How to Structure Equity for Early Employees

Equity is the part of an offer founders are least confident explaining, which is exactly why candidates leave the conversation confused or suspicious. You don't need to be a lawyer to talk about it well – you need to understand four things: how much, what kind, how it vests, and what happens if either of you walks away.

How much to offer

There's no single right number, but there is a rough market pattern. Early hires collectively end up with something like 10 percent of the company across the first ten people, front-loaded toward whoever joins first – a first hire often lands somewhere around half a percent to one and a half percent of fully diluted shares, with each subsequent hire typically getting noticeably less than the one before. Set aside an option pool – commonly 10 to 20 percent of fully diluted shares – before you start making offers, so you're granting from a pool investors already expect to see rather than renegotiating your own stake every time you hire.

• Equity generally scales with how early someone joins and how much risk they are absorbing, not just seniority or title
• Cash and equity are a trade-off – a below-market salary is usually offset with more equity, not the reverse
• Round numbers you can defend consistently across hires matter more than optimizing each offer individually

What kind of equity, and how it vests

Most early employees receive stock options – the right to buy shares later at a fixed price – rather than the shares themselves. The market standard is a four-year vesting schedule with a one-year cliff: nothing vests before the one-year mark, then 25 percent vests all at once, and the remaining 75 percent vests monthly over the following three years. The cliff exists for a real reason – it protects the company from granting meaningful equity to someone who leaves after two months – and it is normal, not a red flag, when you explain it that way.

Say the quiet parts out loud

• Explain the strike price and that it can rise as the company is valued higher – waiting to exercise isn't free
• Tell them the exercise window after leaving the company – 90 days is historically standard, though some companies now extend it
• Be honest that options are worth zero unless the company has a liquidity event – do not let anyone value the offer as if it is cash
• Put the vesting schedule and strike price in writing in the offer letter, not just in conversation

The biggest equity mistakes aren't in the number – they're in what goes unsaid. A candidate who accepts an offer believing their options are guaranteed money, or who doesn't realize the exercise window closes 90 days after they leave, is a candidate who feels misled later, even if nothing you said was technically false.

Equity is a promise about a future that might not happen. The founders who explain it honestly build more trust than the ones who make it sound bigger than it is.