The startup world thrives on innovation and disruption. However, the recent slowdown in venture capital funding has sent shockwaves through the industry, impacting everything from funding rounds to company growth trajectories. This directly affects a crucial aspect of attracting and retaining top talent: compensation.
In this context, Carta, a leading provider of equity management solutions for startups, recently published its annual State of Startup Compensation Report. This comprehensive analysis leverages data from Carta Total Compensation, a platform utilized by thousands of startups globally to manage their equity programs and track employee compensation trends.
The latest edition of the report, focusing on the 2023 market, paints a clear picture of a market reset in the startup landscape. As venture capitalists tighten their purse strings, many startups are re-evaluating their talent acquisition strategies and overall compensation packages.
Key Findings:
Hiring Slump: Compared to the previous two years, startup hiring witnessed a significant decline in 2023. The number of new hires dropped by a staggering 49%, marking the lowest point in five years.
Layoff Surge: Early 2023 saw a surge in layoffs, with January recording the highest number compared to recent years. While the frequency subsided throughout the year, it remained considerably higher than pre-2023 levels.
Stagnant Salaries: Salary benchmarks exhibited minimal movement throughout 2023. However, a closer look reveals a shift within the data. Salary increases became more uniform across various job functions, with fewer outliers experiencing substantial gains or losses.
Reduced Equity Grants: A significant decline was observed in equity packages offered to new hires. The average fully diluted percentage of a company's total equity granted to new employees dropped by 36.9% compared to November 2022.
This article delves deeper into the report's findings, analyzing the data and exploring the implications for the startup ecosystem. We will examine critical trends such as:
Headcount Decline: For the first time in recent history, VC-backed startups on Carta experienced a net decline in headcount, signifying a stark contrast to the consistent growth witnessed in 2021 and early 2022.
Employee Turnover: A concerning trend emerged as departures surpassed new hires in 2023. Layoffs constituted a significant portion (47%) of all departures throughout the year, highlighting the economic impact on the job market.
Shifting Hiring Priorities: Startups exhibited a preference for hiring in specific areas. Engineering roles witnessed a rise in new hires compared to the previous year. Sales and operations also saw an increase, suggesting a focus on core business functions.
Focus on Individual Contributors: Companies are increasingly prioritizing hiring individual contributors (ICs) over expanding their management teams. This trend is particularly evident among larger startups.
The report also sheds light on other interesting aspects of the evolving startup landscape:
Remote Work: While remote work continues to be prevalent, some industries like energy, pharmaceuticals, and hardware exhibit a higher preference for in-state hires. This aligns with the sectors that continued to add headcount in 2023.
Employee Stock Options: The decline in startup valuations impacted employee exercise rates for vested stock options. However, a slight uptick was observed in early 2024.
Repricing Options: Companies increasingly resorted to repricing options in response to down rounds, aiming to maintain the financial appeal of stock options for employees.
By analyzing the data and understanding the current market dynamics, this report provides valuable insights for various stakeholders in the startup ecosystem, including:
Investors: Gaining a deeper understanding of the current compensation landscape can aid in making informed investment decisions.
Entrepreneurs: The report equips them with crucial information for crafting competitive compensation packages to attract and retain top talent.
Job seekers: By understanding the evolving trends, individuals can make informed decisions about their career paths within the startup landscape.
As the venture capital landscape adjusts to the new economic reality, the findings from Carta's State of Startup Compensation Report offer a clear perspective on the current state of compensation in the startup world. Will the market continue to reset?
