How Much Equity Should I Ask For in a Startup?
Asking for equity in a startup can be tricky. You don’t want to ask for too little and get shafted, but you also don’t want to ask for too much and risk getting rejected. So how much equity should I ask for?
I was recently in this situation when I joined a startup as their first employee. I had no idea how much equity should I ask for, so I just went with 1%. Looking back, I wish I had asked for more.
Equity – How much Should I Ask For?
The amount of equity you should ask for depends on several factors, including the value of the company, the stage of the company, the amount of money you are investing, and the amount of control you want.
What is the Percentage of My Ownership?
This is arguably one of the most important questions you should ask about your stock options, as the percentage you own will determine how large your payout will be upon exit.
When you’re offered shares or options, be sure to ask about the total number of shares outstanding. This way, you can calculate what percentage of the company you own. To do this, simply divide the number of shares or options you have by the total number of shares outstanding.
At a startup, employees usually get 10-20% of the company’s shares. This means you and all your colleagues will get a share of this pool.
Various resources can help you gauge how much your equity compensation is worth. AngelList and Wealthfront both offer interactive tools that allow you to compare salaries and equity compensation by position, skill level, and location.
ackWire, a database of startup salaries, lets you filter by similar criteria, such as the company’s value, headcount, and location.
How Much Equity Should I Ask as a C-level Executive?
I would aim for a 15% stake at a minimum. However, this may not be possible, so you might have to settle on a lower amount. Your partner must know this, otherwise, their motivation for the business will drop significantly.
You are not an employee. You are a partner.
In the business world, you have to sometimes take chances. Just make sure you aren’t breaking the law or violating any rules.
Here is some information that may be helpful to you, and it won’t cost you a thing.
Focus on the three Ms — Market, Message, and Media. They come in that order.
Who is your ideal customer? Think about their pain points, and how your solution can solve them.
The best way to reach your target market is with a combination of print media, online advertising, and TV.
Here’s what to do: First, offer them something so good they can’t say no. And then do all the legwork for them.
Make purchasing your product or signing up for your service as easy as possible. Also, give them a reason to act now.
What if I were to offer a guarantee that was almost too good to be true? And if I were to offer you an additional bonus for taking action now?
There are countless other steps one can take when trying to sell something, but these tips should get you started.
Whether you’re a business-to-business (B2B) or a business-to-consumer (B2C) company, you have to sell to a person. While you can sell to millions of people at once, you’re still actually just dealing with one customer.
Don’t get distracted by the term “digital marketing”, it just means selling using digital channels (e.g. the internet, email, etc.).
This tactic of using psychology to sell products has been around for ages. In fact, it’s even older than the book Scientific Advertising.
I have had the chance to work with some of the most well-known names in the business.
The most successful people in any industry are those who are consistently coming up with new ways to do what they already love.
Have patience, learn from your mistakes, and don’t be afraid to ask.
The market will soon reveal what steps need to be taken to achieve success. Start now by reaching out to people you know through LinkedIn. This will put you in contact with people who can assist you in reaching your goals.
Don’t just think about making small changes. Instead, think about how you can make something 1% better than it already is. And don’t focus solely on being the cheapest option; that’s never a good business strategy.
Making quick, decisive changes is usually better than making slow, indecisive ones. Unless, of course, you’re actually about to fall off the edge of a cliff.
Remember these two powerful words – persistence and consistency. They are some of the most important tools you can ever have.
Treat everyone you talk to and meet as if they were your most important customer.
Good luck, take MASSIVE action, and NEVER give up.
How Much Equity Should I Expect From a Startup?
The younger the company and the more technical knowledge you have, the more equity you will be offered.
For instance, a company at an earlier stage of growth, such as a seed-stage startup, may offer more stock options to new employees than an established company. The stages of funding refer to the size of your business and the amount of capital raised.
At a startup, the contribution of an early employee is much higher compared to a later hire. Therefore, at seed-stage startups, new hires receive more stock. An equity grant is a way companies can compensate their employees for their contribution to the business and encourage them to stay with the business for the long term.
Your role will be categorized as either a technical or non-tech individual contributor (IC) or a director (D) or a manager (M).
Managers are more experienced than directors and have more say in the direction of the company.
As someone with experience in business or sales, you can expect to receive equity that ranges from 0.1% to 0.9%.
For those with experience in engineering or product development, the equity offered will be between 0.2% and 1.25%.
Designers can expect to receive equity that falls between 0.2% and 1%.
Some companies are more flexible with how they weigh your salary and your stock options, depending on what you prefer.
My experience and credentials got me a $90,000 salary with no stock options.
My role at the company shifted about eight months after I was first hired. My new responsibilities warranted 0.2% equity, which was given to me on top of my $90,000 base salary. A few months later, I asked for a 15% raise, which brought my total compensation to $100,000 (base salary + equity).
If you’ve gotten a job offer from a startup that is growing quickly, you will likely be offered equity as part of your compensation package.
When you own equity in a startup, you own a portion of the company. The startup’s investors, or owners, hold the majority stake in the business, but employees are given a fair share.
Equity Depends on Position and Seniority
While complicated, several online resources provide guidelines on how much equity you should give to employees.
Index Ventures has published a helpful guide for entrepreneurs who want to learn more about option grants at the seed level. This handbook provides clear and concise information that can help you make the best decisions for your business.
At the earliest stages of a startup, a founder should expect to pay senior engineers 1% of the company, but experienced salespeople are typically given .35%.
A mid-level engineer can expect to receive .45% of a company, while a junior engineer would receive .15%.
Don’t give away the store just because someone has a big title.
How much equity should I ask for? A good rule of thumb is 1% to 5%. Of course, this depends on your position and seniority within the company. If you’re the founder or CEO, you’ll likely have a larger stake than someone who just joined the team. But if you’re early on in negotiations, it’s always better to err on the side of caution and ask for less rather than more.