How much equity should you give? - Deepstash

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.

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As your company grows, you tend to add people in “layers”.

  1. 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.
  2. The second layer is the first real employees. By the time you hire this layer, you’ve got cash coming in from somewhere (investors or customers — doesn’t matter). These people didn’t take as much risk.
  3. The third layer is later employees. By the time they joined the company, it was going pretty well.

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  • What is your split between your welcome & retention plans?  
  • Do you give equity to everyone?  
  • Is the Unvested value of the stock an incentive big enough to retain the employee? either you refresh everyone or you refresh people with the biggest potential& performance.
  • At the beginning the package is only related to the position, after that you can adapt it to the actual performance.
  • Is your policy adapted to local market practices? or not that well understood in others) 

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  • the first few hires will get on average points of equity, 
  • C-level are given between 1 and 3 points, 
  • a board member should get between 0.25 and 1% , 
  • The distribution of stock option is almost always more concentrated than the distribution of salary. The more strategic a position is, the more incentive should be done through capital.
  • It ’ s not only a question of how strategic a position is, it is also a question of designing a coherent incentive package and making it compatible with market practices.

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The initial grant can also be expressed as a percentage of the base salary (taking the price per share of the last round).

According to the study Rewarding Talents by Index Ventures, the percentage is on average between 15% and 33% of the salary, but can be as low as 5% (junior people in sales or customer success) and up to 75% (director in product, engineering or business development).

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The general principles of equity
  • 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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Free food, Beer taps and ping pong games in the break room do not help employees feel connected with the company's vision, mission or direction.

Employees prefer equity/stock compensation, the non-cash payout they get by being allocated restricted stock options. 

Employees then become partial owners of the company, vested into how it performs, increasing their motivation to be more productive and effective.

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Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the process where a private company becomes listed on a public stock exchange and offers new shares.

Prior to an IPO, the company is private and shares are usually held by the founder, early employees, VC firms, and angel investors.

An IPO is a great way for a business to raise money by allowing public investors to invest in the business for the first time.

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Investment explained

An investment is a gamble: instead of the security of guaranteed returns, you're taking a risk with your money. 

You can invest in Shares, Bonds, Funds, Government bonds (gilts), UK property market or even Farmland, Vintage cars, Wine, Fledgling technology, firms or art.

For most, investing means putting money in the stock market.

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