But how much equity should founders grant the first engineers hired to help them build their product and the new hires that follow? What about that highly coveted VP of Sales brought on once a company has a product to sell? And what about others a young startup seeks to enlist in the cause, including key advisors whose insights and connections might increase its chances of success or perhaps an outside director with the right expertise to join a nascent board of directors?
Properly parceling out equity is a challenge for first-time founders. What stake an employee deserves depends on a range of factors, from skills to seniority and employee badge number. You have to look at each situation individually. Yet while complex, several online guides provide compensation benchmarks that help founders think about the size of each slice of the company they give away when recruiting talent. Index Ventures , for instance, has published a handbook aimed at helping entrepreneurs figure out option grants at the seed level.
An engineer coming in at the mid-level can expect. A junior biz dev person should expect. When Shukla was building her team at RewardsPay, she gave the earliest engineers joining her team an equity share of between. Another way to think about it? The band depends on the bass player, just the way they depend on the drummer. Nevertheless, the reality is that most startups do not go on to become the next Blue Apron or Glossier.
In other words, it is entirely possible that you will negotiate for equity but the startup will never reach a liquidity event and you will end up with nothing. That is just a financial risk you take in the startup world. Of course, you should still advocate for yourself at the negotiating table. A startup is not a get-rich-quick scheme; it takes some serious hard work. With the previous tip in mind, you should negotiate for equity with the knowledge that it is not worth anything yet.
It only might be worth something in the future. If the company that you joined early on becomes one of the small percentage of startups to be financially successful, it will be thanks to your hard work.
We mentioned earlier that equity that is typically offered to employees is called common stock. No matter what kind of equity you are offered, make sure that you fully understand the terms and conditions. The prevalence of social media in our work lives can make it seem as though everything about our careers are casual. This is dead wrong: Any career-focused negotiation, including one about equity, is a serious discussion that should be done verbally.
It is acceptable, however, to use email to follow up on the details — but only to follow up. A good standard is to trust, but verify with your own research. Discreetly acquire more information about similar companies to ensure everything checks out OK. Knowledge is power and you can advocate for your professional well-being more effectively with data. Give yourself some time to decide whether you want to accept the offer which might entail circling back to your network to get their point of view.
Whether you decide to accept the equity offer you receive or make a counteroffer for more money is up to you. If you decide to make a counteroffer, Harquail has some good suggested scripts to follow. Determining equity valuation is further complicated by human resources and legal concerns that may occur during discussions of equity valuation between company founders and their employees.
Legal professionals often advise company founders to be very cautious about having that discussion. The value of equity may be diluted when the total amount is divided among many people. A company founder begins by owning all shares representing complete ownership of the company. As time passes, other parties obtain pieces of equity as compensation for work e.
As equity is calculated as a total percentage of ownership, it will always total exactly percent. This means that anytime a person gains another piece of equity, by default it dilutes the percentage of all other equity holders.
To avoid equity dilution to its current equity holders, a company must not hire additional employees who receive stock options or accept additional money from investors. The shares that have been given or sold to people within the company e.
Without including stock options, the number of shares issued amounts to percent of the company's equity.
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