So Carta’s latest equity report below has a ton of great interesting data. One is that nowadays, about 50% of your employees leave in 3 years, 60% in 4 years, and 66% in 5 years.
This delta between years 4 and 5 may seem relatively small, but it’s not on a percentage basis. It probably means going to 5 year vesting in the end (from 4 year vesting) will stretch your option pool another 10%.
Down the road, that will be a big deal:
And Carta also shows that in general, employees leave about 50% of their vested equity behind:
In the early days, founders often don’t think about the layers of dilution they will see over time, from 2-4+ management teams. And from not just the early crew, but 100s of employees.
You’ll find later getting an extra 10% out of your pool will really help. To get more equity to those great hires down the road.
Those shares start to seem precious after a few VC rounds and a valuation that climbs into the hundreds of millions or more.
Starting off or moving to 5 year vesting might be the simplest way to do it.
Other ideas work, too, but are more complicated to implement:
- Doing smaller, annual grants. Stripe and others do this now, but it’s hard for employees to grok and works better at scale when you can more easily show the value of the shares today.
- Back-loaded grants. I like this for big grants to the senior team. Where 60% or more of the options vest in the later years of the grant. But a standard 1 year cliff and ratable vesting after that is what most lay employees will expect.
- An 18 month cliff. I’ve actually never seen this in practice but you can see from the Carta data above the impact would really be material.
- Leaver clauses. More common in PE and European start-ups. These clauses give you the right to buy vesting stock back from emplyees when they leave. There are clauses to easily implement this, but it’s pretty nonstandard in U.S.
5 year vesting might be the best hack here to increase the effective reach of your pool.
A related post here:
