How much is equity typically worth for early employees of startups?
January 23, 2013 5:07 PM Subscribe
There's plenty of thinking around how equity is split in startup companies, as well as projections of how much it's worth when employees cash in. Are there any real-world numbers, like there are for salaries?
For instance, what would the 15th hire at twitter have as far as a percentage split and worth? The 20th hire at GitHub? The 10th at Square? Or an early employee at a non-succeeding company like Livingsocial? Or what about an employee that signs on right now with Google - wouldn't their stock options be exhausted to the point of not even being relevant to pay?
For instance, what would the 15th hire at twitter have as far as a percentage split and worth? The 20th hire at GitHub? The 10th at Square? Or an early employee at a non-succeeding company like Livingsocial? Or what about an employee that signs on right now with Google - wouldn't their stock options be exhausted to the point of not even being relevant to pay?
Also, the percentage one gets initially is usually diluted over time as other investors come on board and the company issues more stock. One hopes that the company's valuation has increased such that the stock after dilution holds or increases in value.
So, let's take engineer #5 at a company that will one day become a major search engine. She probably got 5%, maybe 10% if senior, critical, in demand, and really on board in the first month of the company (probably with a vesting schedule of 4 or less commonly 5 years)
If this company then gets two rounds of funding, the stock might be diluted to 1/2 to 2/3 the original percentage per funding round. So the employee might, four years down the road, have 5% * 2/3 * 2/3 of their original percentage.
posted by zippy at 5:21 PM on January 23, 2013
So, let's take engineer #5 at a company that will one day become a major search engine. She probably got 5%, maybe 10% if senior, critical, in demand, and really on board in the first month of the company (probably with a vesting schedule of 4 or less commonly 5 years)
If this company then gets two rounds of funding, the stock might be diluted to 1/2 to 2/3 the original percentage per funding round. So the employee might, four years down the road, have 5% * 2/3 * 2/3 of their original percentage.
posted by zippy at 5:21 PM on January 23, 2013
I've worked for a decent number of start ups, and been the CEO of two of them. One thing that is nice about the venture capital community is some of them do comp surveys. I can give you a rough idea of what it looks like. Employee number matters way less than job department and title, unless a low employee number indicates someone in before professional management or experienced capital - then there is no guideline. Even in a case where 5 college friends get together with 20% each, if the company gets to a stage of liquidity they are likely to be way watered down by the time it matters unless one of them is a Mark Zuckerberg, Jerry Yang, or Larry Page. Anyway, here is my experience - engineers are typically the most compensated with equity in tech start ups. Marketing and sales folks typically might have 1/3-1/2 (or less) equity than the comparable tech jobs, with the difference being made up in bonuses and commission. I would say that founders typically end up with 20%-1% of the company. Hired in CEO's typically have 10-5%. VP of Engineering or CTO 1-3%, director of engineering .3-.5% engineer .1-.05%. Another guideline is that non-founder employees typically own 15-20% of the equity as a whole. Hope this helps.
posted by ill3 at 5:23 PM on January 23, 2013 [3 favorites]
posted by ill3 at 5:23 PM on January 23, 2013 [3 favorites]
The median value of equity in a small startup is 0. The mode is also 0.
I was the 6th employee at a company that sold for ~20 million dollars. My equity was worth about $120,000 when the company was purchased, but was all converted into stock of the purchasing company. By the time it vested, it was worth about half of that.
If you get hired at google or any other big public tech company right now, they give you restricted stock, which is essentially just normal stock that you can't sell for three years. As a typical engineer you might get $25-100k worth of restricted stock in a hire like this.
Founders can't actually be generous with stock for their employees. A guy I know and used to work with tried this - he wanted to essentially award stock in the company commiserate with actual amount done, but the VCs who funded him wouldn't let him do that, because it doesn't leave enough left over for them.
posted by tylerkaraszewski at 5:25 PM on January 23, 2013 [1 favorite]
I was the 6th employee at a company that sold for ~20 million dollars. My equity was worth about $120,000 when the company was purchased, but was all converted into stock of the purchasing company. By the time it vested, it was worth about half of that.
If you get hired at google or any other big public tech company right now, they give you restricted stock, which is essentially just normal stock that you can't sell for three years. As a typical engineer you might get $25-100k worth of restricted stock in a hire like this.
Founders can't actually be generous with stock for their employees. A guy I know and used to work with tried this - he wanted to essentially award stock in the company commiserate with actual amount done, but the VCs who funded him wouldn't let him do that, because it doesn't leave enough left over for them.
posted by tylerkaraszewski at 5:25 PM on January 23, 2013 [1 favorite]
Response by poster: @tylerkaraszewski thanks - I'm really interested in absolute value as well (not just %) - it seems that in the majority of cases equity turns out to be less than a year or twos salary?
posted by tmcw at 5:29 PM on January 23, 2013
posted by tmcw at 5:29 PM on January 23, 2013
At the risk of being crass, I will throw out some hard numbers for you. I worked at E*TRADE, I was employee 300-something. The company had been around for 15 years when I joined, I was eventually making $70k-$100k after my second year and my options were less than .01% of the equity of E*TRADE. I ended up making about $900k from my options. I was employee 100-something at another company which sold for $75-$100M (Don't want to give too much personal info), and had 5% as I was eventually promoted to CEO and made $3-5M from the equity vs. my salary of $200-$250k. I may not be the norm, but equity has been a valuable thing in my experience. That being said, I have experiences like tylerkaraszewski where I was part of a start-up that went public that I was just an engineer at and my equity was worth $400k on paper but worthless by the time my shares were unlocked. Additionally, I've had start-up experiences where my equity was never really worth anything on paper either.
posted by ill3 at 5:36 PM on January 23, 2013 [4 favorites]
posted by ill3 at 5:36 PM on January 23, 2013 [4 favorites]
Like the above folks, I've been at startups where the stock was (eventually) worth zero, and others where I did just fine. The value of the stock depends on at least two factors: 1) whether the company is doing well and is expected to do even better in the future as a business, and 2) whether a larger company or investors would very much like to own your company, either for its business or for strategic reasons (to benefit themselves, or to prevent benefit to their competitor).
In my experience at tech companies, the percentage of stock you might get relative to when you started is not a linear function, but more a function of what round of funding the company is at.
As a founder, you can be generous, but if you've taken VC funding, the slice of stock (and the control you have over issuing it) is generally greatly reduced. Also as a founder with an eye on being acquired, you have to budget your stock to leave room for future hires.
posted by zippy at 5:47 PM on January 23, 2013
In my experience at tech companies, the percentage of stock you might get relative to when you started is not a linear function, but more a function of what round of funding the company is at.
As a founder, you can be generous, but if you've taken VC funding, the slice of stock (and the control you have over issuing it) is generally greatly reduced. Also as a founder with an eye on being acquired, you have to budget your stock to leave room for future hires.
posted by zippy at 5:47 PM on January 23, 2013
I've been out of the startup world for almost 10 years, but I can address the last question some more.
Mature companies these days usually don't give options. Google, Microsoft, etc have all phased out options and give, as tylerkaraszewski says, restricted stock. This is just stock that vests over time, you're taxed on the value of the stock when it vests (usually by reducing the # of shares you actually receive), and from then on its just stock you hold.
Typically this is "refreshed" every year by a small amount, so at any given time you always have stock vesting several years out. This way theres always a disincentive to leaving (if you only got a hire grant, after a few years you wouldn't have this).
For me, it's been common to have about 1.5-2x my salary in outstanding stock. I typically sell stock as it vests so as not to be too concentrated in my employer.
So for big companies, its usually a nice extra amount, enough to be a real consideration in terms of compensation / leaving / etc but not life-changing.
Most startup grants will end up the same way --- if you're not a founder, having 1 or 2 % after dilution would be a lot is my understanding. So even if the company sold for $100M (which is a LOT), you'd get $1M before taxes. You could easily be foregoing that much salary, though, compared to something like Google, so it's only going to be in extreme cases where you're going to make significantly more via startup stock --- either an Instagram level deal or if you're a founder.
posted by wildcrdj at 5:52 PM on January 23, 2013
Mature companies these days usually don't give options. Google, Microsoft, etc have all phased out options and give, as tylerkaraszewski says, restricted stock. This is just stock that vests over time, you're taxed on the value of the stock when it vests (usually by reducing the # of shares you actually receive), and from then on its just stock you hold.
Typically this is "refreshed" every year by a small amount, so at any given time you always have stock vesting several years out. This way theres always a disincentive to leaving (if you only got a hire grant, after a few years you wouldn't have this).
For me, it's been common to have about 1.5-2x my salary in outstanding stock. I typically sell stock as it vests so as not to be too concentrated in my employer.
So for big companies, its usually a nice extra amount, enough to be a real consideration in terms of compensation / leaving / etc but not life-changing.
Most startup grants will end up the same way --- if you're not a founder, having 1 or 2 % after dilution would be a lot is my understanding. So even if the company sold for $100M (which is a LOT), you'd get $1M before taxes. You could easily be foregoing that much salary, though, compared to something like Google, so it's only going to be in extreme cases where you're going to make significantly more via startup stock --- either an Instagram level deal or if you're a founder.
posted by wildcrdj at 5:52 PM on January 23, 2013
Oh, also I have a friend who started a small company that he sold for $2 million in stock, but which had become worthless by the time it vested.
As you can see, there really is no "typical" here, except that more equity (or at least a lot of equity) ends up worth nothing than ends up worth something. Also, it's hard to get stories out of prople because people tend to be either uncomfortable or specifically disallowed from sharing details.
posted by tylerkaraszewski at 5:52 PM on January 23, 2013
As you can see, there really is no "typical" here, except that more equity (or at least a lot of equity) ends up worth nothing than ends up worth something. Also, it's hard to get stories out of prople because people tend to be either uncomfortable or specifically disallowed from sharing details.
posted by tylerkaraszewski at 5:52 PM on January 23, 2013
Yeah, the reason I haven't been at a startup in a long time is that I was at a couple and all of them ended up with essentially worthless stock. I did have a bunch of money on paper right out of college, but by the time I could sell everything had crashed. Luckily I was already wise enough to not count stocks that I hadn't sold, so it was disappointing but thats it.
posted by wildcrdj at 5:57 PM on January 23, 2013
posted by wildcrdj at 5:57 PM on January 23, 2013
In addition to the high variability mentioned above, you have the difficulty of actually getting data. Personal income is a taboo topic in the US so even though I know lots of people who have various equity stories, I've never heard them.
My equity story as a silicon valley engineer for 20 years now is that my equity has never amounted to anything. All the startups failed miserably or were diluted to laughable degrees. The large companies do better but tech stocks are so random that I would have been better getting cash than stock.
posted by chairface at 9:08 AM on January 24, 2013
My equity story as a silicon valley engineer for 20 years now is that my equity has never amounted to anything. All the startups failed miserably or were diluted to laughable degrees. The large companies do better but tech stocks are so random that I would have been better getting cash than stock.
posted by chairface at 9:08 AM on January 24, 2013
I think the question here is typical percentage of stock/options granted at hiring, not whether that stock ends up being worth anything. You can also simplify the question by ignoring further dilution; while it's important to final payout it's typically out of the employee's hands.
I think I saw a good survey of Silicon Valley tech companies and stock grants awhile back, probably on Hacker News, but I can't find them now. This post from Paul Buchheit has useful general info on how equity works at tech startups. This answer from Joel Spolsky has some hard numbers in it. Both Stack Exchange and Quora may have better answers than you'll get here.
I'm going to throw some numbers out here, but I'm uneasy doing this because I don't have sourcing for them. I could easily be wrong. Also this is all for a "typical" brand new tech startup with no complicated history; reality is often different.
Founders split the stock. Equal splits are de facto, but that's all open to negotiation. Then the founders create an option pool for all future employees. 15-20% of the company is a typical size of the option pool. Then investors buy a big chunk. After the angel and Series A financing settles down, it may be that the founders own about 40% of the stock, investors own 40% of the stock, and the option pool holds 20%. That 20% then funds the grants for all employees (unless it's expanded).
Engineer #1 at a new startup typically gets a large grant, 1-1.5% of the company. That grant size dwindles down for early hires and after a year or so, new engineer hires are getting 0.1%-0.3% depending on their value and the market. Juniorengineers get less, maybe down to 0.02% if the company has less than a few hundred employees. Non-engineers also typically get less or zero.
Some extra unasked-for comments:
posted by Nelson at 9:28 AM on January 24, 2013 [1 favorite]
I think I saw a good survey of Silicon Valley tech companies and stock grants awhile back, probably on Hacker News, but I can't find them now. This post from Paul Buchheit has useful general info on how equity works at tech startups. This answer from Joel Spolsky has some hard numbers in it. Both Stack Exchange and Quora may have better answers than you'll get here.
I'm going to throw some numbers out here, but I'm uneasy doing this because I don't have sourcing for them. I could easily be wrong. Also this is all for a "typical" brand new tech startup with no complicated history; reality is often different.
Founders split the stock. Equal splits are de facto, but that's all open to negotiation. Then the founders create an option pool for all future employees. 15-20% of the company is a typical size of the option pool. Then investors buy a big chunk. After the angel and Series A financing settles down, it may be that the founders own about 40% of the stock, investors own 40% of the stock, and the option pool holds 20%. That 20% then funds the grants for all employees (unless it's expanded).
Engineer #1 at a new startup typically gets a large grant, 1-1.5% of the company. That grant size dwindles down for early hires and after a year or so, new engineer hires are getting 0.1%-0.3% depending on their value and the market. Juniorengineers get less, maybe down to 0.02% if the company has less than a few hundred employees. Non-engineers also typically get less or zero.
Some extra unasked-for comments:
- The #1 determining factor in grant size is hire date. I saw this time and again at Google; amazing folks who were hired later were getting 1/10th or less of what the early hires got, even if they were amazing talented folks. It's not optimal, but it's how it works.
- It's much easier to raise an employee's salary than give them more stock. The corollary is if you're negotiating compensation, you should always take more stock over a higher wage. If you can afford it, of course, and only if that stock you take ends up being valuable. It often doesn't. I wrote more about this on my blog.
- If the options end up being valuable, it's frequently very tax efficient to early exercise them. Consider an exercise when the options are initially granted.)
posted by Nelson at 9:28 AM on January 24, 2013 [1 favorite]
This thread is closed to new comments.
I doubt this is an exhaustive list of factors, but the following are all in play in the percentage a given hire might get:
- how early you join (earlier = more risk and less cash on hand = more stock)
- how critical you are to the company launching or getting funding (which is not always the same as seniority and experience)
- how generous the founders are (from overly generous to ridiculously stingy)
posted by zippy at 5:17 PM on January 23, 2013