What Startups Really Pay MBAs

The original TransparentMBA team. Pictured from left to right are Jeremy Selbst, Mitch Kirby, Alyssa Jaffee and Kevin Marvinac. Courtesy photo

‘YOU WON’T BE ABLE TO PULL A TOP CANDIDATE, ESPECIALLY AN MBA, WITHOUT SIGNIFICANT OPPORTUNITY FOR WEALTH CREATION’

There are some wild stock compensation reports in the data. An MBA taking an operations position at one prominent late stage San Francisco startup reported stock compensation with a value of $125,000. Another going into a business development role at another late stage venture based in the Bay Area managed to negotiate $115,000 in stock compensation.

“I’d say the penchant for ‘high growth’ private companies like Uber, Airbnb, and Pinterest to offer really high amounts of RSUs is one of the most interesting things about the data,” Marvinac believes. And at small stage companies, Marvinac confirms, “decent amounts” of equity is almost a given for top MBAs.

“On the small company side, you won’t be able to pull a top candidate, especially an MBA, without significant opportunity for wealth creation,” Marvinac adds. “It’s just too risky and the opportunity cost is too high for MBAs not to receive decent amounts of equity.”

For example, Marvinac says, if an equity package is low, like around 0.05%, real wealth will not be created unless an MBA is at a “big IPO winner like Snapchat.”

“That’s only $50,000 on a $100 million exit,” Marvinac emphasizes. “So equity packages at these companies are higher.”

As Wharton’s Leinweber points out, the variation among compensation packages at first jobs after B-school for MBAs are dependent on many factors. But if one thing should be certain, Marvinac says it is that stock compensation is a big deal at later-stage companies.

“Talking to my peers and users of our platform over the last year, I think it’s pretty clear that RSUs are a big deal at later-stage companies,” Marvinac says, “but not enough to make  more than $100,ooo year unless you’ve got a long-term plan and you desperately need the experience. For earlier-stage companies, these are risk-friendly MBA candidates that want a real shot at having an immense impact as an operator and significant wealth creation. That’s reflected in the numbers — you can see the huge jump between seed and Series A in terms of equity.”

Indeed, while MBAs at pre-seed and seed startups reported average startup equity percentages at 22.5% and 19.67%, respectively, the rates plunge to 0.16% for Series A, 0.08% at Series B, and 0.06% at late-stage ventures.

“Without knowing what those individual offers entailed, I’d offer a word of caution to MBAs on this,” Marvinac advises. “It’s not Monopoly money, but it’s not exactly like getting options at Microsoft or Google, either. Some of these companies have no stated path to an IPO in the near future, and while some do offer private liquidity events for employees, there’s no guarantee of that. I’ve heard stories of employees in limbo, waiting around at large private companies, unhappy with their roles but unable to move on because they are waiting on their RSUs to vest. But even if they did, there’d be no way to cash them out. And if the Ubers of the world actually do an IPO, who knows if the public markets would support their valuation? This approach is risky in its own right.”

For one current MBA at Chicago Booth, the process of finding and securing a position at an early stage startup was a two-year ordeal. Wishing to remain anonymous as her final negotiations fall into place, the Boothie says working with a local venture capital firm, the Booth career services office, and Transparent Career data helped her find and successfully negotiate a position at a very early-stage venture in the United States.

The student began her search by interacting with many early ventures through the VC firm. “That made me super exposed to the entrepreneurial climate here and super exposed to what I might want to do at graduation,” she tells Poets&Quants. Then, she says, through “so many layers of support,” such as classes, professors, incubators within and outside the University of Chicago, and business plan competitions, she was able to hone in on her ideal employer.

“I got very narrow in what I was looking for. It wasn’t just asking about a job,” she continues, “it was learning what they were doing. I was truly very interested in this space.”

‘THERE WAS NO ZONE IN WHICH WE COULD FALL WHERE EVERYONE WOULD BE HAPPY’

According to the Boothie, career services offices can help, but finding the ideal position at the right company takes “a ton of extra leg-work” both on and off campus.

“You’re talking to companies that sometimes no one has really heard of before,” she points out. “Or they’re not on campus and so you’re doing a lot of hustling off-campus. If you’re targeting a coast and don’t live on it, there is a lot of traveling.”

Once a few potential options began to surface, a Booth faculty member offered some advice the MBA took to heart. “People, pay, place, and position,” she recalls of the priorities in which the professor said to focus. Once the conversations with a few different startups continued, she finally found the position that was a “natural fit.”

“I was very flexible with my title and the type of work,” she says. Unfortunately, she and the startup didn’t see eye-to-eye immediately when it came to salary negotiations. “There was no zone in which we could fall where everyone would be happy. It just didn’t exist,” she says of the compensation package, also noting she wished she would have started compensation conversations earlier in the process. “I don’t even have my title figured out for this role yet.”

As for the MBA “badge of honor,” the Boothie says many early-stage ventures are not too concerned. “For most startups, having an MBA is not the reason they hire you,” she says. “It is certainly a reason for them to look at you. It is certainly a tool in your tool belt. And for me, I talked about it if it did come up. But, at least until you get to a more mature stage, the engineers are the heartbeat of the organization.”

DON’T MISS: MBAs DOING STARTUPS AT NEARLY FOUR TIMES THE RATE PREVIOUSLY THOUGHT or POETS&QUANTS’ TOP MBA STARTUPS OF 2017

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