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Guest post author: Chris Tyler I believe experience and the people you work with are the most important forms of compensation when choosing a job. That said, money matters too. A feeling that you’re not adequately compensated can erode all other positive factors associated with a job. Understanding the potential upside of a job is important, and I wish I had been more aware of earning potential when selecting Product Manager roles in the past. In this post I share what I’ve learned about compensation after 14 years of working in Product Management at companies in various stages of growth: 0 to 1, growth stage and post IPO (Meta and Zynga).
There are two forms of compensation:
- Cash - base salary + bonus
- Equity - either in the form of shares / options at pre-IPO startups or Restricted Stock Units (RSUs) at public companies
You’ll never get rich from cash compensation - equity is how you build wealth. Real estate developer Moses Kagan summarizes this well: The game is effectively converting your work into ownership of productive assets. Or, as Warren Buffet has said: If you don't find a way to make money while you sleep, you will work until you die.
So, building equity is important, but equity compensation is poorly understood by many job seekers in tech. I’ve seen a lot of “I’m joining this company and getting some options, and I hope they’re worth something someday.” Employers contribute to this dynamic by withholding information about the equity from candidates who have job offers.
Below are the four primary types I’ve jobs I’ve seen available in the tech / PM world and the cash / equity compensation potential with each of them:
1. Starting a company
Living the dream: eating ramen, grinding 24/7 and brining something new into the world.
Cash: minimal
Equity: high to medium - you (and your co-founders) start off with all the equity, but the need for cash (and/or validation and prestige) often has early stage founders dilute their equity soon after founding. If you do raise money, make sure you understand the terms.
Risk Profile: high - most startups fail. You can de-risk by starting a company while at your full-time job. This was always my dream, but I was never successful at mailing it in at my W-2 job and creating the space to start something new.
2. Joining an early stage startup
*Joining a seed stage startup - you’re probably employee # 1-20 at a Seed / Series A company. Still grinding to bring something new into the world.
Cash: minimal, but higher than startup founder*
Equity: tiny - the drop off from founder to employee #1 is huge. This simple, illustrative cap table is directionally correct for a Series A company. The percent of stock owned by ALL employees is 4.2%. Founders get 20.6%, and the rest goes to investors. Not only do investors have the lion’s share of equity; they also have preferred equity that usually includes a liquidation preference. It’s worth understanding all of these terms. tl;dr - your common equity is probably not worth much unless things go really well.
Risk Profile: high - most companies at this stage don’t have strong product / market fit and few will escape to become a growth stage company.
3. Joining a growth stage company
Growth stage companies are typically larger (100+ employees), have raised more money (Series B and beyond). Wealthfront’s Career Launching Companies is a great list of growth stage companies.
Cash: Moderate to strong - will be close to or same as cash from a public company
Equity: tinier - remember the prior example where the employees had 4.2% of equity? It’s likely to be even more compressed after multiple rounds of fundraising, and the majority of the equity will be earmarked for senior hires (VP+). And these companies often have lofty valuations that will be hard to exceed via an IPO. Your outcome here is closely tied to continued growth of the company.
Risk Profile: moderate - you’re de-risking the cash element, just make sure you can estimate what the equity is worth.
4. Joining a public company
FAANG PM jobs are a different animal - the job is much more about strategy and alignment. “Influence without authority” is the name of the game. Oh, and the comp is awesome.
Cash: strong - you’re getting paid top of market, and your equity is effectively cash as well.
Equity: tiniest - BUT: although your ownership of the company is tiny, it’s also liquid: you can sell your shares at any time. Equity increases dramatically the more senior you become and is how you build wealth working at a larger company.
Risk Profile: minimal - you have liquidity and a clear line of sight into what your equity is worth. The biggest risk is macroeconomic factors hurting the value of the stock - from 2021 to 2022 I saw Meta stock fall from $360 to $88, and this had a huge impact on my compensation.
My summary thoughts on the data points above:
Don’t work a startup or growth stage company to get wealthy. The cards are stacked against you. The best reason to join a company in these phases is experience. Go in eyes wide open about what your shares might be worth - this article provides a good primer on how to do this.
If you’re optimizing for compensation, working at a public company (especially one that pays top of market, like Meta or Google) is the way to get rich. Keep racking up those RSUs, and if you’re lucky, the stock price goes up, benefitting you even more. (It’s good to be an owner!)
About a year go I found myself in a conundrum: I was liking the compensation from working at a public company, but the hours and the work were not lighting me up. I wanted the equity / ownership that comes with a startup, but I didn’t want to start my own thing.
I ended up learning about and pursuing another way to get significant ownership: Entrepreneurship Through Acquisition. I’m currently doing a “search fund” - I have raised money from investors to fund a two year search for a business to buy. The investors fund the acquisition of the business, and I will operate and improve the business as CEO. This gives me the equity potential of starting a business from scratch with the salary and certainty of a growth stage company.
If you’re interested in following my journey to acquire and operate a company, you can read my newsletter at eta101.com
I’m also teaching a course on Maven in Sept 2023 about how to acquire a company.