As a rock star developer, what are your career (remuneration) options?
But, if it's the start up world that turns you on, then you will likely be faced with the prospect of working at a below market rate and having to grapple with the challenge of how they value your work and importantly, how you value yourself?
What are the realities, about start up salaries?
If you are a founder then you will (or you better) have a significant stake in the company and therefore, exit and control is the major upside. But make sure there is a realistic prospect of that exit and reward, and fail fast rather than drag out your time with a twitching corpse. So many founders fail to measure and understand the value of time ....
But what if you are joining a company, and they want to offer you a lower salary but with the tantalising prospect of share options? How do you value and measure whether it's a good deal or not? Whether it's properly valuing your skills, input and time?
Here is a postage stamp calculation for you to start calculating whether their proposal is worthwhile or worthless. Sufficiently incentivised or taking the p**s.
The information you need to guesstimate;
Depending on where the company is in its journey, but be aware your initial offer of X% is likely to be diluted during future rounds - this can be good or bad. If it's a dilution because the company is going gangbusters and the valuation is sky rocketing, then dilution might be a positive thing. If the company is struggling and it's about bringing new people in at a relatively static valuation, then dilution could have a much more negative impact on the eventual reward, for your risk.
In addition, the value you need to add to your salary is the net present value of the cash at exit, divided by the number of years.
Let's say, you are currently worth £100,000 in the market place.
The upside of the equity structure example above will be £34,000 pa but, with a potential loss of £40,000 pa.
In this case, that's worse than a coin toss!
Is the risk worth it to you?
There are other considerations to take into account such as the experience, responsibility earlier and possibly working within a new sector and alongside a fantastic team. All of which - depending on the stage of your career - bring potential upsides, over and above the financial gain.
The significant downside is the risk of realising those shares as well as the time you need to devote to the company to gain the shares. The reality is that only a small % of start ups achieve significant exits, indeed the majority of start ups fail before they find an acquirer. Interesting tech crunch article here, on "How likely is your start up to get acquired".
Ultimately it's a personal career choice and as mentioned above, working within an exciting and fast growth start up will bring many other benefits but, be aware of how start ups try to negotiate your reward, how uncertain the market will be and how realistic your CEO and founders are being about exit.
If interested in finding out more about this important subject, subscribe to CTO Academy as we will be using future blogs to look in more detail at different share option structures.
We also offer our students, free hangout sessions where our experienced team discuss equity structures and answer questions.
Please note, this is not meant to be financial advice and the numbers depend on your personal financial circumstances, local taxes and rules. If unsure about the potential impact on you, please seek professional financial advice.