The startup ecosystem has always been dynamic, with compensation trends reflecting the ebbs and flows of venture funding, market conditions, and broader economic shifts. In the first half of 2024, the compensation landscape has been marked by both continuity and change, with key trends emerging across salary benchmarks, equity distribution, and hiring practices. This blog post dives deep into these trends, offering insights for founders, employees, and investors who navigate the complex world of startup compensation.
The Big Picture: Key Takeaways from H1 2024
The first half of 2024 has seen a stabilization in both salary and equity compensation across the startup ecosystem. According to data from Carta, a leading platform managing cap tables for startups, the average salary and equity packages offered to new hires have remained largely unchanged since the end of 2023. This suggests that the market has found a “new normal” after the turbulence of the previous years, particularly the sharp declines in equity offerings in late 2022 and 2023.
However, while compensation has stabilized, hiring remains subdued. Carta reports that January 2024 saw fewer new hires than any January in the past four years. This trend continued through the first quarter, indicating that startups are being more cautious in their hiring practices. Additionally, startups that are successful in raising capital are operating with leaner teams, further emphasizing the current focus on financial austerity.
Hiring and Headcount: A Slow Start to the Year
The startup ecosystem has seen a notable reduction in job departures in 2024, driven primarily by a decrease in layoffs and firings. Involuntary job departures dropped by 38% from January to May 2024, reflecting a shift towards greater job security. Voluntary departures have also decreased, albeit at a slower rate, signaling that employees are opting to stay put in uncertain times.
However, the reduction in departures has not translated into a hiring boom. In fact, January 2024 saw a significant decline in new hires, down 29% from January 2023. This trend continued into the following months, with February, March, and April all recording lower hiring numbers compared to previous years. As a result, the total net headcount across the startup ecosystem has remained flat, with only a few sectors, such as energy and medical devices, showing any significant growth in headcount.
This stagnation in hiring reflects broader trends in the startup world, where financial caution is the order of the day. Startups are more focused on sustaining their current operations rather than expanding rapidly. For employees, this means fewer opportunities to move between companies, while for founders, it necessitates a greater focus on retaining top talent.
Company Composition: Leaner Teams, Shorter Tenures
One of the most striking trends in H1 2024 is the reduction in average company size at various stages of the venture lifecycle. Startups that closed Series A rounds in early 2024 had an average of 15.6 employees, down from 17.6 employees in H1 2021. This trend of leaner teams is also evident at other stages, with Series B and C companies showing similar reductions in headcount.
Interestingly, the trend is not uniform across all sectors. For instance, healthtech startups at the seed stage have seen an increase in average headcount, while consumer startups have experienced significant declines. This divergence highlights the varying impact of market conditions on different industries.
In addition to leaner teams, the tenure of startup employees has been shortening. Data from Carta shows that 43.4% of employees hired in 2021 had left their jobs within two years, a significant increase from pre-pandemic years. While this trend may be showing signs of slowing down, with fewer employees hired in 2023 leaving within six months compared to 2022, it still indicates a shift towards shorter employment stints in the startup world.
Salary Trends: Modest Gains Amid Inflationary Pressures
When it comes to salaries, H1 2024 has seen modest gains across most job functions. The average salary benchmark increased by 0.5% between January and April 2024, continuing the trend of slight salary growth seen in previous quarters. However, these gains have not kept pace with inflation, which was 3.4% over the same period. This means that, in real terms, most startup employees are earning less than they did a year ago.
Interestingly, the distribution of salary changes has become more compact, with fewer job functions seeing significant increases or decreases in pay. For example, the average salary for customer success roles increased by 3.7%, outpacing inflation, while support roles saw a decline of 1.8%. This suggests that while some functions are still seeing healthy pay increases, others are facing stagnation or even reduction in compensation.
From a geographical perspective, salary trends are also showing some interesting shifts. While the Bay Area remains the highest-paying region, other metro areas, such as Atlanta, Cincinnati, and Pittsburgh, are closing the gap. This reflects a broader trend of geographic diversification in the startup ecosystem, as companies increasingly look beyond traditional tech hubs for talent.
Equity Trends: A New Normal for Equity Packages
Equity compensation, a critical component of startup pay packages, has also stabilized in H1 2024. After sharp declines in equity offerings in 2022 and 2023, the average size of equity packages for new hires has remained steady since September 2023. This suggests that startups have adjusted to the new market conditions and are now offering equity packages that reflect the current valuation environment.
However, the exercise rate of stock options, which had seen a slight uptick in Q1 2024, declined again in Q2. This decline is closely tied to the broader downturn in venture valuations, as employees are less likely to exercise options when they perceive that the potential upside is limited. Additionally, the frequency of companies offering extended post-termination exercise periods (PTEPs) for stock options has stabilized, with about 20% of companies providing this benefit in recent quarters.
These trends underscore the importance of understanding the current equity landscape for both employees and founders. For employees, it’s crucial to evaluate equity offers in the context of the broader market, while for founders, offering competitive equity packages remains a key tool for attracting and retaining talent.
Compensation Geography: Regional Variations and Shifting Trends
The geography of startup compensation is undergoing significant changes, with notable regional variations in pay levels and hiring practices. The Bay Area continues to set the standard for compensation in the West, but other regions are catching up. For instance, the Seattle area now pays at about 97% of the level in San Francisco, while several other metros are at 90% or higher.
In the Northeast, New York City remains the benchmark for compensation, but Boston, Burlington, and other cities are narrowing the gap. Similarly, the South has seen notable gains in compensation in metros like Richmond and Charlotte, while Miami has experienced a slight decline.
The Midwest is also seeing shifts, with cities like Cincinnati and Indianapolis showing significant increases in average compensation. Interestingly, the Twin Cities have now matched Chicago in terms of average pay, indicating a closing of the compensation gap between traditional hubs and emerging markets.
These regional trends reflect the broader decentralization of the startup ecosystem, as companies increasingly look to hire talent outside of the traditional tech hubs. For employees, this means more opportunities to work for high-growth startups without having to relocate to the Bay Area or New York. For founders, it highlights the importance of considering geographic diversity when building teams and setting compensation levels.
Conclusion: Navigating the New Normal in Startup Compensation
The first half of 2024 has been a period of stabilization in startup compensation, with salaries and equity packages finding a new equilibrium after the volatility of the past few years. However, the broader trends of leaner teams, cautious hiring, and regional diversification underscore the ongoing challenges and opportunities in the startup ecosystem.
For employees, understanding these trends is key to making informed decisions about job offers and career moves. Whether it’s evaluating the potential upside of an equity package or considering the cost of living in different regions, having a clear picture of the current landscape can help navigate the complexities of startup compensation.
For founders, the focus should be on balancing financial austerity with the need to attract and retain top talent. Offering competitive salaries and equity packages, while also considering the benefits of geographic diversity, can be a winning strategy in the current environment.
As the startup ecosystem continues to evolve, staying informed about compensation trends will be crucial for all stakeholders. Whether you’re a founder, employee, or investor, understanding the state of startup compensation in 2024 can help you navigate the challenges and seize the opportunities that lie ahead.
Also published on Medium.