Ask HN: How much equity do you give to employees? | Hacker News Reader

Ask HN: How much equity do you give to employees?

13 pointsdmytton15 comments

When working out employee share scheme, how much equity should be given to each employee? How is this best calculated in proportion to the overall available share capital, founders capital, etc.

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From the book "How to Get Rich" - by Felix Dennis (worth about $1 billion):

"To become rich, you must be an owner, and you must try to own it all. You must strive with every fiber of your being, while recognizing the idiocy of your behavior, to own and retain control of as near to 100% of any company as you can."

"Never never never hand over a single share of anything you've created or acquired, if you can help it. Nothing. Not one share, to no one, no matter what the reason, unless you genuinely have to."

"Ownership is the only thing that counts."

On the flip side of that coin is the point that a smaller percentage of something successful is much better than a large percentage of zero.

In theory, investor dilution shouldn't matter. If you have 50% of a $10 million company and $5 million is invested, you now have 33.3% of a $15 million company. In fact, due to intangible benefits of the investment (mentorship, connections, prestige) you should be coming out ahead. In practice, this obviously isn't always true-- because no one knows what the true fair value of a company is, and giving up control can be disadvantageous-- but it is often true. Turning down, say, Y Combinator because 100% matters that much more to you than 94% would just be stupid.

Well yes of course, but that's only one side of the story. In almost any scenario, you need other people's help. Offering equity can be an excellent way to get that help, especially in a startup context. Yes, you lose in percentage terms, but the final numbers are all that matters really.

Would you rather have 100% of $1m, or 50% of $1b?

While there are have been those who've been successfull with that strategy, the richest often have allowed investors in, while not giving it all away.

The real test here might to only give part of your ownership away unless the party you're giving it to will make your remaining shares worth more than all of them would have been without them. In other words, if you give up 20% of a company, make sure they make the remaining 80% you have worth more than the 100% you used to have.

Despite his wealth, Felix Dennis is a very depressed and depressing person. In an extensive interview that I watched, he stressed repeatedly that a major motivating factor behind writing his book was to convince those who think they want to imitate him that they would hate themselves if they actually went through with it.

Equity equation...

You should give them a vested share amount equal in proportion to the amount of value you feel they will add to the company. This is usually a variable range (and it varies), but something along the lines of: Every new developer adds .25% of value to the company minimum. Higher caliber people in the same position will add .35% of value. So your equity range, per developer, will be .25%-.35% (in this example).

At what stage? For a pre-money or single-digit employee, 0.35% is extremely small. For a company that has 50 developers and is about to IPO, it's a lot.

For every stage.

Give stock in compensation for calculated value add. As you move through stages/growth, the value-add of each new employee will (should!) diminish if you're doing everything else right.

.35% was my example, based on rough memory of a prior startup. Your mileage may vary. Void where prohibited by law..

Pretty sure that your answer should adjust for whether it's employee #4 or employee #20,004.

It already does. Employee #4 adds a lot more value to the company than employee #20,004.

You could make the case that this is already embedded in the equation - a great employee #4 would add way more value than an equally great employee #35, since they will have more influence over the direction, will write a higher percentage of the total code, etc.

Have you seen http://news.ycombinator.com/item?id=35015 and PG's article? I found it helpful, YMMV.

My understanding is that funders will expect to see an option pool for employees of around 10-15%.

I concur. Employee option pools should be 10-15%. This seems to be pretty standard, especially when taking investment money.

Are you giving equity in place of some portion of a "market" salary, or are you giving equity in addition to a fair salary? This (should) make a big difference in how you calculate how much to give.

And of course, all equity should be vested, with little or none granted up front. Virtually no employee adds value the day they arrive, thus they should not have any stake in the company at that point.

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