What you need to know about fintech stock pay today: "Everything is up for discussion"
The greatest appeal of joining a budding start-up is often equity pay, with lucrative upside if the company grows to be worth billions of dollars. Today, as valuations in major AI labs balloon and quant firms offer $1m compensation packages right out of the gate, the risks of joining a start-up are starting to seem much greater than the rewards. Industry experts speaking at the Sifted Summit last week have described how companies are changing their approach to equity compensation in order to fight back.
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"This is not a playbook era," said Michelle Coventry, VP of talent for VC fund Creandum. "Anything to do with equity compensation is up for discussion." Four-year vesting periods, which have historically been popular, aren't viable for certain roles where the average tenure is falling; Coventry said that top go-to-market professionals now stay at start-ups for just "24 to 26 months" on average. She said that start-ups are having to take "creative approaches" to accommodate these hires because "everyone wants something different."
The nature of exit opportunities has changed too. Katie Conn, an investment manager for VC firm Salica Investments, said that the "IPO market has been fairly quiet and M&A hasn't filled that gap." This is not always due to a lack of success in the businesses; Mike Turner, partner in the M&A practice of Latham & Watkins, said that "companies are able to stay private for longer and choosing to [do so]," due to an abundance of late-stage growth capital.
To keep employees engaged, and to give them an opportunity to cash out stock, secondary share sales have exploded in popularity over the past few years. These used to be frowned upon, as they signalled you weren't close to an exit; Coventry said that "secondaries used to be a dirty word," while Crowdcube CEO Matt Cooper said that conversations on secondaries used to happen in "dark rooms with hushed tones." Today, they have become a status symbol of the fastest-rising start-ups, and a chance to update your firm's valuation.
Fintechs have been at the forefront of this. Revolut has more than doubled its valuation in the past two years using secondary sales. Stripe's valuation was cut in half to $50bn during its last primary fundraising round in 2023, but it achieved a valuation of $159bn during a secondary share sale this February.
Employees don't reap the maximum benefit from these share sales. Manish Prayaga, founder of cap table management platform Terraledge, told us that employees often sell their shares "at quite a steep discount on the headline valuation for that company" during a secondaries transaction. The discount can be as much as 30 to 50 percent.
The discount isn't as steep for established companies; Prayaga said that, "obviously, a series B company is higher risk than Anthropic, which is much later stage, so the level of discount is proportional to that." He said that secondary sales are still very attractive to startup employees because you can wait "for an exit event which might take a couple more yearsā¦ or you could use that money to put a deposit down on a house.ā
You might even get a better deal than you would if you wait for an IPO. One fintech startup founder, speaking to us anonymously, said "there's a huge bubble in private markets right now versus public... the money is just flowing right now and I think a lot of startups are exploiting it." Private markets dictate valuations up to the point of an IPO, but then employees with stock have to wait out an excruciating six-month lockup period.
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