Equity · Hiring

Initial employees equity

Sean Shoffstall Experienced founder starting up something new

July 19th, 2017

We are looking to hire our first employees and wanted to get the communities advice on how much compensation should be made up of equity? Our first two employees will be developers one senior, one a bit more junior. Also is there a specific percentage of equity that should be held aside for future employees. I know each business is different, just looking for some rough guidelines.

Thank you

Steve Owens Startup Expert

July 20th, 2017

In my experience, 99.99% of employees considered any equity (private company) as worthless, or at best, a lottery ticket. Token amount can't hurt, but I would use the money on other things.

I am assuming that you have a proven business model and your now scaling - otherwise, would not hire anyone.

If your still in the "market validation/trying to prove the model" phase, then hire service companies/consultants/freelancers and just pay them cash.

Mike Moyer

July 20th, 2017

There's no way to guess, in advance, what everyone deserves. You are building a asset that you hope will create value in the form of profits or a sale. Until that asset is in place and producing value you have no idea what it will cost in terms of time, money, ideas, facilities, supplies, equipment, relationships or anything else a team member will contribute.

This is why most equity advice is basically about how to guess (projections, valuations, rules of thumb, "rough guidelines") and how to protect you from the fact that you will inevitably be wrong about your guess (time-based vesting, buyback agreements, etc).

The much better way to handle this is to apply the Slicing Pie model which takes into account the actual inputs required to create a self-sustaining business. The model allocates equity based on each person's contributions relative to others and provides a framework for recovering equity in the event someone leaves.

Unlike traditional advice that is based on unknowable guesses, Slicing Pie is based on easily observable facts.

You can learn all about it at SlicingPie.com

Yanfeng Lee CEO of an independent advertising agency and co-founder in a shopper marketing and digital agency

August 15th, 2017

None. They are employees for a reason, they don't want to be founders or owners. You can consider equity for middle management that show loyalty and promise.