How Much Equity to Give Employees

I am surrounded by hundreds of amazing technology startup companies of all sizes and stages, including all the fellow portfolio companies of our equally amazing investors.  I am surprised how many recreate the wheel when it comes to employee equity. It seems there are almost as many ways of doling it out as there are companies. If there is one popular “method”, it’s go with the gut.

We use Fred Wilson’s employee equity model as a benchmark for all positions. It comes very close to what we were doing before and its a nice, objective third party source you can point candidates to for validation. We don’t exactly have a statistically relevant sample set, but we have never had anyone object after pointing to that as our methodology.  We have added on top of it when someone is exceptional in someway, which only makes them happer when they do the math and our offer comes out ahead of the model.

We vary the amount a little based on a candidate’s level of experience, expertise and/or appetite for risk.  So, if a candidate wants more upside we are more than happy to offer more equity in exchange for less monetary compensation. It helps us conserve precious capital while providing employee more skin in the game and, therefore, more incentive to work smarter to help us achieve our full potential.  If a candidate is more risk adverse, we are willing to offer a little more salary and a little less equity, to a point. It’s a pretty straight forward quid pro quo scenario and helps everyone find their optimal situation.

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