I often see founders hesitate when employees ask for a larger equity stake in their startup. However, I would urge most founders to be generous with equity, here’s why:
1. It’s Cheaper
In the early days, your company needs runway or time more than it needs equity. If you give an employee more equity, you can reduce their salary, giving your company more financial runway.
2. It Protects the Company
Most equity grants come with a 1 year cliff, so you get 11 months to see if this employee is worth all the equity they’ve been allocated. With a high salary, you start paying immediately.
3. Founder Alignment
Skewing employee compensation towards equity aligns the interests of founders and employees, as everyone will get paid the most when the company sells or IPOs. Don’t be frivolous but the first 10 employees should be heavily invested in the company via stock options.
Best of luck out there.
Sterling Road invests in idea stage and pre-seed B2B startups based in the US, Canada and UK.
