How Big Should Your Equity Pool Be?

How Big Should Your Equity Pool Be?

Insight from Tim Brady

Let’s start with the basics. We need to set aside a pool of equity for your early employees. This is for your initial hires, but can also be created after a round of funding when you need to hire again. 

VCs typically insist on an established option pool before investing, so save yourself the future headache and establish one early.

But how large should this pool be? 

Y-Combinator says ~10-20% of total shares, and that’s a good benchmark.

 It will, of course, be variable based on a handful of factors:

• How much cash you have on hand: If you have more cash, you can offer bigger base salaries. As a result, equity may make up a smaller portion of total compensation packages.

• Hiring needs: Consider your hiring roadmap. If you plan to bring in a large number of new employees, particularly senior staff or executives, a larger equity pool will be necessary to accommodate these grants.

• Industry standards: Look at what other companies in your industry are offering. This can help you stay competitive and attract the best talent.

Ultimately, this is going to be more art than science, but it’s important to keep one anchoring piece of wisdom in mind:

Very few founders will say that they were too generous with the equity they gave their early employees.

Having skin in the game is great for all parties 🤝

Learn more: A guide to startup equity compensation