What’s the #1 need of early-stage tech startups? Experienced software engineers. And they are becoming impossible to find in Silicon Valley, even though they are everywhere.
After raising a seed round of up to a million dollars, startups think they can finally offer some talent. They place job offers with salaries in the $90K-$130K range plus equity. And stuggle to find good people. Why?
Google, Facebook, Uber and LinkedIn are simply paying more. While base salaries have grown a few percent each year for the last ten years, restricted stocks units (Google calls them GSU) can almost double engineers’ salaries.
Yes, the table below is real: with less than 2 years of experience, your total annual compensation can approach $200K. With no risk: all “as good as cash” (Facebook and Google are publicly-traded companies — once your RSU are vested you can sell them the same day if you want to).
|Total Annual Compensation
Source: confidential data
NB: your average developer will not get a job at Google or Facebook, so these salaries only apply to roughly the top 10% of engineers. But they represent fairly average compensation for people at that level of performance.
The sweet spot for startups is to find people with 5-10 years of experience. Big companies can afford to train junior engineers, but startups need to move faster, so they try to avoid beginners.
However, an engineer with 5 years of experience is already making $250K per year, so taking the $120K startup job means a lot less money in the bank. It’s hard for the 0.1% of stock options to compensate for that amount of risk.
Even if your startup makes it to the unicorn club and gets acquired or goes IPO for $1 billion, and you were an early employee, your 0.1% will be worth $125K/year (assumptions: dilution of 2x, 4 years to IPO). That’s actually less than a job at one of the big companies, for more than 10X the risk. Why even bother? Working at a startup is a great way to gain more responsibility fast, but financially it makes no sense.
From the software engineer’s point of view, being in high demand is good. Gone are the days when you built a prototype for some stranger with an idea for $500.
For early-stage startups, it’s a vicious circle: it’s hard to raise more money without a product, but you can’t build your product without a team.