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How Much Equity Should You Get as a Startup Employee?

By Bank Deets · · Updated

How much equity should you get as an early startup employee? It depends on your role, how early you join, and how much salary you give up. This guide explains how to think about it so you can judge an offer.

Unfortunately there’s no chart you can look at to easily know how much equity you should get as an early startup employee. There are some fundamentals that can help you understand how much you should ask for though.

  1. The earlier the employee, the more equity they should get. Very early employees take more risk: the company may run out of money, and they often work long hours in a chaotic role where they wear many hats. More equity is how startups compensate for that risk. Later employees usually have more defined jobs and more stability. If a company is pre-revenue and pre-funding, equity grants are usually much larger than at a company with venture funding or revenue.

  2. Consider how much of the employee equity pool is left and how important your role is. Many venture-backed startups set aside an option pool of roughly 10% to 20% for employees, including leadership. Your share depends largely on seniority and how central the role is to the company. Many early startups favor technical talent, so engineers often get more equity than sales and marketing roles. Equity is a big part of your overall compensation math. A 0.001% grant at an early-stage company is close to meaningless, so your salary should be competitive with the market. If you're offered 3%, you'll probably be expected to accept a below-market salary until the company is further along.

Below are rough ranges often discussed for early startup employees. They are rules of thumb, not data from a survey. If you're very early, grants may be higher; at a later-stage company, they'll likely be lower.

  • Outside CEO: 5%
  • Outside other C-level: 3-4%
  • VP-level: 1-3%
  • Senior-level Engineering / Software Development / Artificial Intelligence: 0.5% – 3%
  • Director / Manager-level: 0.25% – 1.5%
  • Junior-level Engineering / Software Development / Artificial Intelligence: 0.1% – 1%
  • Other Junior-level employees: 0% – 0.25%

These ranges are only estimates. If your offer is far off, ask why. You don't want to take on a lot of risk without fair compensation, but you also don't want to demand an unreasonable grant.

Also ask how the equity is structured, not just the percentage:

  • Shares vs. percentage: Ask for the number of shares or options and the total shares outstanding, so you can calculate your actual ownership.
  • Vesting: Equity usually vests over several years, often with a one-year "cliff" before any of it vests. Confirm the schedule in writing.
  • Options and taxes: Most startup employees get stock options with a set exercise (strike) price. The IRS explains that incentive stock options and nonstatutory options are taxed differently, and exercising incentive stock options can trigger the alternative minimum tax. Talk to a tax professional before you exercise.
  • Dilution: Future funding rounds usually reduce your percentage, as the example below shows.

There are so many factors besides the equity to consider when joining a startup. You’ll be in close quarters under high stress with the people in the startup, so make sure you like them first.

Then make sure you’re making at least enough salary to cover your burn rate, and then think about how much equity would be fair.

Co-founders usually split the equity less the equity pool for employees, though sometimes the employee pool is added later. For an example, let’s consider the following:

  • A company has two co-founders, who start the company and have 50% each in equity.
  • The founders get venture capital financing for the company, and sell 20% of the company to the investors.
  • In that financing, an employee equity pool of 15% is created.
  • Each co-founder now has 32.5% of the company (65% combined), the investor has 20%, and there’s a 15% pool for employees.
  • The co-founders might then hire a COO, who they give a 3% grant from the option pool, a VP of marketing who they give a 1.5% grant, and Director of Software Development who also gets 1.5%. Now there’s only 9% left in the option pool.
  • If the founders then need to hire several engineers, several sales people and some operations staff, it’s easy to see how quickly a 15% equity pool can go.

Lastly, many startups fail, and your equity may end up worth nothing.

Across all new private businesses, BLS data on establishment survival shows only about half are still operating five years after opening. Venture-backed startups have their own, often higher-risk profile. Choose companies carefully, and don't count on equity to pay your bills.

Ask mentors, investors and peers for an honest assessment of the total compensation and the company as a whole. If the startup succeeds, you should share in that success. If you don't think the offer is fair, look elsewhere. Good founders understand how motivating equity is for early employees.

This article is general information, not individual financial, legal or tax advice.

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