Startup exits do not benefit founders alone. New evidence shows that the impact can also be seen in employees’ incomes for years after a majority stake in a company is sold.
The analysis is based on Finnish register data covering 161 startup exits and 3,801 employees. It tracks the income development of startup employees before and after an exit event. Founders were excluded from the analysis.
According to the findings, startup employees’ pretax income increases significantly following the sale of a majority stake in a startup. The effect is particularly visible in average incomes and continues for years after the exit. The more moderate growth in median income suggests that the largest financial gains are concentrated among a smaller group of employees.
“Startups are not always able to offer competitive salaries in their early stages. The opportunity to benefit from a company’s growth in value is therefore an important part of what makes startup careers attractive to many employees”, says Youssef Zad, Research Fellow at Finnish Startup Community.
Stock options play an important role in startup labour markets
The analysis shows that the effects of an exit are not limited to the year in which the transaction takes place. Employees’ income growth remains strong on average in the years that follow. At the same time, the results indicate that the largest benefits are concentrated among a smaller group of workers.
In startups, employee income does not consist solely of wages and salaries. According to an earlier analysis by Finnish Startup Community, nearly a quarter of startup employees’ average total income came from capital income in 2022.
The findings highlight the importance of stock options and equity-based compensation in startup labour markets. Early-stage growth companies are often unable to compete with established firms on salary alone. The opportunity to share in the value created by a company’s growth therefore plays an important role in attracting talent.
“Startup compensation models are often partly back-loaded. The financial benefits may not be reflected in a high salary at the beginning of employment, but can materialise later through the growth in a company’s value”, Zad says.
Successful exits can also strengthen the wider startup ecosystem. Some employees who benefit from exits later become founders, investors or key employees in new growth companies.
The analysis is based on register data from Statistics Finland and follows employees’ income development from five years before an exit to eight years afterwards. The study is descriptive in nature and does not, on its own, prove that the exit caused all of the observed income changes.