Leo Polovets created a survey of AngelList job postings from , an excellent summary of equity levels for the first few dozen hires at these early-stage startups. For engineers in Silicon Valley, the highest not typical! Founder compensation is another topic entirely that may still be of interest to employees.
It is common for startups to bring on advisors with a recognized name, specific background or skills, or access to a network.
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Sometimes advisors act as mentors to founders. Startup advisor compensation is usually partly or entirely via equity. Typical equity levels vary depending on the value the advisor brings, the maturity of the company, and the level of their involvement, which can vary from occasional phone-calls or introductions all the way up to being a kind of part-time, hands-on member of the team.
Because advisors may not add value for as many years as an employee, a common vesting schedule for an advisor is two years with a three-month cliff. Holloway Guide To Equity Compensation. How much should an early-hire engineer expect in equity compensation from a startup?
Support the authors and the ad-free Holloway reading experience by purchasing it for instant, lifetime access plus a PDF download. Related sections. Stages of a Startup. Why Negotiation Matters.
Offers From Startups. Get full access to this book. In a private company setting, after the founders have been issued fully vested or restricted stock under their stock purchase agreements, the employees, consultants, advisors and directors who are subsequently hired commonly receive equity compensation through stock options. There are a number of reasons for this, including ease of administration, macro- and micro-market norms and a desire to minimize the capital commitment for the individuals who are to receive equity awards.
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Consistency is also important, as it helps avoid separate negotiations with each individual on the nature and terms of equity grants. Founders find this best accomplished by sticking to an "everyone gets stock options" principle, so that the only negotiation is about how many shares are covered by the stock option grant and what the vesting schedule should be. An exception to the "stock options only" principle sometimes occurs during negotiations to attract and hire an experienced senior executive who may request restricted stock, but even then the benefits of an "everyone having the same" form of equity may prevail.
In this article, we provide an overview of some of the key considerations in making stock option grants: who gets an option, the size of the option, vesting terms and pricing. After the formation of a startup and prior to any significant financing, companies should and often do consider establishing a pool for providing equity grants to initial employees, consultants, advisors and directors. For example, if the founders hold 9 million shares, a pool of 1 million shares might be set aside for equity grants, including stock options, to be made between formation and the anticipated time of a first financing.
A Guide to Startup Employee Equity
In this case, the pool would be 10 percent of the shares expected to be issued or granted under options and other equity awards prior to the financing. There is no magic to 10 percent; the number should be based upon what the founders think they need in their particular situation. However, as a practical matter, some amount between 5 percent and 20 percent would be typical. See our article with more considerations about sizing an option pool. A new pool is often created as part of the negotiation for the first substantial financing, typically to provide for enough shares to cover the estimated number of option grants between the first and the second financing.
A typical pool following a Series A financing would be of around 15 percent of the number of post-financing shares outstanding or reserved.
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Of course, the shares of stock for the pool and for stock option grants should be for common stock, as there are tax rules that make it very difficult to grant stock options for preferred shares or stock that has distribution preferences. Prior to the first financing, it is common to have consultants, advisors, board members and non-officer employees receive option grants of. Sometimes, the founding team identifies an executive-level hire for a permanent, full-time position. In those cases, a much larger grant could be considered; perhaps 2 to 5 percent for a seasoned VP of Sales or CTO if one is needed in the early days , to as much as 10 percent for a seasoned industry-experienced CEO.
For grants to employees, startups often move towards a relatively rigorous process in which employees in specific job titles receive a fixed not a negotiated amount of stock. Such a hiring matrix helps the management team use the allocated stock pool more effectively and creates consistency among employees always a virtue.