Startup Equity Agreement For Early Employees In Wake
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The precise amounts can be calculated by multiplying an employee's salary by an equity-to-salary ratio for their role. Sam Altman, the CEO of OpenAI and investor, suggests that a company should give at least 10% to the first ten employees, 5% to the next 20, and 5% to the next 50.
Equity allocation to co-founding team members should reflect a reward for the value they're expected to contribute. If the expected contributions are fairly equal, then the initial equity should be allocated relatively equally (for example, 51% and 49%).
In summary, 1% equity can be a good offer if the startup has strong potential, your role is significant, and the overall compensation package is competitive. However, it could also be seen as low depending on the context. It's essential to assess all these factors before making a decision.
There are two common ways to grant Common Stock to employees: through stock options or restricted stock. As an early-stage startup, stock options are by far the most common way to grant equity to employees. However, it's important for you to understand the alternative so you can make the best possible decision.
It's typical for startups to allot between 10-20% of the company's equity to an "employee stock option pool" A pie chart showing the typical equity division at an early-stage startup. Founders typically keep 75%, with investors and employees getting 15% and 10%, respectively.
He suggests allocating around 10% of the company's equity to the first 10 employees and emphasizes the importance of financial success for early those team members.
As a rule of thumb, a non-founder CEO joining an early-stage startup (that has been running less than a year) would receive 7-10% equity. Other C-level execs would receive 1-5% equity that vests over time (usually 4 years).
The short answer to "how much equity should a founder keep" is founders should keep at least 50% equity in a startup for as long as possible, while investors get between 20 and 30%. There should also be a 10 to 20% portion set aside for employee stock options and, in some cases, about 5% left in a reserve pool.
Angel and venture capital investors are great, but they must not take more shares than you're willing to give up. On average, founders offer 10-20% of their equity during a seed round. You should always avoid offering over 25% during this stage. As you progress beyond this stage, you will have less equity to offer.
In summary, 1% equity can be a good offer if the startup has strong potential, your role is significant, and the overall compensation package is competitive. However, it could also be seen as low depending on the context. It's essential to assess all these factors before making a decision.
