- If you're interviewing with a startup, your compensation package offer will likely include equity.
- How much equity you'll get depends on your role, seniority, and what stage the startup is in.
- More equity may mean a lower base salary, and startups typically have a multi-year vesting schedule.
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If you've gotten a job offer from a fast-growing startup, you'll likely be offered equity as part of your compensation package.
Equity is the number of shares you are given in a company, meaning that you "own" a small portion of the company. The company's founders and investors will hold a majority stake, but employees are still given their fair share.
Equity is dependent on two things: the stage of the company and the employee's role and level
The younger the company, the more technical you are, and the higher up you are, the more equity you'll likely be offered.
For example, a company that's at seed stage rather than Series C will likely offer new hires more equity. The stages simply speak to the size of the business and the capital (i.e. assets) on hand. At a seed stage startup, hires will receive more equity because the contribution level of early employees is much higher than if the company is at a later stage.
Your role and level will likely be classified as technical versus non-technical and individual contributor (IC) versus director (D) versus manager (M). ICs are employees with less than five years of experience and are not managing a team. Managers and directors have more than five years of experience, are managing teams, and have more stake in the direction of the organization.
In my experience, if you're in a business or sales role, you can expect equity to range anywhere from 0.1 to 0.9%. For engineering or product roles you can expect 0.2 to 1.25%, and if you're a designer, you can expect 0.2 to 1%. However, not all startups will follow these bands, and some are flexible to adjusting the weight between your base salary and equity based on your preference.
For example, I sit in a business role at a seed stage startup. I have a masters degree, but did not have full-time professional experience. My background ranked me as an IC and landed me an offer for a $90,000 base salary with no equity.
About eight months later, my role responsibilities shifted and I was given 0.2% equity with a $90,000.00 base. Around then, I also asked for around a 15% raise in base and my adjusted offer landed me on $100,000.00 in base with 0.1% equity.
The difference between a higher base salary versus higher equity
In terms of which you should take more of, it depends on how risk-averse you are — are you willing to bet on the odds of the company being successful (i.e. more equity) or do you prefer to cash out today.
Equity functions on a vesting schedule that determines when your shares begin to accumulate. Most (not all) startups are on a four-year vesting schedule with a one year cliff — this means that you'll typically need to stay at the company for at least one year in order for your equity cycle to start and four years for it to fully vest.
For example, I was given 0.1% equity (~15,000 shares). If I stay for one year, 1/48th of the 15,000 shares would vest (12 months x four years = 48). If I stay two years, then I'd receive 12/48ths of my total number of shares. Three years would be 36/48ths, and four years would be the fully vested amount, 48/48ths.
The vesting period is meant to motivate employees to stay longer
When and if you do leave the startup, you'll be able to cash out on your shares. If you leave before the cliff, your equity won't vest (i.e. you'll get zero shares).
When it comes to negotiating equity, it's best to wait to see what the company offers you first. Disclosing your salary and equity range too early in the conversation could potentially deter the hiring manager from continuing the process if their budget doesn't fit your range.
However, if your base range is non-negotiable, then be upfront about it, and keep in mind that not taking equity isn't necessarily a negative indication of your commitment to the company.
Still, if you're joining an early stage startup, you'll have more influence over company direction and likely work closely with people across multiple teams, so it's important that you believe in the mission deeply and mesh well with your colleagues. This goes a long way into the scalability of your company, which affects company valuation and with it the value of your equity.
Make sure you're offered what you're worth, and evaluate the growth potential of the company (aka the learning growth of your equity) just as you'd evaluate the potential of any investment.
Belicia Tan is a community and operations manager at Ladder, a pre-series A startup focused on building community to help early career talent. She was previously a healthcare consultant in the pharmaceutical and federal space. Connect with her on LinkedIn and Medium.
