Analyzing AngelList Job Postings, Part 2: Salary and Equity Benchmarks - The Equity Equation

Analyzing AngelList Job Postings, Part 2: Salary and Equity Benchmarks - The Equity Equation

In the world of startups and tech companies, finding the right balance between salary and equity is crucial. It's a delicate dance between attracting talented employees and ensuring the long-term success of the company. In this article, we will explore the benchmarks for salary and equity in engineering jobs in Silicon Valley based on AngelList job postings. We will also delve into the concept of the equity equation and how it can guide founders in making smart decisions when it comes to giving up a percentage of their company.

When it comes to equity, the danger of generosity is something that founders should keep in mind, especially when making their first few hires. By giving away too much equity at the beginning, founders may find themselves with less leverage when it comes to attracting top talent later on or raising more money from investors. It's important to strike a balance and not be too generous with equity in the early stages.

Based on a medium-sized sample of job postings on AngelList, we can establish some benchmarks for salaries and equity. For employees 2 through 13, the 20th percentile salary range is $75,000 - $100,000, the 50th percentile salary range is $85,000 - $125,000, and the 80th percentile salary range is $100,000 - $150,000. These numbers give founders a good starting point when it comes to offering competitive salaries to potential hires.

In terms of equity, the benchmarks vary based on the employee's position and their order of hire. The first hire typically receives 2% - 3% of equity, while hires 2 through 5 receive 1% - 2%. Hires 6 and 7 receive 0.5% - 1%, and hires 8 through 14 receive 0.4% - 0.8%. The percentage of equity continues to decrease as the number of hires increases, with hires 15 through 19 receiving 0.3% - 0.7%, hires 21 through 27 receiving 0.25% - 0.6%, and hires 28 through 34 receiving 0.25% - 0.5%.

It's important to note that these benchmarks are not hard-and-fast rules, but rather a general guideline based on the data analyzed. Founders should consider these benchmarks as a starting point and adjust based on their specific circumstances and the value they believe each employee brings to the company.

Now, let's dive into the concept of the equity equation. The equity equation states that you should give up a certain percentage of your company if what you trade it for improves your average outcome enough that the remaining percentage you have is worth more than the whole company was before. In a general case, if you give up n% of your company, the deal is a good one if it makes the company worth more than 1/(1 - n).

This equation can be applied not only when taking money from a top VC firm but also when giving stock to employees. If we consider the average outcome for the company with the addition of a new person, denoted as i, then the value of n can be calculated as (i - 1)/i. For example, if you believe that a new hire will increase the average outcome of the whole company by 20%, the value of n would be (1.2 - 1)/1.2 = 0.167. This means you would break even if you trade 16.7% of the company for this hire.

It's important to remember that stock is not the only cost of hiring someone. There are also salaries and overhead to consider. To translate salary and overhead into stock, you can multiply the annual rate by approximately 1.5. This emphasizes the importance of early employees taking lower salaries, as it allows more stock to be given to them.

In conclusion, finding the right balance between salary and equity is essential for startups and tech companies. By analyzing benchmarks and considering the equity equation, founders can make informed decisions when it comes to compensating their employees. Here are three actionable pieces of advice to keep in mind:

1. Don't be too generous with equity in the early stages of your company. Save some equity to attract top talent later on or to raise more money from investors.

2. Consider the benchmarks for salaries and equity based on job postings in your industry and location. Use them as a starting point and adjust based on your specific circumstances.

3. When giving up a percentage of your company, calculate the value of that percentage based on the equity equation. Consider the potential impact of the new hire on the average outcome of the company.

By following these tips and being mindful of the delicate balance between salary and equity, founders can set their companies up for long-term success while attracting and retaining top talent.