When you start a new job, you often have to choose between getting paid in equity (like shares of the company) or just straight cash. In many cases, companies lean toward paying more in cash. But at startups, it’s not unusual to see offers of more equity and less cash.
I’ve been getting both types of compensation for the last 22 years and I’ve got some advice on making this choice. I’ve seen the allure of equity up close while living in San Francisco since 2001—everyone dreams of that big startup win, even though hitting it big is pretty rare.
Let’s break it down:
Equity vs. Cash: The Wealth Potential
Real wealth often comes from owning equity. Look at the world’s billionaires—most of their wealth comes from holding large shares in big companies like Microsoft, Google, or Facebook. On the flip side, there are high-paying jobs like investment banking or law where you might earn a lot, but the real financial game-changers become partners and get a share of the profits.
Every so often, I jog past the multimillion-dollar homes in Pacific Heights, San Francisco, and it’s always a reminder that these homes belong to successful entrepreneurs. Owning a piece of a business can lead to incredible wealth, which is why I’ve chosen the entrepreneurship route.
Equity in the Workplace
When I worked in investment banking, bonuses were partly given in stock, which vested over a few years. Holding stock made me feel more connected and responsible for the company’s success. If you’re loyal and stick around, like I did for 11 years, you don’t just walk away—you end up with a safety net of cash and stock that can last you for years.
Why Mix Matters
Between 2014 and 2015, I worked with a financial tech startup, which was a refreshing change. They offered me a choice between full cash, a mix of cash and equity, or all equity. I’ve never heard of consultants getting equity except in rare cases, like the artist who painted the Facebook mural before it was big.
The Flexibility of Choice
Having multiple income streams means I don’t rely solely on cash from a job. This flexibility allows me to go for more equity, which I prefer because it has the potential to grow much more than cash sitting in a bank.
Going All-In on Equity
There’s always a risk with equity since no one can predict the future. Take WhatsApp or Tesla—no one saw their massive success coming. Or consider Personal Capital; if it becomes a major player in digital wealth management, the equity could be worth a fortune. But if it doesn’t work out, I’ve lost nothing but my time, which I spent gaining valuable experience anyway.
Deciding How Much Equity to Aim For
If I were a startup CEO, I’d admire an employee who wanted all equity— it shows commitment. But there’s a balance. You wouldn’t want to give away too much if you believe the company’s value is going to skyrocket. And not all equity offers are created equal—it depends on a lot of factors like market size, management’s track record, and the company’s growth potential.
The Bigger Picture
Ultimately, choosing between cash and equity depends on your financial situation and how much you believe in the company’s future. While cash is more immediate and certain, equity offers the possibility of significant wealth if the company succeeds massively. It’s a personal decision and one that can significantly impact your future financial health.
