Startup Fundraising Slump Is Having Major Ripple Effects on Employee Compensation, Carta Report Claims

The “chill” in startup fundraising is having major ripple effects on startup employee compensation, according to a comprehensive update from Carta.

Startups on Carta collectively raised “about $28 billion through the first half of 2023.”

That was less than half of the total funds “raised in the last quarter of 2021.”

As their spending capacity declines, startups have had “to look for ways to lengthen their runways.”

Many have turned to headcount reductions: VC-backed startups have “shed tens of thousands of workers this year.” The renewed focus on cash efficiency has “led to minimal salary growth, and equity packages have not expanded as many expected.”

This compensation report is drawn “from more than 280,000 employee records from startups that use Carta Total Compensation.” Other metrics in the report, “such as those that describe employee movement, derive from the aggregate pool of more than 1 million employees currently working for the 40,000 startups that use Carta to manage their cap tables.”

The pace of hiring has fallen sharply: During the first half of 2022, startups “on Carta collectively hired over 314,000 employees.” That figure fell “to 129,000 during the first half of 2023.”

Salaries flatlined to start the year: Carta Total Compensation benchmarks “for employee salaries fell 0.3% from November 2022 to May 2023.”

Equity packages saw substantial reductions: Over the November 2022 to May 2023 timeframe, average equity grants benchmarks “declined 26%.”

Labor market

Carta data on employee movement—new hires, departures, and whether those departures were voluntary or involuntary—is drawn “from across the more than 40,000 companies on our cap table platform.”

This provides Carta greater visibility into hiring trends across the private

Though headlines about startup layoffs seem to have subsided, tens of thousands of employees are still “losing their jobs.” Layoffs peaked in January of this year “with 17,618 employees impacted in a single month.”

Voluntary employee departures have also “declined from recent highs.”

Startup workers deciding to “remain in their current positions for longer has likely reduced the need to backfill those roles, adding another drag to startup hiring in 2023.”

Net headcount across Carta companies has “fallen for five straight months (and six of the last seven).” The exception—January 2023—is likely “due to a cyclical trend: January is usually the strongest month for new hires in any given year.”

Breaking out the hiring and departure data more granularly, Carta says we “can see the net headcount declines are a result of decreased hiring by and large.”

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