The Startup “Passion Tax” Can Cost You Millions
How to recognize the psychological manipulation behind "going all in" culture and negotiate from a position of strength.
👋🏻 Jacob here,
Welcome to the latest edition of Execs and the City, where we explore how elite leaders create unfair advantages in high-stakes career decisions.
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A paid subscriber sent me a question that exposes an annoying trend in the startup ecosystem. It's a dynamic I've seen cost operators millions in career value, and one you must learn to dismantle.
She writes:
"I'm a mid-level startup operator interviewing for BizOps and Chief of Staff roles at early-stage startups (Seed to Series A). Job descriptions increasingly emphasize 'going all in,' with lines like 'GSD mindset required' and 'work alongside founders' touted as perks... But what's often on offer is a jaw-dropping total compensation package: minimal salaries, vague equity promises, and company retreats positioned as benefits... How do we navigate the risks... when those trade-offs aren't balanced by real upside or support?"
Bro culture and toxic tech underbelly red flags aside—this is a nuanced question that largely depends on your career maturity and financial objectives.
In most cases with my serious clients, I advise against pursuing startups in earnest—especially if they have a heavy emphasis on GSD undertones.
However…
Before you think I'm a startup hypocrite, consider my unique perspective.
My clients most often optimize for wealth creation, prestige, and strategic career moves. They are in their prime earning years—exploring 7-figure annual compensation ranges as the most senior of executive hires.
Their elevated circumstances and building a game plan for startup glory are akin to oil and water.
But my personal experience tells a different story.
A kid who skipped college and went straight into startup grind was able to elevate his family's economic status and create opportunities that traditional paths never would have provided.
Startups gave me near limitless agency in my own life—literally from being lucky to land a trailer park crash pad to full weeks at the Ritz in Maui and Half Moon Bay in just a few short years.
However, an early-twenties kid versus a seasoned leader in their fifties should approach career decisions very differently.
Startups serve a specific type of professional—one hungry to learn, reskill, wear multiple hats, experiment with new ideas, and break the status quo while hunting that elusive product-market fit.
You need agency, self-discipline, and comfort with minimal structure.
The debate over whether startups are 'good or bad' is a dangerously incomplete picture.
It's the kind of simplistic, 'this versus that' binary a generic AI would generate, and it distracts from the only analysis that matters.
The real task is to elevate the question itself.
The question isn't whether startups are good or bad. It's whether you're at the right career stage to optimize for learning over earning—and whether you can engage strategically rather than emotionally.
Most founders aren't trying to exploit you—they're resource-constrained and need true believers. The problem isn't their intentions.
It's what I call the Passion Tax—the implicit discount applied to your compensation because you're supposedly doing work you find exciting.
This tax doesn't appear on offer letters, but it will erode your financial position while founders convince themselves that passion should be payment enough.
Of course, any strategic framework for your career should be balanced with your personal fulfillment. Passion is a valid part of the career calculus, as long as you're conscious of when it's being leveraged against your financial interests.
Here's a deeper issue.
Even when we absolutely crush startup negotiations and secure top compensation, it often creates the "tall poppy" problem.
You become the highest-paid leader in the company.
When strategy shifts—and it will quickly—the tall poppy gets scrutinized first. No amount of fulfilling passion changes the red to black on a spreadsheet.
For executives already earning top dollar, startups only make sense as calculated moves, such as, learning new industries, advisory roles, or building specific leverage.
The executives who build sustainable wealth understand this dynamic.
They engage with high-growth environments strategically, not emotionally. They know the difference between strategic risk-taking and subsidizing someone else's dream with their career capital.
This 'Passion Tax' phenomenon, however, is not monolithic across the ecosystem; it is most potent in the early, resource-constrained stages and tends to diminish as a startup matures and professionalizes its compensation functions.
Risk is highest at a five-person seed-stage venture and significantly lower at a 300-person growth-stage company nearing an IPO.
Here's how to navigate this landscape without getting consumed by it.
Understand the Culture & Compensation Disconnect
Identify the Pattern
You're seeing the same language across multiple startup job descriptions: "going all in," "GSD mindset," "work alongside founders." These aren't accidental word choices. They're messages designed to make you feel excited about opportunity while downplaying financial reality.
When founders promise "direct access" and "meaningful work," they're usually believers, not deceivers. But their conviction doesn't pay your bills.
The pattern emerges when this enthusiasm gets channeled into sophisticated persuasion tactics that make their resource constraints your financial problem.
Here's the playbook many startups use:
Build Rapport: By positioning the opportunity as "working directly with founders," they're not just offering access—they're building personal connections to lower your negotiation defenses. You're not evaluating a corporate role; you're joining their mission, their family. This is also why you can use collaborative “we” language to your advantage when negotiating your next role.
Commitment Escalation: The interview process gets you to repeatedly articulate your passion for the mission before compensation discussions. Every time you express enthusiasm, you build psychological commitment. When the below-market offer arrives, rejecting it creates internal conflict with your stated excitement.
Standard career advice—"show passion," "demonstrate fit"—can weaken your negotiating position. The more you lean into these feel good platitudes, the less they'll offer.
This is the Executive Rubber Band Effect in reverse.
Social Proof Pressure: They emphasize exclusivity—competitive funding rounds, prestigious investors, "rocket ship" trajectory. This triggers a powerful mental shortcut. If other smart people are buying in, it must be good. You feel lucky to get an offer rather than evaluating it from a position of strength.
Research shows employees consistently overvalue startup equity by focusing on share count rather than actual value. Potential employees with limited knowledge of equity terms use the number of securities as a proxy for value—systematically undervaluing their position.
Let's be clear—sometimes the math simply doesn't work.
No deal is better than a bad deal—and sometimes there's no negotiating your way out of a bad deal. When a startup's 'best offer' would require you to take a second job, you're not evaluating an opportunity—you're subsidizing their burn rate with your financial security.
If they can't afford you, they can't afford you. Period.
Transform Your Approach
Once you recognize these patterns, you can engage strategically rather than emotionally.
The Passion Tax gets levied most effectively through equity promises.
Accepting a $40,000 annual pay cut for promised equity isn't a $40,000 problem. Over three years, that's $120,000 in lost base salary. Factor in missed 401k matching, time in the market, and future salary anchoring effects, and the true cost easily exceeds $250,000.
You're trading guaranteed losses for lottery tickets with microscopic payout chances.
What "Going All In" Actually Means:
Equity with four-year vesting when median startup tenure is 18 months
Scope creep disguised as "wearing many hats"
Questioning workload framed as lacking commitment
The executives who thrive in startup environments understand this isn't about avoiding risk—it's about taking calculated risks rather than subsidizing someone else's dream with your financial security.
The Compensation Reality Check
Before we discuss strategy, you need to understand the actual economics of startup compensation to make informed decisions.
The Equity Illusion
Most startup equity offers follow what venture capitalists call "standard terms"—which are standard for employers, not employees.
Here's what you're typically not told:
Stock options are the most common form of equity-based compensation at startups. A stock option gives the employee the right to purchase company stock during a specified period of time for a predetermined price. But employees must exercise these options—meaning you pay money to buy shares that may be worthless.
If the employee were to leave or be terminated prior to completing one year at the company, they would walk away with no equity. The number of 'convenient' terminations I've seen happen days before the one-year cliff would turn the most optimistic person cynical.
Even worse, most option agreements include 90-day post-termination exercise windows, forcing you to decide whether to invest potentially tens or hundreds of thousands of dollars in a company you're no longer with.
The Vesting Schedule Trap
Equity compensation always comes with a vesting schedule which determines when the equity will be transferred into the full ownership of the employee. The psychological effect is that employees are more likely to stay with the company for the duration of the vesting period to ensure their equity stake is fully unlocked.
This creates what behavioral economists call "golden handcuffs"—you stay not because the role is optimal for your career, but because leaving means forfeiting unvested equity. When there's a financial incentive to stick with a company, it can lead employees to feel obliged to do so, even if it isn't a great fit.
Healthy vs. Exploitative Startup Culture
Your ability to distinguish between companies building sustainable cultures and those exploiting "startup enthusiasm" is critical for protecting your career trajectory.
Red Flags That Signal Exploitation
Compensation deflection: When you ask about equity details, they pivot to culture. When you ask about salary benchmarks, they emphasize "opportunity for growth."
Boundary resistance: Any pushback on work-life balance gets framed as "not being startup material" or lacking commitment.
Vague equity terms: No clear percentage, valuation methodology, or exit scenario discussions. Just promises about "meaningful equity."
Hero language: Constant references to "changing the world," "disrupting industries," or "being part of something bigger" without concrete metrics.
Martyrdom celebration: Stories about founders sleeping in the office or working 100-hour weeks presented as inspiring rather than concerning.
Healthy Startup Culture Indicators
Companies that balance ambition with sustainability exhibit different patterns:
Transparent compensation discussions: They acknowledge trade-offs directly and explain their resource allocation philosophy without deflecting to culture.
Concrete equity transparency: Specific percentages, current valuation, dilution scenarios, and realistic exit timelines.
Boundary respect: Leadership models sustainable work practices and doesn't glorify burnout.
Learning-oriented growth: They frame broad responsibilities as temporary development opportunities with clear skill-building objectives and realistic timelines.
Professional development support: Budget for training, conferences, or certifications that enhance your market value beyond this single role.
Your Startup Evaluation
If you're going to engage with startups, you need an approach to evaluating offers that protects your interests while allowing for the right risk-taking.
Think like an investor, not an employee. Evaluate startups based on returns, not excitement.
The Three-Layer Evaluation System
Layer 1: Economic Foundation
Calculate your true compensation opportunity cost. If you're currently earning $X or could earn $X at a larger company, the startup needs to offer compelling risk-adjusted returns.
For equity to be meaningful, ask these specific questions:
What percentage of the company am I getting?
What's the current 409A valuation?
What happens to my equity in various exit scenarios?
How much dilution should I expect through Series B and C?
What's the post-termination exercise window?
If they can't answer these questions with specifics, the equity is fantasy compensation designed to make you feel better about below-market cash.
Here's a negotiation move most people miss:
If they're asking you to take a million-dollar haircut over four years, negotiate meaningful severance upfront. Frame it as risk mitigation after they’ve extended you an offer and you’ve hashed out the main financial points. You're betting your career on their vision, so what's their commitment if things go sideways?
Six months' severance for a million in foregone compensation isn't generous—it's logical.
Layer 2: Learning Arbitrage
Identify specific skills or experiences you'll gain that increase your market value. This isn't about "wearing many hats"—it's about strategic capability development that compounds over your career.
Examples of valuable learning arbitrage:
Direct exposure to fundraising and investor relations
Experience building 0-to-1 products in emerging markets
Cross-functional leadership in resource-constrained environments
Network access to venture capital or later-stage growth companies
When startup cash compensation is constrained, negotiate for learning acceleration: quarterly reviews with founders covering strategic decision-making rationale, attendance at board meetings (observer status), direct involvement in fundraising presentations and investor meetings, and cross-functional exposure to product, technical, and go-to-market strategies.
The key question: Will this experience make you more valuable to future employers, or just more experienced at startup chaos? Think closely about how your decisions impact your future career narrative.
Layer 3: Optionality Preservation
Ensure the role enhances rather than constrains your future opportunities:
Will this experience make me more or less attractive to larger companies?
Am I building relationships that expand my professional network?
Will I have references who can credibly speak to my performance under pressure?
How do I talk about this opportunity with others? Does it appear to be a deviation or mistake? Why?
Many people get so focused on the immediate opportunity that they ignore how it positions them for their next move.
You’re either learning or earning—ideally both.
When to Walk Away vs. When to Engage
Your decision should be based on career stage, financial position, and learning objectives—not emotional appeal or cultural pressure.
Walk Away If:
Financial pressure: You can't afford the compensation cut without compromising your family's security or your own financial goals
Career stage mismatch: You're in a senior role where building wealth and stability should take priority over experimentation
Pattern recognition: The company exhibits multiple red flags around boundary respect and compensation transparency
Limited learning opportunity: The role doesn't provide unique skills or experiences that enhance your market value
Strategic Engagement If:
Strong financial foundation: You can absorb the compensation reduction without compromising your long-term financial objectives
Clear learning arbitrage: The role provides specific, valuable experience that accelerates your career trajectory
Transparent culture: The company demonstrates healthy boundaries and honest communication about trade-offs
Defined time horizon: You have a clear exit strategy and timeline, regardless of company performance
Build Sustainable Career Capital in Startups
The goal isn't to avoid startup risk entirely—it's to engage strategically while protecting your long-term trajectory and psychological well-being.
The Portfolio Approach to Career Risk
Think about startup roles the way venture capitalists think about investments—as part of a portfolio where some bets pay off dramatically while others provide learning and network value.
Never put more than 2-3 years of your career into early-stage startups without a clear corporate re-entry strategy. One bad startup choice often leads to another, eroding decades of career progress.
The Network Development Focus
Real hiring happens through text messages, golf course conversations, and "hey, do you know anyone who could..." discussions over dinner. Use startup roles to build relationships that create optionality:
Founders who become successful and hire senior executives
Investors who see your performance and recommend you for portfolio company roles
Board members with relationships at larger companies
Colleagues who transition to corporate roles and can provide references
Maintain relationships and relevance in larger company contexts throughout your startup tenure through industry conferences, advisory relationships with former colleagues, thought leadership, and keeping your LinkedIn positioned for corporate opportunities, not just startup culture.
Your Career Is Not a Charitable Donation
The most successful companies—the ones that endure beyond the hype cycle—don't build empires on underpaid labor.
They understand that attracting A-list talent requires respecting their value. They offer compelling missions and professional compensation. They want partners, not martyrs.
Your professional boundaries aren't a sign of insufficient commitment.
They're the prerequisite for sustained high performance. By refusing to pay the Passion Tax, you're not only protecting your career—you're elevating standards for the entire startup ecosystem.
The startup world needs talented operators who can think strategically while executing with intensity. But you don't need to sacrifice your financial security, professional trajectory, or personal well-being to contribute to innovation.
The executives who build lasting careers in high-growth environments engage strategically rather than emotionally. They extract maximum value from startup experiences while maintaining their ability to transition back to larger companies when appropriate.
They understand that "going all in" doesn't mean accepting poor compensation or abandoning professional boundaries.
It means bringing your full strategic thinking capacity and execution skills to help build something meaningful—while protecting the career capital that allows you to keep making that contribution over the long term.
For readers already trapped in the startup spiral, check out "Escape the Failed Startup Spiral (Before It Destroys Your Career)" for specific recovery strategies.
The most valuable skill you can develop is the ability to recognize when an opportunity serves your strategic objectives versus when it simply appeals to your ego or insecurities. Master that distinction, and you'll thrive in startup environments without getting consumed by them.
Your instincts about the culture-compensation disconnect are correct. Trust them. Engage with startups on your terms, not theirs. Build the career that serves your goals, not just their growth metrics.
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