How Much Equity Do Startups Set Aside for Employees

Founders - here's how much equity your peers are setting aside for employees.

The typical advice around option pools (aka ESOPs) is to reserve between 15%-20% of company equity to give to employees as the organization scales.

However, our aggregated data from 28,000 US companies shows that the plan usually begins much more humbly. Pre-seed companies are starting with an ESOP of about 10% of company equity and then expanding that reserve as they grow into larger valuations.

The percentage here refers to the entire pool that has been set aside, not just the shares already granted.

𝗞𝗲𝘆 𝗣𝗼𝗶𝗻𝘁𝘀

• ESOP is a consistent part of negotiation between founders and VCs in each round. Founders should come in with an idea of how their hiring plans will impact pool utilization.

• Industry plays a role as well. Certain sectors (like Biotech) have larger pools to begin with and then tend to level off, while SaaS grows consistently alongside the alphabet rounds.

• Utilization rates have drifted upwards over the past year or two. This is primarily due to companies being unable to fundraise on their original timelines, meaning they have to make the current option pool last longer than expected.

• First 10 hire equity actually grew on average from 2022 - but hires 10-100 received fewer shares on average than their peers who were hired in 2022 or 2021.

• The vast majority of employee grants follow the standard 4-year vesting schedule, with a 1-year cliff. Some experimentation happening on the edges however (differently weighted vesting, early exercise, etc).

Cash burn usually takes the headlines for founders when it comes to managing their spend - but equity burn can be equally crucial.

Shoutout to all the founders creating employee owners out there 🙏

#cartadata #optionpools #ESOP #equity #compensation #founders