How much should startups pay their first 10 employees?
Building an early-stage team is undeniably tricky — especially for startups with little cash.
Founders are often quick to make their first hires, focusing on getting the process done and moving on to the next task, without taking the time to find the right person.
But this is a mistake. As a founder, your first 10 employees are the building blocks of the business — the people you trust the most and who you hope will stick around for a long time — so it’s important to get early hires right.
Part of attracting quality talent involves offering a competitive salary and compensation package. But what should you pay your early employees, especially when resources are tight?
What should you pay your first employees?
There’s no industry standard for what tech startups should pay their early employees, because there are so many variables affecting who should get paid what, says Alex Lewis, talent manager at European seed-stage VC firm Seedcamp.
Dennis Müller, founder of productivity app Amie, which he launched in 2020, says his first 10 employees were software designers and engineers, who were all initially paid between €66k and €75k.
Tech roles, such as front-end and back-end developers and software engineers, are usually the most expensive to recruit, says Emilia Theye, cofounder of clare&me, an AI-based mental health startup offering psychotherapeutic support through an app.
Her Berlin-based company currently has 10 employees, whose wages fall into two brackets: those in tech roles earn higher wages at industry standard that are between 50-70K, whilst other roles earn a bit less.
The individual wages will depend on an employee’s level of seniority. In Berlin, for example, a junior software engineer earns around €55k, whilst a senior software engineer earns around €75k, according to data from global VC firm Antler.
No need to pay the big bucks
Both Seedcamp’s Lewis and Alan Poensgen, partner at Antler, say that early-stage startups shouldn’t focus on trying to get top-tier talent, as the reality is that most startups can’t afford to pay the salaries that larger corporations offer. Poensgen says that startup employees should expect to accept a salary between 30 and 40% lower than the one they’d typically be offered by a larger corporate.
“Often it pays… to get a really exceptional junior generalist rather than competing with consultancy or scaleup salaries for experienced hires,” he adds.
There are other ways startups can compensate for salaries that may be below market standard — for example, with attractive benefits packages.
Lewis says that flexible benefits platforms such as Peppy or Juno, which offer employees the ability to choose their own benefits, are a great way of attracting talent. Offering equity is another way early-stage startups typically attract talent.
How does equity work at a startup?
When employees apply to a startup, they’ll often get the choice between a mix of salary and option packages. For example, the choice may be between a £30k salary plus 5,000 options, or a £33k salary and 3,000 options.
Giving employees shares means allowing them to immediately become a shareholder in the company, with all the voting and other shareholder rights that entails.
Giving individual options, however, gives them the right to purchase shares in the future — sometimes at a discount, if the options were assigned when the startup had a lower valuation. The rights attached to these shares can then only be accessed once the individual has bought them. This is the most common way of giving employees equity in a business.