Would you jump for equity? Recruiting for Startups vs Larger Companies Posted at 0:00, Fri, 22 April 2016 in Industry Insights
Over the past year at MitchelLake, I’ve been working as an embedded recruiter at three different tech companies at various stages of growth: a recently acquired software as a service (SAAS) company, a nimble/agile/early-stage/small but mighty hyper-growth start-up, and a mid-sized media technology company undergoing massive levels of scaling to in order to hit its next stage of growth.
As I managed software engineering openings/reqs for these different companies, I realised that the motivation behind how engineers pick their opportunities has changed significantly since I started recruiting two years ago. Engineers now view opportunities as investments and they are more compelled to make a career change when lured by the possibility of equity within a company. Whether it be via an acquisition or an IPO, the ability to make 10 times or more on a return from owning equity within a company has been a much larger draw to engineers in comparison to the traditional compensation model of a base and/or target bonus.
As a result, companies are starting to be more transparent than ever before with their equity data. While companies will keep specific financial information confidential, they know that equity is a major factor for offers/compensation packages/most people, and will almost always disclose enough information for final round candidates to be able to gain some sense of the financial implications of the equity being offered. This includes information such as current valuation, current round of funding, strike price, remaining outstanding shares, fair market value, and approximate headcount.
Recruiting for a hyper-growth startup was much more enticing and convincing to many more engineers rather than working at an acquired SAAS company or a mid-sized media company. There seems to be a common assumption that working for a larger company or an acquired company is not as appealing or “sexy” simply because of the assumption of dealing with bureaucracy and not making a big impact. Google is a great example of the opposite where creativity and agility aren’t stifled by acquisitions. They enjoy a high retention rate of engineers because they work on compelling projects and continually allow their engineers to make an impact despite being a 10,000+ headcount organization.
As recruiting strategies and methodologies evolve to continually retain and attract top tier talent, it is intriguing to witness how compensation differs between different-stage companies. Where large companies have the ability to provide large cash compensation to grab potential employees’ attention, smaller companies provide more equity to entice individuals to join. Startups may be attractive, but 90% of startups fail. We are currently witnessing the de-valuation of certain unicorns such as Snapchat, Zenefits, and Dropbox. Furthermore there have been articles about tech companies going bankrupt like Zirtual. There’s many more startups going under that don’t make the news, too.