How Much Equity Should You Give Your First Engineers?
If you want to build a great engineering team, then you have to get your equity grants right. And, you'll blow it if you don't this right.
The good news is there are some rules you can follow to help you make good decisions about splitting your equity. I'll explain how in this short video.
Read The Video Transcript Below:
Okay. Here's a really, really good question. How much equity should you give your first several engineers? Let's say it's your first five engineers. How much should you give them?
Well, here are some rules that I like to follow for equity. And I'm going to talk is if your company is already funded. You can do the math and go backwards if your company isn't funded. But I always think of things post funding because that's when you're typically going to be building out your team more and more.
So here's the way I look at it. First of all, the general rule is always be generous with your equity. If you're one of those people that wants to hold on to everything for yourself, you're not going to build the culture that you need to be successful. So therefore you've got to get that fixed first. That's the first thing.
Now, having said that, let's assume you get your head screwed on, right. You want to build out your team, and you want to be generous to your team. What are the general rules you should have, especially for engineers, after funding?
So if for the most senior engineers, not for management, that's different, but for the most senior engineers that I'm going to hire, and by management I mean your VP of engineering. Your VP of engineering is going to be well over a percent even if that person's not a founder.
But let's just say for your senior engineers that you're going to hire, I would say anywhere from half a percent to three quarters of a percent ownership of the company. I always think ownership percentage because shares are irrelevant. It's what is this person going to own. So I would say in that half a percent to three quarters of a percent range.
If it's a junior engineer with less experience, probably a quarter of a percent to half a percent. And this is for early stage companies after they've received their first round of funding.
Now one other thing to cover. Since we're talking about equity, remember, please, please, please always have a vesting schedule for your equity, both for yourself, your co-founders, and all of your employees.
The typical one, you don't need to reinvent the wheel here, is a one year cliff, which means for the first year you don't vest anything. But after one year, typically it'll be a four year vesting schedule. So then be one quarter of the equity will vest after one year, and then the remaining typically monthly, sometimes quarterly, the remainder will vest.
That's a basic way to look at things, but just remember, be fair and use those general rules up to about three quarters of a percent for senior engineers up to maybe from a quarter of a percent to half a percent for your junior engineers, for early stage companies, and you'll be just fine. I am Brett at www.brettjfox.com. Have a great, great day.