Comparing Equity vs. Salary in a Startup

Joining a startup can be a risky career move. You may be compensated for your efforts in the form of equity rather than a monthly salary. The average person would consider this too big a drawback to even think about working at a startup. But is it really that bad an option? A clearer picture will emerge when you compare equity and salary at a startup.

Why Startups Offer Equity

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It is quite obvious that startups cannot afford to pay huge salaries to qualified professionals in a bid to lure them to work here. However, the experience and expertise they bring to the table is too important to let go off. So, in order to compensate them for the efforts that they are putting in, they are offered stocks in the company. This is not a win-win situation for you. You never know how the stock of the company will perform, hence there is a chance you don’t make any money.

Equity vs. Salary

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While working for a startup, it is reasonable to assume that the company will go through some drastic changes. Salaried employees are not affected by any changes to the structure or scope of the startup. Regardless of the fact that the company is doing well or not, you will be paid your salary that was agreed upon initially.

Since it’s a matter of company stock, you cannot actually take such a risk. Even though you may be an employee, you are a shareholder at the same time. These stocks may not have any value whatsoever. But with the growth of the business, you can expect the stocks to perform well and their prices will go up.  Moreover, once the business starts doing well, you will make a decent sum of money through your equity. The benefits don’t end just yet. Since your performance affects the bottom-line of the startup, you will play an active role in its growth and success.

Gauging the Success of the Business

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If you do consider working in a startup, you will have to assess whether it has the credibility that is required for growth and prosperity. These two factors are directly proportional to the resulting value of the equity being offered to you. Therefore, it becomes even more important for you to gauge whether the business has the potential to be successful in the years to come.

Making this assessment is not as difficult as it may seem. You simply have to carry out a risk assessment of the company. Assessment methods like the SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis can give you a better picture of what you can expect from the company.

It all comes down to the option you are more comfortable with. There is no doubt that receiving a monthly salary gives you a sense of comfort and a degree of financial stability. On the other hand, receiving equity could lead to huge gains if the company takes off in the near future. So, there are benefits of both. The bottom-line is that you should not turn down the option of working in a startup just because you are offered equity instead of a salary.

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