How Much Equity Should I Ask for at a Startup?

From aiming for full dilution to being real about stock options, here are eight answers to the question, “How much equity should employees ask for (or expect) when joining an early-stage startup?”

• Whatever the Percentage, Make Sure It’s Fully Diluted
• Shoot for 5%
• Ask for at Least 1%
• 1-5% Equity for New Employees
• Aim for at Least 2%
• Keep Your Expectations Realistic
• Depends On Your Role and Level of Responsibility
• Examine the Realities of Stock Options

Whatever the Percentage, Make Sure It’s Fully Diluted

One mistake most employees make when joining an early-stage startup is focusing on the numbers. They get fixated on getting a certain percentage but don’t fully appreciate on what basis that percentage is calculated.

You might be able to negotiate a nice chunk of equity for yourself, but if it’s not based on fully diluted shares, it’s useless. You have to consider any and all shares that might come into existence when negotiating how many options or restricted shares you are getting.

For example, if there are currently 100,000 shares outstanding at the startup, and you negotiate 5,000 shares for yourself, you may think you’ve done a nice job securing yourself 5% in equity. However, when convertible investor notes convert from debt to equity and other preferred or restricted shares vest, you’re in for a rude awakening. All of a sudden, your 5% will be diluted and you may now only have 2% equity.

So, no matter what, make sure your equity is based on full dilution.

John Ross, CEO, Test Prep Insight

Shoot for 5%

Value to a startup can come in many forms: financial investment, market influence, potential sales leads, specialized skill sets, business leadership, etc. When entering a startup, both the incoming employee and the hiring organization would do well to place a near-term future dollar value on the contributions above relative to the near-term potential value of the firm.

Obviously, there will be other factors that enter the picture that may not be known by the employee (for example, equity already committed). However, this at least makes it a more scientific and productive discussion than the one that starts with “not sure, but I think I’m worth 5%.

Jeremy Ames, Senior Manager, Accenture

Ask for at Least 1%

When it comes to equity at an early-stage startup, employees should expect to receive at least 1-2% of the company’s equity. However, the exact amount of equity offered greatly depends on a variety of factors such as experience level, the value of the employee’s role, the current stage of development of the startup, and the amount of capital that the startup has received.

Ultimately, the amount of equity offered should be negotiated between the company and the employee, taking into account the aforementioned factors.

Brenton Thomas, CEO, Twibi Digital Marketing Agency

1-5% Equity for New Employees

When joining an early-stage startup, the amount of equity that an employee should ask for or expect can vary based on several factors, such as the company’s stage, industry, funding, growth plans, and current market conditions.

According to a common rule of thumb, early employees of a startup should receive between 1-5% of the company’s equity, depending on their level of experience and role in the organization. However, it is essential to understand that equity is just one part of a comprehensive compensation package.

Other aspects, such as salary, benefits, and work-life balance, should also be considered when negotiating an offer.

Travis Lindemoen, Managing Director, nexus IT group

Aim for at Least 2%

When joining an early-stage startup, the amount of equity employees should ask for or expect can vary greatly. However, the general rule is to aim for at least 2%.

Remember that the startup is taking on risk by bringing someone on board, so it’s only fair that they are compensated accordingly. In most cases, it would be beneficial to negotiate further and get more equity depending on your value added to the company. This could include having specialized skills in an industry related to the product they are building or even some form of financial investment from you into their project.

If you have one or more of these things, then requesting 3-4% equity isn’t unreasonable—especially if you plan on making a long-term commitment as well as helping them reach their goals. The key here is patience; after all, earning 2% today may not seem like much, but down the road, when sales skyrocket, your portion will turn into quite a bit more with little effort required!

Maria Harutyunyan, Co-Founder, Loopex Digital

Keep Your Expectations Realistic

The amount of equity that employees should ask for or expect when joining an early-stage startup can vary widely depending on several factors, including the stage of the company, the industry, and the role being filled.

Generally, early-stage startups offer equity as a way to compensate for lower salaries and to align employee incentives with company success. As such, it’s important for employees to consider the potential upside of the company and their own contributions when negotiating equity. A common rule of thumb for early-stage startups is to offer employees equity that is between 1% and 10% of the company, depending on the role and seniority.

Dan Johnson, Business Development and Sales Manager, Pearl Scan Solutions

Depends On Your Role and Level of Responsibility

The amount of equity you should ask for (or expect) when joining an early-stage startup largely depends on your role and level of responsibility. Generally speaking, the more senior your position, the more equity you can reasonably request.

For example, a C-level executive might typically be able to negotiate a larger equity stake than a junior-level employee. However, it is important to keep in mind that the amount of equity you get also depends on the stage of the startup and how much funding they have already raised.

For example, if the startup is still in its very early stages and has not yet secured any external funding, it may not be able to offer a large equity stake.

Matt Teifke, CEO, Teifke Real Estate

Examine the Realities of Stock Options

Having been involved in many startups at a variety of stages, individuals often get hung up on the amount of equity alone and neglect to understand the position equity takes and how to balance it in their decisions.

Yes, you can earn big from an exit if you have the right stock allocation and vesting, but firstly recognize that a) not all will exit successfully and b) you may not still be there to take advantage when it exits.

Evaluate any stock offering as a bonus against the overall package, not instead of. Equity options are a gamble; it may exit and you may be there when it does to benefit. Also, quantify what dilution may occur along the way; will others get preferential stock over yours, etc.?

Stock sounds great on paper, but more get nothing from it apart from the short-term vanity of hope than get the true upside they were hoping for.

Ian Moyse, Industry Influencer, Ian Moyse

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