To lure top AI talent, startups are turning to cold hard cash

An MIT graduate got an entry-level software engineering role that pays $220,000 a year, according to the firm that placed him. And that’s before any equity.

Startups have long been known for paying lower base salaries complemented by generous equity packages—ones that might or might not pay out. The idea was you incentivize people to stick around with the prospect of a big payday upon an exit or an IPO.

These days, high-growth artificial-intelligence startups are flush with venture capital. Combine that with a wildly competitive talent market and you get more cash-heavy offers, along with increasingly creative incentive structures.

“Everyone wants to draw from a limited pool,” says Michael Zhang, CEO of Candidate Labs, a recruiting firm that has placed talent at startups including Cursor and Vercel. And he says pay is on the rise.

“What would have been eyebrow-raising compensation a year ago is now considered OK to pay, no questions asked, by many recently funded startups,” he adds.

Many startups are focused on staying lean and small, so the people they’re hiring need to be the best of the best. It’s creating a split economy in the tech industry: The top 5 to 10% of candidates are getting all the offers and the rest are struggling, recruiters say.

“Ten X. Bar raisers. These are the terms that get thrown around a lot,” Zhang says. “They only want top-tier folks.”

Table stakes

Median base-salary offers for software engineers among venture-backed startups have grown from $160,000 to $200,000 since 2022, a 25% increase, according to Levels.fyi, a platform for salary data. For the same companies, total compensation, including equity, has increased by 18%.

Other roles that are paying generously are sales representatives, product managers and marketers, if they’re at the top of their field, and forward-deployed engineers—people who embed with customers to teach them how to use AI.

On top of generous base salaries, Zhang has also seen companies offering profit-sharing agreements. Say someone is put in charge of a particular business vertical; they might now get promised 4% of its profits.

Chris Vasquez, CEO of Quantum, which recruits teams for high-growth startups, says it’s no longer uncommon for startup workers in certain roles to be making the same total cash compensation as seasoned workers at companies like Meta and Google.

“Prior to this, I’d probably never seen anyone over $300,000 on base salaries at seed companies,” says Vasquez. Now, “They’re able to take home FAANG [Facebook, Amazon, Apple, Netflix, Google] level cash comp.”

He’s also started to see performance-based cash bonuses in a small number of companies. Upon hitting a particular milestone, a cash bonus might equal 30% of a worker’s salary, he says.

Some computer-science majors from top-tier schools with as little as one or two years of experience at premier companies are receiving salary offers between $250,000 and $300,000, he says. A couple of years ago, those base salaries would have been closer to $170,000. One math-competition winner with nine months of professional experience was offered a $400,000 base for a software-engineering role, Vasquez adds.

More liquid

Startup employees used to have to wait for an exit or an IPO to realize cash from their equity, but they can get that sooner now, too, through tender offers where investors can come in and buy their shares. Tender offers have long existed, but they’ve become more common in recent years.

“Most of the late-stage private companies that you can think of have done some sort of liquidity event for employees,” says Zuhayeer Musa, co-founder of Levels.fyi. And when some companies do it, the others feel compelled to. “It’s a competitive effect,” he adds.

On top of that, some startups have gotten rid of vesting cliffs altogether, meaning an employee owns his or her shares from the moment they start working for the company.

Rhys Hughes, executive talent partner at GV (formerly Google Ventures), says the other development in this tight talent market is that white-glove treatment during recruitment isn’t just reserved for top hires.

Dinners at premier restaurants, sending flowers to thank candidates for their time—“That’s happening at the account executive level,” he says.

Of course, there’s a downside to all the money floating around: retaining the talent once they’re in the door. Issuing equity that takes years to vest proved useful for retention. The sooner cash is available, the harder it can be to keep people for the long haul.

“It’s kind of like, come for money, leave for money at the same time,” he says. If there’s cash everywhere, he says, a startup needs to have a culture that makes people want to stay.

Write to Katherine Bindley at katie.bindley@wsj.com