I’ve worked for startups that have ranged in size from 5 people to a few hundred. (Yes, technically those shouldn’t be labeled “startups” but this is a different kind of economy.) At the smallest I actually signed on part-time for just health insurance and equity in the beginning. The next smallest I did take a pay cut because (as employee #19) the opportunity seemed great.  Based on my limited knowledge the equity could have had potential.  (After talking with two investment analysts and doing my own research they don’t stand a chance of any exciting profitability.  But that’s another story.)

During this latest job search I had an interesting conversation with a Founder at a very exciting startup. They were just 10 people, had true pedigree in the tech space, and were working on something that really made sense. Not to mention they had done their research on the market space they were looking at.

Image from Burst.

No-Go Difference?

Near the end of the conversation he mentioned that he wanted to cover something on compensation.  It might be a no-go for me.  They only had the Seed Funding round.  The A Round was just a date on the calendar so everyone worked for the same base pay. The difference was made up in equity.

I’ve worked for a few startups that ran out of money and had to let people go. And I’ve heard of others that made hiring mistakes based on deals they thought they were going to win and now were going to have to lay people off.  So I’ve seen what happens when the money is not properly managed. This seemed like a clear and fair way of going about it.

Suggestions

There are a few things that come to mind that I might recommend if I had continued down the path with them. First off I think candidates should negotiate their intended base and OTE (On Target Earnings) prior to signing on. The firm should not guarantee this number later, but merely state that they think this is fair and the goal is to work toward that number.  In this case this firm had no plans of an OTE element for their Sales Engineers.  To me I feel that an OTE comp plan motivates the SE to work harder and go above and beyond.  So the lack of that component was enough for me to move on.

I’d also recommend that they go as transparent as possible.  Not only while they worked toward their first big funding round but until they are profitable, go public or are acquired. When a firm on a monthly basis updates the employees on the financial standing it does wonders for morale and decision making. An All-Hands should have at least one chart that shows how the firm is doing financially.  Lines showing current/projected revenue and burn rate.  Plus how much is actually in the bank.  I’ve worked for firms that did this at every monthly meeting.  The team was motivated, knew the risks and treated every dollar like it was important.

So it wasn’t a game stopper for me that everyone started at the same pay while the firm built up enough technology and customers to get a solid A Round.  But I’d advise that there should be some discussion on goals and hopes for the future so that no one gets surprised or let down.

Image from Burst.