Do Early Startup Employees Get Fair Equity Compensation

Do early startup employees get fair equity compensation?

"Fair" is a tricky word here.

Startup founders want to attract the best talent - it may be the core part of the founder role (hiring the exact right people to bring this idea to life).

But they also are cognizant of equity depletion and the difficulty it can introduce when fundraising from VCs.

Rock, hard place.

Benchmarks below are from over 9,000 initial equity grants given to the first 10 hires at startups in 2024. You can see that the first hire has a median equity grant of 1.5% of fully diluted company shares (that's the full 4-year percentage, by the way).

𝗪𝗵𝗮𝘁 𝗝𝘂𝗺𝗽𝘀 𝗢𝘂𝘁

1. Hire number 1 is really a different conversation from everyone else. Lots of art, very little science.

2. Wow, those medians fall off really quickly. By Hire 6, you're already seeing grants center around 0.3% or so.

2. The total option pool burn from the first 5 hires, if you hired exactly at the median each time (which of course no one actually does but stay with me here) would be 3.62%. Many companies will get through their first 10 hires without using up even 5% of total company equity.

If the current trend of smaller startups by headcount holds...I hope founders will more strongly incentivize their early, key employees with more ownership. Less capital needed to grow a fantastic business in which everyone can share in the spoils.

There are many ways to improve ownership for early employees. Refresh grants. Adjusted vesting schedules. RSAs vs ISOs. Extended exercise periods. Equity education. Secondary liquidity (down the road).

I hope these benchmarks help a hiring founder and a would-be first employee 🙏

#startups #founders #startupequity #equitycomp

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