How does startup compensation work?

Startup compensation = cash + equity + risk (especially in medtech)

Startup compensation is how a company pays you for work when cash is limited and outcomes are uncertain. In most startups, your total package combines salary (cash today), equity (ownership that may be worth something later), and sometimes bonuses tied to milestones. In medtech, the “risk” component is amplified because timelines depend on regulatory clearance (e.g., 510(k), De Novo, PMA), clinical evidence, reimbursement (often CPT codes or payer coverage), and slow hospital procurement.

That means two people with the same title can be paid very differently depending on: (1) how close the company is to a value-inflection point (prototype, first-in-human, FDA submission, clearance, first revenue), (2) how fundable the next step is, and (3) how “replaceable” the skill set is (e.g., a rare regulatory lead with prior 510(k) wins vs. a generalist).

The three building blocks: salary, equity, and incentives

1) Salary (cash compensation)

Salary is the simplest part: a fixed amount paid regularly. Early-stage medtech startups often pay below big-hospital or big-industry levels because runway matters. Runway is how long the company can operate before it runs out of cash (e.g., “12 months of runway”).

Practical medtech reality: if your company is pre-clearance and pre-revenue, salary is constrained by investor expectations and burn rate (monthly spend). If you’re joining as a clinician-founder or scientific founder, you may see part-time arrangements (e.g., 0.2–0.5 FTE) until funding or regulatory progress de-risks the business.

2) Equity (ownership)

Equity is a claim on future value. Most employees receive equity as stock options (the right to buy shares later at a fixed price). Founders may hold common stock directly. Equity is where many STEM/clinical founders get tripped up because the number of shares is less important than the percentage ownership and the company’s future dilution.

Key terms you should understand:

• Option grant: the number of options you receive.
• Strike price: what you pay per share to exercise options (usually set at fair market value at grant time).
• Vesting: you earn the equity over time (commonly 4 years).
• Cliff: you earn nothing until a minimum time passes (commonly 1 year), then a chunk vests.
• Cap table (capitalization table): who owns what percentage of the company.
• Fully diluted: ownership assuming all options and convertible instruments become shares.

Medtech-specific nuance: equity value is often driven by regulatory and clinical milestones, not just user growth. A company that clears a 510(k) or achieves a key clinical endpoint may see a step-change in valuation; a company that misses a trial endpoint or faces FDA questions may stall for a long time.

3) Incentives (bonuses, milestone pay, commissions)

Incentives vary by role:

• Sales: commissions tied to bookings/revenue (but hospital procurement cycles can be long, and revenue recognition may lag).
• Regulatory/clinical: milestone bonuses tied to submission acceptance, clearance, IRB approval, first patient enrolled, database lock, etc.
• Leadership: performance bonuses tied to fundraising, partnerships, or strategic milestones.

Be careful with milestone definitions. “FDA submission” can mean “we hit submit” or “FDA accepted the submission as complete.” Those are not the same. Ask for precise language.

How vesting and dilution actually affect what you get

Most startup equity vests over time so the company isn’t giving away ownership to someone who leaves early. A common structure is 4-year vesting with a 1-year cliff. If you leave before the cliff, you typically get nothing. After the cliff, vesting usually happens monthly or quarterly.

Dilution is the other concept clinicians and engineers often underestimate. When the company raises money, it issues new shares to investors (and often expands the option pool), which reduces everyone’s percentage ownership. Dilution is not inherently bad if the financing increases the company’s chance of success and the value of the remaining percentage.

Two practical questions to ask when evaluating an offer:

1. What percent of the company is this grant on a fully diluted basis? (Not just “number of options.”)
2. What is the current option pool and is it being increased in the next round? Option pool increases often happen before a financing and can dilute employees/founders.

Medtech realities that shape compensation: FDA, reimbursement, and hospital sales

In software startups, compensation often assumes faster iteration and earlier revenue. In medtech, compensation is shaped by three slow-moving systems:

Regulatory pathway risk

A product pursuing 510(k) (substantial equivalence) may have a different risk profile than De Novo (new device type) or PMA (highest-risk devices). The more uncertainty in pathway, evidence requirements, and timelines, the more the company may rely on equity to compensate for risk.

Clinical evidence and IRB timelines

If your plan requires clinical data, timelines depend on site contracting, IRB approval, enrollment rates, and endpoint selection. Compensation for clinical leaders sometimes includes milestone equity refreshers (additional grants) when major study milestones are hit, because the work is front-loaded and high-impact.

Reimbursement and procurement

Even with FDA clearance, adoption can stall without reimbursement. For digital health and procedure-adjacent devices, CPT codes, payer coverage policies, and hospital budgeting cycles matter. This affects sales compensation (longer sales cycles, more stakeholders) and can influence whether the company can pay market salary or must conserve cash.

How to evaluate an offer (and negotiate) without sounding like a finance person

You don’t need an MBA to negotiate well; you need clarity. Use these questions to understand what you’re being offered and what the company expects in return:

• Role scope: What outcomes define success in the first 6 and 12 months?
• Cash: What is the salary, and is there a planned adjustment after the next financing or milestone?
• Equity: What percent fully diluted? What is the vesting schedule and cliff?
• Acceleration: Is there single-trigger or double-trigger acceleration on change of control? (Acceleration means vesting speeds up if the company is acquired; double-trigger typically requires acquisition and job loss/role change.)
• Exercise window: If you leave, how long do you have to exercise options? (Short windows can create a cash burden.)
• Milestones: Are there bonuses or equity refreshers tied to FDA submission/clearance, IRB approval, first revenue, or reimbursement progress?

Negotiation levers in medtech often include: a slightly higher salary (if runway allows), a larger equity grant, a written plan for equity refreshers after major regulatory/clinical milestones, or a clearer title/scope that matches your accountability (especially for regulatory and quality roles).

If you’re a clinician joining part-time, negotiate around time commitment, IP assignment, conflict-of-interest with your hospital, and publication rights. These can matter as much as cash.

What to do next

1. Ask for the offer in writing including vesting schedule, cliff, and any bonus/milestone terms.
2. Request the equity as a fully diluted percentage and ask how the option pool may change in the next round.
3. Map your compensation to medtech milestones (FDA pathway, IRB/clinical plan, reimbursement strategy, hospital procurement) and propose milestone-based refreshers if appropriate.
4. Run a simple scenario check: what happens to your equity after 1–2 funding rounds and what cash you’d need to exercise options if you leave.
5. Get a second set of eyes on the cap table logic and role scope before signing.