The Founder’s Guide to Equity
What to Give, When, and to Whom

Equity decisions made in the first 18 months of a startup compound for a decade. Founders who handle this well create a cap table that attracts investors, retains talent, and leaves enough for the founders themselves. Here’s the practical guide — with the benchmarks, the mistakes to avoid, and the prompts to help you think it through.

Why Equity Decisions Are Irreversible

Most early decisions in a startup are reversible. Pricing can be changed, hires can be let go, product direction can pivot. Equity is different. Once granted, equity is extraordinarily difficult to claw back — legally, relationally, and reputationally. The person who received it has rights that are protected regardless of how the relationship evolves.

This is not an argument for being stingy with equity. Equity is the currency of early-stage companies — it’s how you attract talent you can’t pay market rate for, how you align advisors, how you reward founders. But it’s a currency you can only spend once, and most founders spend it too fast and too loosely in the first year.

Before granting any equity: consult a startup lawyer, even briefly. Equity granted without proper documentation, vesting schedules, or board approval creates legal and investor problems that are expensive to clean up and sometimes can’t be cleaned up at all.

Co-Founder Equity — the Conversation Nobody Wants to Have

Most co-founders split equity equally or near-equally at founding, without a real conversation about what that split reflects. Equal splits often make sense. They also often don’t — and finding out which is true after the company has value is much harder than finding out before.

The factors that should inform a co-founder split: whose idea was it originally, who has left more to start this company, who will be full-time from day one, who has the most relevant network or experience, and who is most essential to the company’s success if one person had to leave. These are hard conversations. They’re harder to have after the company has raised money.

Whatever split you agree on: every co-founder should have a vesting schedule. The standard is 4 years with a 1-year cliff, even between co-founders. A co-founder who leaves after 6 months without vesting retains their full share, which creates a dead equity problem that follows the company for years.

Employee Equity Benchmarks by Role and Stage

These are rough benchmarks for option grants at seed to early Series A stage. They vary by company stage, location, and role scope — use them as a starting point, not a formula.

VP / C-suite (first hire): 0.5% – 2.0%. Higher end for the first critical hire (e.g. CTO as sole technical co-founder equivalent), lower end for later VP hires once the company has more traction.

Director / Senior Manager: 0.1% – 0.5%.

Senior Individual Contributor (engineer, designer, senior sales): 0.05% – 0.2%.

Mid-level Individual Contributor: 0.01% – 0.05%.

All grants are pre-dilution from the next funding round. The actual value depends entirely on what the company becomes — which is the point. Equity is a bet on the future, not compensation for the present.

Advisor Equity — What’s Standard

Advisor equity ranges: 0.1% – 0.5% over 2 years, monthly vesting after a 6-month cliff. The range depends on the advisor’s seniority, the depth of their involvement, and your stage.

The FAST (Founder Advisor Standard Template) agreement is the most widely used structure for advisor relationships. Use it. It’s clean, widely understood, and avoids the negotiation overhead of a custom agreement.

Don’t grant advisor equity to anyone who hasn’t yet demonstrated they’ll actually show up. A trial period — a few months of substantive engagement before any equity is formalised — protects you from the common situation of granting equity to a prominent name who then disappears.

The Option Pool — How Big, When to Set It Up

The option pool is the share of equity reserved for future employee grants. Investors will expect one to exist before they invest — and they’ll want it to come from the pre-money valuation, which means it dilutes founders, not investors.

Standard option pool at seed: 10-15% of post-money shares. Investors will often request 15-20%. The negotiation is about size and timing — a larger option pool means more dilution for founders at this round.

Prepare a hiring plan before negotiating option pool size. If you can show an investor that your 18-month hiring plan requires 12% of the pool rather than 20%, you’re negotiating from data rather than from convention.

Vesting Schedules — What the Standards Mean and Why

4-year vesting with 1-year cliff: The universal standard for a reason. The cliff means someone who leaves before a year receives nothing — which prevents short-tenure employees from walking away with significant equity. The 4-year schedule aligns incentives over the most critical growth period.

Acceleration on change of control: Some employees will negotiate for single-trigger or double-trigger acceleration — their unvested equity accelerates if the company is acquired. Single-trigger (any acquisition) is expensive and rarely appropriate. Double-trigger (acquisition plus role elimination) is more reasonable and becoming more common.

Early exercise: Allowing employees to exercise options before they vest (filing an 83(b) election within 30 days) can significantly reduce their tax burden. Worth enabling in your option plan even if not everyone uses it.

The Equity Mistakes That Haunt Founders at Series A

Giving equity without vesting. One co-founder leaves after 4 months and keeps 25% of the company. This is a cap table problem that follows you to every fundraising conversation.

Granting too much too early. Using up 5% of the option pool on early hires who turn out not to be the right people — and arriving at Series A with no room to attract the calibre of talent investors expect.

Informal equity promises. “I told them they’d get some equity” is not an equity grant. Anything not documented in a board-approved option grant doesn’t exist legally — until the person who was promised it hires a lawyer.

Ignoring dilution math. Founders who don’t track dilution at each round often arrive at Series B owning far less of the company than they expected — not because any one decision was wrong, but because the cumulative effect of option pool creation, investor dilution, and advisor grants was never modelled.

---

Get 50 more prompts for fundraising, equity, and investor conversations — free.