If you’re an entrepreneur, few decisions carry as much weight—or as many long-term consequences—as deciding how much equity to give away. Handing out slices of your startup isn’t just about rewarding contributors or attracting investors—it’s about shaping the future power dynamics of your company.
Equity isn’t just a number. It represents control, value, trust, and long-term vision. And once it’s gone, you usually can’t get it back. So, how much equity should you give away? That question is deceptively complex. Let’s dive into the real mechanics behind startup equity distribution and explore how founders can strike the right balance between collaboration and control.
What Is Equity, Really?
At its core, equity represents ownership in a company. It gives holders a claim on a share of the company’s profits (if any), a seat at the decision-making table (sometimes), and a piece of the pie if the company is acquired or goes public.
In startups, equity is typically split among:
Founders
Early employees
Advisors
Investors (angel investors, venture capital firms)
Option pools (for future hires)
Each of these groups plays a different role and expects a different level of return for their contribution. Understanding those roles is the first step toward deciding how much equity to part with.
The Founders’ Dilemma: Control vs. Growth
One of the earliest equity conversations usually happens between co-founders. Should you split 50/50? 60/40? Or is there a more nuanced way?
The truth is, equal splits are simple, but they’re not always fair. If one founder is full-time and the other is helping on weekends, or if one brings in $200,000 in startup capital while the other brings an idea, you need to have a transparent, candid conversation about value—not just effort.
Here’s a basic framework:
Equal contributions (time, money, and responsibility) = equal split
Asymmetric contributions = weighted split (e.g., 70/30 or 60/40)
Use vesting schedules (usually 4 years with a 1-year cliff) to protect the company if someone leaves early
And remember: equity isn’t about ego. It’s about aligning incentives. Resentment over lopsided ownership can kill a startup faster than lack of funding.
Hiring with Equity: Compensating Without Cash
Cash-strapped startups often use equity as a currency to attract early talent. Offering a piece of the company in exchange for below-market salary or exceptional commitment can work—if it’s structured well.
Here’s a rough guide:
First 10 hires: 0.5%–2% each, depending on role and risk
Key executives (e.g., CTO, Head of Growth): 1%–5%
Advisors: 0.1%–1%, usually with a vesting schedule tied to performance
Remember: employees value clarity. Be transparent about how much of the company you’re offering, what it means in real terms, and when (or if) they can cash out. Use equity calculators and provide context for dilution over time.
Investors and Equity: Playing the Long Game
Perhaps the most significant equity decisions come during fundraising. Venture capital firms, angel investors, and accelerators all want a slice—and often a big one.
So how much should you give away?
It depends on:
Stage of the company
How much capital you need
Valuation
Typical equity ranges:
Pre-seed round: 5%–10% for $100K–$500K
Seed round: 10%–20% for $500K–$2M
Series A and beyond: 20%+ cumulative dilution is common
The goal is not just to raise capital, but to raise it smartly. Founders who give up 40% in a seed round will struggle to retain meaningful control by Series B. Dilution is natural—but reckless dilution is fatal.
Always ask:
Does this investor bring more than just money?
What terms (e.g., liquidation preferences, board seats) are attached to their equity?
How will this affect future funding rounds?
Creating an Option Pool: Planning for Growth
An often-overlooked part of equity planning is the option pool—a set percentage of shares reserved for future hires. Investors will often insist that the option pool be created before they invest, and that it comes out of the founders’ share.
Typical option pools are:
10%–15% post-money, depending on the size of the team you plan to build
Option pools can be refreshed in later rounds, further diluting founders
Pro tip: don’t overinflate your option pool unless you plan to use it soon. Unused shares are just deadweight diluting your ownership.
Dilution: The Silent Killer (or Partner)
Many founders treat dilution like a dirty word. But it’s not inherently bad. If your slice of the pie shrinks while the pie itself grows 100x, you’re still better off.
For example:
Own 100% of a $1M company = $1M
Own 20% of a $50M company = $10M
However, uncontrolled dilution means losing control, losing incentives, and potentially losing the company you started. Every equity grant, every funding round, every hire—it all adds up. Think ahead.
The Emotional Side of Equity
We often treat equity as a math problem. But it’s deeply emotional.
Founders may feel possessive. Early employees may feel underappreciated. Investors may feel overprotective. Advisors may feel overlooked. If your team doesn’t believe the equity distribution is fair, it will create friction.
Here’s how to navigate that:
Be transparent from the beginning
Document agreements clearly (lawyers matter!)
Use vesting schedules and cliffs to manage risk
Review cap table regularly to track who owns what
Culture eats strategy for breakfast. Equity mismanagement can poison your culture before you realize it.
Exit Scenarios: What Does Equity Actually Mean?
Ownership on paper only matters if there’s an exit—an acquisition, IPO, or secondary share sale. Until then, equity is potential wealth, not actual cash.
Things to consider:
Who gets paid first? (Look at liquidation preferences)
What happens if someone leaves before their shares vest?
How do stock options convert during an acquisition?
Understanding these mechanics can help you answer a bigger question: Are you building a lifestyle business or a venture-scale company? Equity plays a different role in each.
The 80/20 Rule of Equity
As a founder, you need to think long-term. Here’s a simple rule of thumb:
“Only give away equity when it creates more value than it costs.”
If a co-founder, employee, or investor will grow your company far beyond what you could achieve alone, they’ve earned their slice.
But if you’re handing out equity to avoid hard conversations, to delay payment, or to win temporary loyalty—you’re sacrificing the future for short-term convenience.
