October 2023 Report: The Shrinking Employee Equity Packages

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In H1 2023, startup compensation reflects the challenges stemming from reduced fundraising as there has been a 26% reduction in average equity grants.

Carta has been releasing some really interesting data lately, and one of their more recent publications, the State of Startup Compensation - H1 2023, provides some eye opening metrics, specifically around declines in startup equity packages.

In H1 2023, startup compensation reflects the challenges stemming from reduced fundraising. Startups raised less than half the funds compared to the last quarter of 2021, leading to job losses, stagnant salaries, and a surprising contraction in equity packages. The data drawn from Carta’s data set highlights a substantial decline in hiring and reveals a 0.3% salary drop from November 2022 to May 2023. However, of particular note is the 26% reduction in average equity grants, as see in the graph below.

The impact of this decline in equity packages being offered to new employees may not be fully realized until further down the road, but it is an important trend to acknowledge as these packages have historically been large draws for attracting talented candidates.

So what’s behind this decline? First off, and as mentioned above, startups are forced to operate on leaner budgets as cash has become more expensive, and markets are beginning to place move value on profitability rather than strictly growth at all costs. As such, there are now fewer spots in these top startups for the talent pool, and the negotiating power has shifted back to the companies.

Additionally, companies typically replenish option pools when they raise new fundraising rounds. Because the time between rounds is growing further apart due to a less advantageous macro environment, companies are being more conservative with their remaining available options.

Why this matters: The declines in employee equity packages are coming on the heels of record low employee exercise rates as well, with employees at private companies on Carta opting to exercise just 24% of their vested stock options in Q3. With both low exercise rates and smaller equity packages, better education on both what your equity package is worth and financial options for exercising have become more and more critical. As the startup ecosystem grapples with reduced funding, stagnant salaries, and shrinking equity packages, ESO Fund's risk-free financing for exercising stock options becomes increasingly valuable. By partnering with ESO Fund, individuals can navigate the financial hurdles and seize the opportunities embedded in their equity, even in a climate where cash efficiency and leaner operations are a priority.

For more insights from ESO Fund check out our newsletter ESO's Monthly Start-Up which lands in your inbox the first Tuesday of every month.

This innovative service promotes and enables a healthier relationship between companies and employees. I my opinion it's valuable to employees and great for the overall tech environment and economy. It is good for nobody when employees feel trapped because they can't afford to leave. In less extreme cases exercising can be expensive and somewhat risky and this is simply a good smart hedge and a good square deal. Brilliant!

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