What Percentage of Equity for Soft. Eng. at a fresh startup?

January 16, 2008 9:23 AM

What Percentage of Equity to expect from a Startup in Options?

For a Senior Software Engineer position within a very early (6-10 employees) startup. How many stock options, as a percentage of the total equity should you expect?

posted by morallybass to work & money (3 comments total)

The answer varies tremendously. A few years ago I was one of the first two employees in a start-up (excluding the two founders), my colleague opted for a lower salary and higher equity, I however went leaner on the equity, to keep a more consistent paycheck. I also came in with more than a decade of direct experience in a very narrow and specialized field. Originally the two founders each had 25% (total of 50%). The remaining equity was split between a bucket for employees (30%) (the vast majority for future employee distributions) and other investors (20%). Initially, as one of the first employees, I had a 4% equity stake in the company (if my math was right). However, as more money has been raised, and additional investors come in, that has been diluted. The founders equity position has decreased from a combined 50% to 25% (or 12.5% for each founder). The initial round of investors have about 20%, and the employees have 30% allocated to them (again this is a bucket of shares set aside for employees, but the majority of it is for future distributions). The remainder is for future fund raising.

I have no idea how fair the deal I got compares across the industry in general. I do know from talking with others at start-ups that compensation varies all over the map, and there may not be any reliable benchmarks to measure against due to all the variables at play.

The one caveat I do have, is to expect dilution of your equity position as more investment is brought in.

Key questions to ask: What are the total number of shares outstanding and how are they distributed? How is the company determining its valuation? When will the initial strike price for the options be set (and it would be really good to know at what price, but that may be too much to ask this early).

Good luck!
posted by forforf at 10:18 AM on January 16

This is an impossible question to answer based on the information provided, but I will give you a general outline of what to look for. The objective is to receive a number of stock options that compensate you for (presumably) the loss of salary plus a second allocation that represents a standard "Your Role" incentive package for a similarly sized company.

This all assumes you have looked at the capitalization tables already (if they won't let you, run):

1. percentage - all dependent on what everyone else is getting. a ball park figure
2. strike price - ideally very close to what early investors (hopefully there are some) are paying
3. expiry - longer the better, especially with a new company

You can't evaluate percentage without knowing all the other variables. I could grant you a 5% position in my company, but if the strike is way high, or they expire before they are above the strike, you're out of luck - and you just leveraged options at the expense of a few years salary.

If it was me, and I felt very strongly about the company's chances of success, I'd consult a lawyer well versed in this to discuss what's reasonable.

NOTE: I am not your financial advisor.
posted by uaudio at 10:21 AM on January 16

There is no one answer. It's whatever you can negotiate.
posted by GuyZero at 11:52 AM on January 16