Equity for Startups Employees
Curated from: medium.com
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The general principles of equity awards
Giving equity to employees means making them shareholders, aka owners of the business. Some things to consider:
- Cover the downside: schematically, equity should cover at least the opportunity cost taken by founders and employees when they accept a discount on the salary and take a bigger risk,
- Ensure huge rewards (and thus, incentive) for the upside. Founders and early employees never get rich with salary. They (sometimes) get rich through capital.
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How much equity should you give?
Equity offering needs to be adapted to your market, the profiles and company culture.
The equity package is depending on several variables, but it is mostly linked to the attractivity of your company, how strategic a position is, how hard a candidate is to attract and to retain:
- the first few hires will get on average points of equity,Ā
- C-level are given between 1 and 3 points,Ā
- a board member should get between 0.25 and 1%Ā
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The Layers Framework
As your company grows, you tend to add people in ālayersā.
- The top layer is the first founder or founders. There may be 1, 2, 3, or more of you, but you all start working at the same time, and you all take the same risk.
- The second layer is the first real employees. By the time you hire this layer, youāve got cash coming in from somewhere (investors or customers ā doesnāt matter). These people didnāt take as much risk.
- The third layer is later employees. By the time they joined the company, it was going pretty well.
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How much equity should a company offer?
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