Hoping to earn big with equity at a startup? You might earn more by working for a large company.
Updated: Sep 25, 2020
There have always been pros and cons when it comes to working for an established corporation or a fledgling startup. Large companies are usually bureaucratic and only allow for a niche set of responsibilities, but they offer a stable paycheck with good benefits and stock options. With startups, 90% of them fail, but you would have a wide breadth of responsibilities and a chance to score big bucks if your company has a successful IPO. So which path is more lucrative for you? While there is no perfect answer, we can offer some insight from a financial perspective.
That 10% chance you’ll actually make it big by working for a startup
Say you join a startup that actually turns a profit within a number of years. Besides your salary, you should be given the chance to invest in your company’s stock options after they’ve vested. Usually employees are granted options for 0.1-0.5% of a company’s stock, though it may take 5-10, or even 15 years for a company to IPO, if they IPO at all. That said, as founders accept more capital into their startup, ownership of the company dilutes (because the amount fundraised is now considered part of the total valuation, so the valuation of the equity decreases). Also keep in mind liquidity risk; founders may have accrued $X amount of funding, but the company may be unable to convert the asset into cash within a certain time frame without losing some value of the capital. Basically, companies may not be able to pay out until IPO, if at all. So, keep in mind these risks before taking on a startup role and hoping to make it big. Work-wise, keep in mind you will also have more responsibilities, but less sophistication of the job function; like a jack-of-all-trades but master of none.
Reliability from a large corporation
When joining a large company (let’s say after IPO), the foundation has already been built, so you don’t have to go in and build the structure of the company’s success. You simply go into work, put in 8 hours a day, and have a higher chance of enjoying work-life balance. Your job function will also be very targeted to certain skills so you can develop those skills rather than be a “generalist.” Not only that, you also typically have RSUs which are usually always worth something. You may not have as many chances to get your feet wet in different types of roles or experiment with new day-to-day procedures, but being able to enjoy a steady work pace and paycheck (remember, you need to pay off loans, pay your monthly bills, and take care of yourself and your loved ones) can be a major upside considering how risky startups can be.
The bottom line
There is nothing inherently wrong with choosing to work for either a startup or a corporation. There are pros and cons to both, and at the end of the day you need to at least have a salary to rely on. However, you might make more money in the long run by sticking with a cushy corporate job that offers RSUs; startups are much more risky. But if you think chasing after the startup dream is worth it, go for it.
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Until next time,
Rich Zhou, CEO