Is Early Startup Employee Equity Compensation Actually Fair

Do early startup employees get fair equity compensation?

All depends on your definition of the word "fair".

Startup founders want to attract the 𝗿𝗶𝗴𝗵𝘁 talent - it's core to being a founder (hiring the particular people to bring this idea to life).

But they have to balance equity generosity with planned hiring & fundraising, and crystal ball gazing into the future is no easy task.

Benchmarks below are from over 8,000 initial equity grants given to the first 10 hires at startups from June 2023 to June 2024. You can see that the first hire has a median equity grant of 1.49% of fully diluted company shares (that's the full 4-year grant amount, not annual).

𝗞𝗲𝘆 𝗧𝗿𝗲𝗻𝗱𝘀 𝗙𝗿𝗼𝗺 𝗧𝗵𝗲 𝗗𝗮𝘁𝗮

• It's rare that a founder chooses the 50th percentile for all first 5 hires. Reality is messy and these grants jump around a lot.

• Engineering talent is often compensated at the higher end of the ranges while business hires may tend towards the middle/lower end.

• Employee option pools often begin at 10%. If founders choose to grant median equity for all 10 first hires, that represents a pool depletion of less than 5%. Initial pool size has little to do with overall generosity as it can always be expanded over time.

• Fundraising usually takes place before you've hit 10 employees. The median B2B SaaS company on Carta has between 3-6 full time employees when they raise a seed round these days.

• Solo founders do tend to give early employees larger equity grants than big founding teams.

• The first couple hires might receive RSAs (Restricted Stock Awards) in lieu of ISOs (Incentive Stock Options), but most employees are on ISO grants.

• Typical vesting schedules still apply (4-year grant with a 1-year cliff).

• There's no 𝘳𝘪𝘨𝘩𝘵 𝘸𝘢𝘺 to do this.

IF the current trend of smaller startups by headcount holds, and IF those smaller startups can move upwards through the valuation curve at fast rates...maybe founders will more strongly incentivize their early, key employees with more ownership.

And it's not just about the raw percentage! You can improve the grant with early exercise. Refresh grants. Adjusted vesting schedules. RSAs vs ISOs. Extended exercise periods. Equity education.

I hope these benchmarks help a hiring founder out there 🙏

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