How to give equity to early employees

Give early engineers grants sized to their role and number, carve a 10 to 15 percent option pool before you raise, and put every grant on a four-year vest with a one-year cliff. Those three decisions cover most of what a founder needs to get right. The harder part is the conversation: a grant a candidate cannot value is a grant that does not help you close. This post is about doing all of that concretely, with numbers.

This is the founder-side companion to the engineer-facing posts on how much equity to expect by stage and how startup equity makes money or not. Read those to understand what your candidate is hearing. Read this to decide what to offer.

How much equity should an early employee get?

Size the grant by two things: the role and the hire number. Employee 2 and employee 20 are not the same risk, so they should not get the same slice. The ranges below are common at seed and Series A. They are starting points, not rules (illustrative, not advice).

The number that actually matters to a candidate is not the percentage. It is the dollar value at a believable outcome, and the percentage they will still hold after future dilution. A 0.5 percent grant today is not 0.5 percent at exit. See how equity dilution works round by round for the math your candidate should be running.

How big should the option pool be?

The option pool is the block of shares reserved for employee grants. It is created by the company and dilutes existing shareholders, which at fundraising time usually means it dilutes the founders. Most seed-stage companies carry a 10 to 15 percent pool. The right size is whatever covers your hiring plan to the next round, plus a little slack.

Two timing traps are worth naming. First, investors almost always require the pool to be topped up before the round closes, inside the pre-money valuation. That means the top-up dilutes you, not them. Second, an oversized pool you negotiated to look generous is just founder dilution sitting idle. Size it to your plan.

1. 01List the hires you will make before the next raise: titles, levels, count.
2. 02Assign a grant to each from the table above, in percentage terms.
3. 03Sum them, then add 20 to 30 percent slack for refreshers and surprises.
4. 04That sum is your pool. If your plan is six engineers averaging 0.4 percent, that is about 2.4 percent of grants, so a 10 percent pool is comfortable with room to spare.

What vesting schedule and cliff should you use?

The standard is four years with a one-year cliff. Nothing vests for the first 12 months. On the one-year anniversary, 25 percent vests at once. After that it vests monthly over the remaining three years. The cliff protects you from a bad hire walking away with equity after two months, and it protects the rest of the team from carrying dead weight on the cap table.

A few variants you will see, and when they make sense:

• Standard 4-year, 1-year cliff. The default. Use it unless you have a specific reason not to.
• 6-month cliff. Sometimes used for very early hires you are confident in, or to compete on a hot offer. It gives up some protection.
• Monthly from day one, no cliff. Rare, mostly for trusted founding-team members.
• 5-year vest. Some later-stage companies stretch to five years. At the early stage it reads as a red flag to candidates and is not worth it.

One detail founders forget: most option grants come with a 90-day post-termination exercise window. An employee who leaves has 90 days to pay the strike price or lose the vested options. Some companies extend this to 5 or 10 years to be candidate-friendly. It is a real lever and worth a decision, not a default. Your candidate may know exactly what happens here; see what happens to options when you leave.

When do you give refresher grants?

The initial grant solves the hiring problem. Refreshers solve the retention problem. As the original grant vests down, an employee's unvested upside shrinks, and so does their reason to stay. A refresher is a new grant, on its own four-year vest, layered on top.

Common triggers:

• The 2.5-year mark. Around when the original grant is half-vested, before the cliff edge of attrition.
• A promotion. A mid engineer who grows into staff should hold staff-level equity.
• A retention case. A key person with a competing offer, where the math says keep them.
• A new round. Fresh equity at the new (higher) valuation, often planned alongside the raise.

Budget for refreshers when you size the pool. A company that grants its whole pool to initial hires and keeps nothing for refreshers is setting up a retention cliff 2 to 3 years out, right when those engineers are most valuable and most poachable.

How do you explain a grant so it actually lands?

A grant a candidate cannot value will not move them. Most engineers have been handed a percentage with no context and learned to discount it to zero. Beat that instinct by giving them the four numbers they need to do real math.

1. 01Number of shares granted, and the total shares outstanding (so they can compute the percentage themselves).
2. 02Strike price (the price to exercise) and the current 409A or last preferred price.
3. 03The latest round and post-money valuation, so they can anchor a value today.
4. 04The vesting schedule and exercise window, stated plainly.

Then do one honest scenario together. "At our last round we were valued at $40,000,000. Your 0.4 percent is worth about $160,000 against that price on paper, vesting over four years, and it is worth zero if we do not get to an exit. Here is the round we just closed and what we are building toward" (illustrative, not advice). Candor about the zero case buys you credibility on the upside case.

The grant that closes is the one the candidate can value without a spreadsheet you refuse to share.

Pair the equity story with the funding story. A fresh raise is the single most legible signal that the upside is fundable and the runway is real. That is the whole premise of why funding recency is the best hiring signal: a candidate weighing your options wants to see that someone with more information just priced the company. Point them at your recent raise and let the recency do work the percentage cannot.

For the rest of the offer conversation, the salary side, and the close, see how to make a startup offer candidates accept and hiring senior engineers after a raise.