How Much Equity for Your Employees?
Startup Codex

This post from Fred Wilson describes a methodology to size employee equity grants.

Since the text was written in 2010, most of the multiples mentioned have evolved in today's market, and according to the region.

However, the substance of the method described is still relevant today, and Wilson is a good teacher on a subject he knows very well.

The key thing is to communicate the equity grant in dollar values, not in percentage of the company. Startups should be able to dramatically increase the value of their equity over the four years a stock grant vests. We expect our companies to be able to increase in value three to five times over a four year period. So a grant with a value of $125k could be worth $400k to $600k over the time period it vests. And of course, there is always the possiblilty of a breakout that increases 10x over that time. Talking about grants in dollar values emphasizes that equity aligns interests around increasing the value of the company and makes it tangible to the employees.

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