups compensate their employees — and tends to be the primary focus during the negotiation process. These companies want you to feel bought in and invested in the companies growth and development, and what better way to demonstrate that by giving you a slice of the company, in the form of equity. For additional context on how to negotiate your startup equity, please refer to our blog post here.
Typically, startups award a type of equity known as “stock options,” which give you the right to buy a certain number of shares of the company’s stock at a specific, discounted price - known as the "strike price," "grant price," or "exercise price.”
Your offer will probably lay out some (likely confusing) terms for your equity offer, such as:
“Upon joining you will be granted the option to purchase 10,000 shares with a strike price of $0.28 per share and preferred share price of $1”
The idea is that over time, the market value of the shares will increase, so - when you exercise (or buy) your shares - you’ll be able to buy the stock at a very steep discount and your pre-tax profit would be the market price minus the preferred share price. So, in the example above, you would be able to purchase your stock for $0.28 per share but the “market” value would be $1 per share when you join and theoretically much higher in the future - so you would earn at least $0.72 of profit (pre-tax) per share of equity you purchase.
A few important notes:
- Just like at a larger tech company, startup equity tends to have a “cliff” - meaning you don’t receive any of your equity until you’ve been at the company for a year - and typically vests over four years.
- At a startup, having your equity vest (and purchasing your options) doesn’t mean you will automatically be able to sell it like you would at a public company. You’ll need to wait for some sort of liquidity event before you would have a chance to sell any of your shares so your profit is more theoretical than realized.
Types of Stock Options
The two most common forms of stock options offered by startups are Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs).
The main difference between the two is how they are taxed. ISOs are the form of stock option that receives the most favorable tax treatment - you want these!
- ISOs: taxed when sold, not when exercised (i.e., purchased) & lower tax rate when sold.
- NSOs: taxed when sold AND when exercised & higher tax rate when sold
It’s very unlikely that a company will change the type of option they’re offering you (ex., from NSO to ISO) - however, we’ve seen people effectively use this as leverage for an increased number of shares offered or additional base salary.
Another way companies can offer you equity is in the form of RSUs, or Restricted Stock Units. Unlike stock options, Restricted Stock Units are actual stock in the company with no exercising required (see chart above for more detail). RSUs are typically offered by public companies, or very late stage startups (i.e. Airtable, TikTok, and Snowflake). If the startup you’re negotiating with is not in the very late stages, it’s unlikely they’ll offer RSUs.
RSUs mean that instead of having to wait until the company goes public, and then buy back the options, then sell them to get the value, RSUs are already yours and worth money today. It is worth noting that - at private companies - RSUs won’t be liquid (meaning you can’t easily sell them) so RSUs from a big company are typically more valuable in the short-term than those from a private company.
However, if the startup you’re negotiating with is not in the very late stages, it’s unlikely they’ll offer RSUs.
How Equity Is Priced
When an employee is given an offer, the strike price for the options they were granted will be set (through a process known as a 409A valuation) and remain constant until the grant has been fully vested. However, any new equity the company issues in the future - even as a refresher for you for continuing to do great work - will have a new strike price. This extends to your colleagues as well, so you may have a different strike price than some of your co-workers!
Example startup offer
Here’s a real example of a startup software engineering offer.. The candidate receives an offer to join a Series D fintech company as a Staff Software Engineer in a Tier 3 location.
The candidate had a few other offers and made it clear to the startup that they would need a significant increase in order to join. The company stepped up in a big way and increased the offer by $355k in equity (over four years) and $39k in base salary.
Here’s another example of a startup offer – this time from a Series C company in the virtual reality space. This was for a Senior Software Engineer role in the New York Metropolitan area. The candidate had a very specific background that the company was looking for and received feedback in the interview process that they were a great ‘culture fit’ - which they were then able to use as leverage for a higher offer.
Are startup salaries higher than big tech?
The simple answer to this question is - it depends on the startup! There are some unicorns like Snowflake and Airtable that do pay exceptionally well, but typically it’s hard to find the same level of cash compensation (base + bonuses) at a startup as you would at a larger tech company.
However - at a startup your equity package could be just as, if not more, valuable than at a large company. If you are confident in the company’s direction, and you want to stay on for the long haul (enough time for your equity to vest), startup offers can be exceedingly more profitable than public companies.
The reason for this is that early-stage startup equity has a far stronger upside than public equity does, which is why you see folks who were at unicorns like Uber and Instacart ending up with a hefty sum of money once the company’s stock was able to be publicly-traded. This is partially based on the fact that you’re getting a larger percentage of the company when getting stock options (keep in mind if it’s a smaller company, the likelihood of your percentage being larger than the average Google employee is pretty high). From there, the options can grow over time as the company grows. The earlier you join, the more the equity will have increased in value by the time the company is sold or goes public.
For example - if you join a startup from day 1, your stock options could very realistically increase by 100x if the company does well (for example - from a price of $0.50 per share to $50). Whereas if you’re at a company like Google, if you’re lucky and the market is in your favor, your equity might grow by 5% in value each year.
Compensation Ranges for Startup SWEs
Below we’ve shared average compensation packages for software engineers (at entry, mid, senior, manager, and director level) across different stages of companies.
It’s important to note that these are just average offers and it’s very common to see offers with much lower base salary and much higher equity, or even vice versa. Also - especially at startups, your offer is very much negotiable!
All data points are in the 50th percentile and for Tier 1 location bands (i.e. San Francisco & New York City)
Series A Software Engineer - Base, Equity, Bonus, & Signing Bonus
*Disclaimer: These compensation ranges are an aggregate for companies valued at $5M-20M Post-Series A funding round.
*Note - at earlier stage companies (generally seed through Series C) it’s often helpful to look at what percentage equity you’re being granted of the company (versus how much the equity is worth in dollars). This is because company valuations can be somewhat subjective and it can easier to compare equity offers when you think about what percentage of the company they represent.
Series B Software Engineer - Base, Equity, Bonus, & Signing Bonus
*Disclaimer: These compensation ranges are an aggregate for companies valued at $20M-100M Post-Series B funding round.
Series C Software Engineer - Base, Equity, Bonus, & Signing Bonus
*Disclaimer: These compensation ranges are an aggregate for companies valued at $100M-200M Post-Series C funding round.
Series D Software Engineer - Base, Equity, Bonus, & Signing Bonus
*Disclaimer: These compensation ranges are an aggregate for companies valued at $200+ Post-Series D funding round.
What's unique about negotiating with startups?
Since Rora’s inception, we have partnered on over 300 startup negotiations. From pre-seed and eager for funding, to massive unicorns like TikTok, Airtable, and Snowflake, we’ve seen the ins and outs of the negotiation space within startups. It can be overwhelming to get a sense of what to expect when there are literally thousands of different companies, all with different funding levels and in unique stages of development. This section aims to map out the correlations we’ve seen across these 300 negotiations.
The first thing that’s unique about negotiating at a startup is that (almost) everything is negotiable! Since the company is still evaluating what policies they want to have on things like compensation and benefits, you can be a bit more creative with your asks, provided they’re still well reasoned and justified appropriately. Ultimately it depends upon how far along the startup is in funding, for example, a Series A startup will be more flexible on something like an annual bonus percentage than a Series F startup will be since they likely have their policies more fleshed out.
Negotiating with the C-Suite
Another unique aspect of startup negotiations is the party with whom you’ll be discussing the compensation package. At the average big tech company, that person would typically be the recruiter. But given that the average startup’s number of employees ranges from 1 - 100, there’s a good chance that you’ll be negotiating with the company’s founder – or potentially another higher-up like a director or VP.
This can feel intimidating, especially since you might report to that person in the future and want to ensure that you start your working relationship on the right foot!
Furthermore - the executive you will be negotiating with will likely be good at selling their vision for the company and might convince you that their offer is competitive based on the future value of the equity. It can be hard to have a rational view of the company’s chances for success when you’re being pitched by the founder and are getting increasingly excited by the opportunity ahead. Do your due diligence to get the best sense of if (and how) this company will become profitable and remember that about 90% of startups fail to exit profitably so you need to also be well-compensated in other areas
One effective tactic for negotiating with a founder (or senior leader) is to show that you genuinely believe in the company's mission and potential growth, and you want to stay there for the long-term — instead of staying for a year or two before moving on. Asking for additional equity is one way to demonstrate this commitment — since you won’t capture much of the value of the equity if you leave before it vests.
Furthermore - founders tend to love hires who they believe will roll up their sleeves and do what it takes to get the company to the next level — so sharing specific ideas about how you can contribute and grow within the company can be helpful. Showing these as part of your negotiation can demonstrate the value you’ll bring and why you warrant higher compensation.
Lastly - some candidates ask to negotiate compensation increases tied to performance or future funding rounds. Often, this is done when you’re asked to take below-market compensation. Make sure that you’re tying in your impact during those funding rounds in the justification for this ask.
The most helpful counter-offers come from other startups
While it is helpful to have offers from big tech companies to use as leverage in a negotiation, most startups won’t try to compete with a Google or Meta offer. In the past, when we’ve had clients try to use a FAANG company offer as leverage for a startup, we’d often hear things like “well, we’re not Google, and it sounds like comp is your bottom line, so good luck at Google!” Best case scenario, they may max out their offer, but it won’t be as competitive as what FAANG has offered and the startup may feel more nervous that you’ll be less interested in moving forward in accepting their offer.
So, a higher offer from another early-stage startup (especially with a higher base, higher equity, or ideally both!) can be a more effective way to ask for an increase. Especially if the startup is in the same sphere of work - telecommunications to telecommunications, fintech to fintech, etc.
However, if you’re not in this situation and either have a big tech offer or currently work in big tech and are considering making the jump to a startup, it can be helpful to ask the startup to try to “close the gap” between their offer and your other one (or current compensation). Don’t expect them to match, and make it clear that you understand that this Series B startup and the big tech company approach compensation differently, and that comp isn’t your only priority. We once helped a candidate with Amazon and Mailchimp offers (Mailchimp was still a startup at the time) offer negotiate the Mailchimp one up by 10% by using verbiage like: “I know Amazon and MailChimp do compensation differently, and I don’t expect you to match what Amazon’s offered, but if there was any way to close the gap further, I’d be excited to sign with MailChimp today!”
Whether or not you end up with multiple offers, having ongoing conversations with other startups and competitors will improve your understanding of market trends and offer you an advantage when negotiating your salary!