How much equity should an early employee get?

You don't (or shouldn't) join an early stage startup with the expectation that you'll get rich by any measure from the equity. You join an early stage startup because you likely want to eventually found your own startup in which you'll own > 50% of it. That's your shot at getting rich. The experience as an early stage employee just exposes you to the chaos and ups and downs of it all, and if it goes well then yeah maybe you make some money, but even more worthwhile is the connections you make in the process (other employees plus potentially the VCs who invested and may ultimately invest in you down the line).

*edit: realized I didn't actually address the question of topic - I would expect the range to be between 0.25% and 0.75%

The best resource on equity: https://www.holloway.com/g/equity-compensation

Earlier version on GitHub: https://github.com/jlevy/og-equity-compensation

Also look at the Index Ventures link and calculator: - https://www.indexventures.com/rewardingtalent/calculating-in... - https://www.indexventures.com/optionplan

From your question and knowing nothing else, I assumed it was probably low - but it depended primarily on salary and total compensation (is it market rate for your friend? How far off?).

From other answers (the company's fair market value is $30- $70 million vs $0 or unknown, the salary is slightly under market rate), it depends on the difference between your friend's total compensation here and other offers (or realistic other offers they theoretically could get).

I'd ask for more than the difference between this start up's total comp and other offers. Why? Expected value and risk. Get a reasonable risk adjusted amount given liquidity and likelihood it will ultimately be worth $0, $1,000, or even $10,000 (good chance it's in the 90-98% range, and if the company wasn't already worth something it'd be closer to 99%).

It's probably in the ballpark of fair, but not quite there for your friend.

It's hard to say without knowing more. Here are a few questions that come to mind:

- What stage is the company? Earlier employees will be diluted more, which is one reason for getting a bigger slice of equity. 0.2% is low if they haven't raised any money.

- If the company has raised, how? A lot of people don't appreciate that if a seed-stage company uses a YC SAFE and hasn't done a priced round yet, as an early employee you're going to eat that dilution, even though the raise already happened. The money may already be in the bank, but the shares won't be issued until later.

- How senior is your friend? 0.2% would certainly be low if they're Staff+, for example.

- What's the cash component of the offer? As you approach and push past $200k you should expect equity to drop precipitously, even for a more senior person.

- Are there other valuable elements to the offer worth considering? E.g. 10-year exercise window and/or early exercise on the options.

- How specialized is the business, and does your friend offer any expertise in the area, or are they fungible?

The market is pretty hot right now, so I'd guess that 0.2% is low, but if it comes with a solid salary and good benefits, for a mid-level generalist developer it could be more or less right.

Have they raised a seed?

If not at least a few to several percent. If yes maybe 1-3 percent.

Profitable? Product market fit? Will the stock fit the requirements for Qualified Small Business Stock? This makes a huge tax difference. Early-excercise and 83(b)? Market rate salary or under market? Note market has 50% increased for startups the past year.

It depends on how much job experience your friend has (among other things already mentioned). It could range from around .1-.2% for a new grad to 1-2% for someone with 10+ years of experience in a more senior IC engineering role.

This is a real hard and worse - an emotion ridden subjective question. After all "how dare you demand 'more' when the founders ate ramen?" Etc.

Couple of factors I'd consider (and despite that still made mistakes):

Assumptions:

* This is in bay area.

* You have 5-10 years of experience

* You have a competing FAANG offers or can get one with 2-3 months of leetcode grinding

Option A - FAANG job

* Assume TC of 300k a year (conservatively). Includes base, bonus and real equity.

Option B - The startup:

* Pays say 200k in base salary

* assume aggressive valuation of 50M making .2% = 100k over four years

Say your exit is in a 8 year time frame. (Startups going from 10 employees to an exit faster than 8 years is very unlikely??).

Option A (assume no pay increase) over 8 years:

2.4M

Option B with a 100x growth in 8 years:

200 x 8 + 100k x 100 = 1.6 + 10M = 11.6M

Now do you believe their "story" on why they think they are gonna grow 100x in 8 years (without you incurring dilution etc)?

Do you believe you can get to 500k "real" tc at another FAANG in 3 years (say by moving around)?

Which scenario seems more likely and safer?

If you dont think 100x is possible and 50x is more realistic and you still need get your 11.6M to make it worthwhile (not making much real moolah for 10 years) then perhaps 0.4% would break even?

Now there are plenty of unicorns which would do >>>> than 100x. If only I could pick them before the fact!

https://www.indexventures.com/rewardingtalent/calculating-in... has some benchmarks (take with a grain of salt)

If they are getting a salary, that's probably right. The general rule is the first hire gets about 1% and it goes gown from there. But, the range for 1-10 employees is about 1-0.1%. It doesn't sound like much, but think about it this way. 0.1 percent, when the company goes IPO at a 10 billion market cap is probably 40-50 million dollars.

If you aren't getting a salary, but are working, you're a co-founder and the equity should be higher.

He should know that it’s basically worth nothing.

0.2% alone does not tell much. With my limited knowledge you want to know how much shares was issued and at what price, and based on that you can think what that 0.2% may (or may not) mean. If I was in your friend's shoes I would assume this 0.2% translates to 0$ right now to avoid sad surprises later.

It is also generally good to know if the company is already profitable (I'd guess if it's early startup it's not profitable), what is the runaway if, say, today they lose all customers and have to pivot, how much they earned in the last few months on month-to-month chart, how many paying customers they have.

And also remember that 4 years is a lot of time, your friend may not want to stay for such a long time so it would be good if these shares vest in portions every year. Otherwise once your friend gets closer to 4 years mark there might be a surprise waiting for him if founders decide 0.2% is too much.

Company valuation * 0.2% + cash compensation + benefits = total compensation.

Work backwards from total comp.

How many non-founder employees are there and what do they do?

If there are two founders and there are already a few SW engineers this seems reasonable. If they're the first technical employee who isn't a founder it seems pretty low.

Worthless anyways.

Make him negotiate larger cash position.

He and his family will be happier short and long term

I did a little analysis on this back in 2020 (pre-covid) when I was job searching: https://jcaip.github.io/Startup-Equity-TLDR/

Hope it's helpful!