How Much Startup Equity Should You Request?

By Fernando Berrocal

In a brand-new startup, it might be a challenging process to request equity–a certain value of the shares that a business has issued. You don’t want to ask for too little incentive and be short-changed; however, you don’t want to ask for too much and risk instant rejection. 

Equity to Request in a Startup

Clearly, understanding the happy medium of equity deals is crucial. The quantity of stock that should be requested mainly relies on a variety of different parameters. These factors include the organization's present value in the market, the stage of the business, the amount of money you are committing to, and the level of control you demand.

One of the most important things to ask regarding your stock options is percentage of ownership, since it will affect the size of your compensation.  Ask about the total number of shares when you are given shares. You may determine your interest in a business using this method. To obtain this estimate, divide the number of shares or options you own by the total number of outstanding shares. Employee stock ownership at startups often ranges between 10 - 20 percent. That indicates the portion of the larger pool that will go to you and your coworkers.

You can estimate the value of your equity compensation using a variety of web tools available in the market. For instance, there is AngelList, which offers interactive tools that let you compare equity compensation and wages by job title, degree of expertise, and region. Additionally, another important tool is a salary database; it allows you to filter by comparable factors, including an organization's worth, personnel, and locality.

Venture Capital

Aiming for minimum equity ownership of at least 15% is recommended if you are a c-level executive. You might have to accept a reduced sum, however, if this is not feasible for the startup. Your partners’ motivation will suffer greatly if you don't let them know about this scenario–remember: they are partners, not employees. You must take risks in the business sector while still being cautious to avoid breaking any laws. The following information will be useful in that case:

  • Focus on the 3 “M”s: market, message, and media.  Those should be your main priorities, in that order.
  • Consider your ideal customer, and the issues that your solution can assist them with.
  • Print media, web advertising, and TV are the three greatest ways to reach your target market.
  • Make it as simple as you can to subscribe to your service or buy your product. Give them additional motivation to take immediate action.

These tips should get you started, but there are limitless actions one can pursue while attempting to sell anything.

Always remember that you have to sell to a specific person whether your business is a business-to-business (B2B) or business-to-consumer (B2C) organization. Even though you can sell to millions of individuals at the same time thanks to technology, try to conceptualize this practice as interacting with one client at a time. Don't be misguided by the oft-used term digital marketing, which simply refers to online sales to a client (through a website, mobile app, e-mails, etc.).

How Much Equity to Request

The strategy of selling products through psychology has been used for a long time in many types of businesses. Remember: the most successful professionals in many fields tend  to find new methods to perform what they already enjoy doing.  Be patient, accept responsibility for your actions, and don't be shy to ask for advice. It is typically preferable to make swift, definite adjustments rather than uncertain ones (unless you're genuinely about to fall off a cliff!)  Keep in mind the importance of perseverance and consistency. They are among the most crucial tools you will ever possess. Consider each person you meet and interact with to be your most valuable client.

What Percentage of Equity Can I Expect from a Startup? Generally speaking, the youth of a startup will determine how much equity you receive.  A recently formed organization (that really needs your skill set) will likely give you more equity than a more established one.  A business in early stages of development could give new hires more stock options than an established one.  They believe that they have nothing to lose. The number of funds raised and the size of your business are significant in fundraising phases. An early employee's impact at a startup is significantly higher than that of a later recruit. As a result, recruits at seed-stage firms are given greater shares. Businesses can reward employees for their contributions and incentivize long-term employment by giving them equity grants.

Your position will be classified as either a Manager (M), Director (D), or Individual Contributor (IC), depending on whether you work in technology or not. Managers have a greater influence on the direction of the business than directors since they have more expertise. You might anticipate receiving equity that ranges from 0.1% to 0.9% if you have business or sales expertise. The shares provided will range from 0.2% to 1.25% for people with engineering or product development skills. Depending on your preferences, some employers will give your salary and stock options equal weight. You could be given stock as part of your remuneration if you've received a job offer from a business that is flourishing rapidly. You own a share of the business when you have equity in a startup. The predominant ownership interest in the business is held by the investors or owners, while workers receive a fair portion.

Position and Seniority affect Equity:  Several online resources offer rules on how much stock you should grant employees, despite being a complex task. Following these main rules, a senior engineer should normally receive 1% of a startup's first funding, whereas experienced salesmen are typically given around 0.35% of it. A mid-level engineer may anticipate receiving 0.45% of the firm, whereas a junior engineer would earn 0.15%. 

Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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