With the allure of potential riches and excitement from building something new, more investment bankers are leaving Wall Street to launch or join startups. But how does compensation compare between these careers? This article explores the salary realities when moving from investment banking to startups.
Investment banking salaries start high but have limited upside
Fresh MBA graduates joining investment banks as analysts make $100-150K in base salary, with yearly bonuses of up to 100% on top. Total first-year compensation packages can reach $300K+. Salaries rise steadily with promotions to associate, VP, director levels. However, advancement slows at higher levels and total compensation caps out around $1-2M for directors and managing directors.
Startup salaries are uneven but offer huge equity upside
Startup salaries tend to start lower, often $80-120K for early employees, but offer equity like stock options. While liquidation preferences mean options may not yield much in an acquisition, in an IPO or unicorn-type exit, they can be worth tens of millions. Even base salaries can reach $300-500K for senior executives at hot startups. However, the payoff is very uneven – most startups fail completely.
Bankers take a pay cut initially but gain upside
Bankers joining startups early often take a pay cut at first. A VP making $500K may make $150-200K at a startup. But with 1-2% equity, the potential payout is much higher over time. Founders and early employees give up high guaranteed comp for risky but highly asymmetric outcomes. For many, the excitement of startups outweighs the pay cut.
Experience and track record enable bigger startup roles
Bankers with investing experience and a strong track record have leverage to negotiate larger equity stakes and higher salaries at startups. Joining later stage startups also enables bigger titles and comp. A successful exiting MD could join a series B+ startup as a senior executive commanding millions in salary and double digit equity.
While investment banking offers stable, high pay right away, startup compensation is more variable but presents higher upside over time. Bankers joining startups earlier take a pay cut but gain equity. More experience enables entering at later stages for higher comp.