Dear SaaStr: How Much Equity Do You Give to Extremely Early Employees?

Dear SaaStr: How Much Equity Do You Give to Extremely Early Employees?

It’s a tough one because they really do deserve a lot.

You really want to give the early folks a ton. At least — the very best ones. But the pie only adds up to 100%.

So my rough rule:

  • Do 3x what you’d otherwise do if it’s super early, i.e. pre angel funding, pre-product, pre-revenue, etc.
  • Do 2x what you’d otherwise do if it’s early. E.g., first 10 employees after the initial team, etc.
  • Help the first 10-20 buy their stock outright.  If you can, just grant it to them for services, or gross up the tiny exercise price.  The strike price is usually so tiny in the early days.  Help them get the best possible tax outcome by owning their stock outright.  Even maybe to pay 0% tax if they hold for 5+ years and get QSBS.   And consider also giving them other special treatment.  It won’t cost you much in the end.

Whatever you do — it won’t really be enough. They almost need 5x-10x to make up for the risk. But that much stock won’t fit. So try to do what is fair. 3x feels fair if it’s way early. 2x feels fair if it’s early. And after that — market.

A related post here:

What Your First 100 Hires Will Look Like

(note: an updated SaaStr Classic answer)

Published on August 11, 2022

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