Considering joining a (pre)Seed venture? Read this first

Pre-seed and seed-stage jobs can be life-changing events. Still, every time we create a new company, brilliant candidates hesitate to take the leap.

They often perceive salaries as sub-market and are unsure of the offered equity’s value. These are understandable concerns for someone seeking new employment but usually misplaced.

The opportunity to join an early-stage venture with entrepreneurs is a unique opportunity. It often comes around only once — and it shouldn’t be missed.

Salary and Career Opportunities

On average, pre(Seed) stage salaries are lower than later-stage startups. But what is often overlooked is the speed at which your salary and career will evolve. At a seed-stage venture, the potential growth rate of startups is enormous as are the staff’s salaries who engineer the growth. If you join a startup at a later stage, there’s a good chance you missed the boat. Salary increases are likely to be more rigid.

A driving factor here is that as the startup gains traction, early-recruits are better positioned for promotion. At a pre(Seed) stage, the roles that currently exist are limited: there’s no “Head of Engineering”, no “VP Product”, no “VP Engineering”. Positions will open up as the venture progresses and the first employees are better suited to rise through the ranks.

We don’t have specific eFounders data because the later-stage startups that we built have now become fully independent and thus make up their own salary grids but it is our experience that this is generally true. And startups are increasingly making their salary grid public. That’s the case of Shine — a Paris-based startup now past its early stage.

You’ll see from Shine’s grid that salaries are dependent on levels and scopes of influence. At a pre(Seed) venture, the scope of influence of the existing roles will almost never exceed level 3, which is influence over your own area and strategy. As the venture grows, however, level 3 and 5 roles emerge in which you’ll have the capacity to influence the whole organization or even your industry.

So, when thinking about joining a (pre)Seed venture, it’s imperative to be forward-looking. Don’t think about the jobs that currently exist. Do think about the ones that will exist. There are many more opportunities at a (pre)Seed venture to have an exceptional career track when thinking about it that way.

There’s plenty of examples of this happening at eFounders companies. We’ve seen interns join (pre)Seed projects and rise to VP level just a couple of years later.

It’s important to note that this works under the assumption that the early venture succeeds. If it fails, you might be in a tricky situation and this is why you need to look at it as an investment. The earlier the venture, the higher the risk but the bigger the return.

Our crucial advice: do your research. What does the startup do, what’s their vision and goals, and most importantly, who are the founders. Talk at length with them to see if it’ll be a good fit.

When all these align, it’s only uphill from here.

Equity

Equity, if allocated smartly, can be a huge financial incentive for joining a (pre)Seed stage venture. You get to be fully invested in the growth and success of the company and reap benefits from it.

On the startup’s side, it’s an important tool for attracting top talent in the early stages when cash is scarce.

Getting equity in (pre)Seed stage is more advantageous than in the later stages for 4 reasons:

At seed-stage ventures, the Employee Stock Option (ESOP) pool is larger than in later stages. It typically fluctuates between 7.5% and 10%. The whole pool needs to serve to attract all the talent up until the venture goes into its Series A.

In this example, let’s say it’s allocated for 30 early employees. At a later stage (between Series A and B) a new pool gets unlocked of typically 3% to 5%. But this much smaller pool will serve to attract a much bigger pool of employees, say 90 people, meaning that it’s much harder for later-stage employees to get high amounts of equity.

Alan, the highly transparent health insurance startup, illustrates this in its grid made public on Maddyness. The more people joined before you, the less the “equity multiplier” will be attractive.

The strike price is the fixed price you pay to purchase shares in the options granted to you. It is determined by the fair market value of the company which is driven by regulation (409A). Naturally, (pre)Seed ventures’ strike prices are lower than in later stages. The expected capital gain per stock option will therefore be the biggest at the earlier stage.

It’s not only salaries that increase with the role, but equity also. And again, early employees are in a favorable position for equity “top-ups” as their responsibilities increase. Usually, when new leadership roles emerge, an equity allocation is planned according to a grid. If an early-employee takes the role, they will be topped-up as compensation for their new responsibilities.

Again, this is true of Alan’s grid. When a VP role emerges, it comes with a “Base Equity” increase.

Typically, you have to work at the company for 4 years in order for your shares to fully vest (for you to become an owner). If the company’s valuation has soared, it’s likely that your vested shares are worth a lot. So you might wonder, why stay? Well, (good) companies are forward-looking and don’t wait until year 4 to give new grants to their talented employees. These are called retention grants: the company regularly looks at the unvested part of your options and tops you up every year according to your contribution. This keeps you motivated and incentives you to stay on. If you want to find out more, Fred Wilson has written a great article on the topic.

Convinced that joining a (pre)Seed startup is the best option for you? Join eFounders and help us build the future of work. Check out our current openings.