How Much Equity to Give Your First Employees

Deciding how much equity to give your first employees is one of the most consequential and least intuitive decisions an early founder makes. Get it right and you attract people who treat the company like owners because they are. Get it wrong — too stingy and you lose great hires, too generous and you have no equity left for the senior leaders you’ll need at Series A — and you’ll feel the mistake for years, because equity grants are nearly impossible to claw back once they’ve vested.

The good news: this is a well-mapped problem. Thousands of startups have granted equity to their first employees, and the data on what’s normal is clear. At median, your first hire gets around 1.5% of the company, your second around 0.85%, and by your fifth hire you’re already near 0.33%. This guide gives you the benchmark tables, the standard vesting terms, the pool math, and — the part most articles skip — how to actually decide a number for a specific person and explain it honestly.

The one chart that matters: equity drops fast

The single most common founder mistake is assuming the first several hires all get “1 to 2 percent.” They don’t. Analysis by SaaStr of a dataset of roughly 50,000 startups shows how steeply grants decline with each hire. These are fully diluted grants, vesting over four years with a one-year cliff:

Hire	25th percentile	Median	75th percentile
Employee #1	0.50%	1.50%	4.00%
Employee #2	0.30%	0.85%	2.00%
Employee #3	0.20%	0.50%	1.20%
Employee #4	0.18%	0.44%	1.00%
Employee #5	0.13%	0.33%	0.80%

Source: SaaStr, “How Much Equity to Give Your First Employees,” 2026.

Three things to take from this table:

• Your first hire is special. The drop from Hire #1 (1.50%) to Hire #2 (0.85%) is a 43% decline for the very next person through the door. The first employee joins when there’s nothing but a pitch deck and takes the most risk — price accordingly.
• Only your first hire typically breaks 1% at median. By your third hire you’re already below 1%. If you’re planning “1–2% each for my first five people,” you’re planning to give away roughly 5–10% of your company to five people, which will hurt when you need to hire a VP of Engineering later.
• The range is enormous. For Employee #1, the 25th-to-75th spread runs 0.50% to 4.00% — an 8x difference. The median is a starting point, not an answer. Where a specific person lands depends on the factors below.

Benchmark by role and stage

Hire number is a blunt instrument. A more precise way to grant is by role and funding stage, since a Head of Engineering joining as a near-cofounder is a different decision than the third mid-level engineer. The bands below synthesize published benchmarks from Index Ventures’ Rewarding Talent, Value Add VC, CRV, and Equity Matrix. Treat pre-seed grants as roughly 50% higher and Series A grants as roughly 50% lower than the seed column.

Role	Pre-Seed	Seed	Series A
Head of Engineering / CTO #2 (near-cofounder)	2.0–5.0%	1.0–3.0%	0.5–1.5%
VP Engineering / VP Product	1.0–3.0%	0.5–2.0%	0.25–0.75%
Senior Engineer (#1–5)	0.5–1.5%	0.3–1.0%	0.15–0.40%
Engineer (mid-level)	0.25–0.75%	0.15–0.50%	0.05–0.20%
Junior Engineer	0.10–0.30%	0.05–0.20%	0.03–0.10%
Head of Sales / Marketing (first)	1.5–4.0%	0.75–2.0%	0.4–1.2%
Product Manager (first)	0.5–1.5%	0.3–1.0%	0.2–0.6%
Designer (first)	0.5–1.5%	0.3–1.0%	0.15–0.5%
Operations / Finance Lead	0.5–1.5%	0.3–1.0%	0.15–0.5%
Advisor	0.1–0.5%	0.1–0.5%	0.05–0.25%

The single biggest jump is the first technical leader. A person hired to build and own the entire engineering organization before product-market fit is functionally a late cofounder, and the 1–3% seed range (2–3% for someone who’s employee #1–3 and taking a real salary cut) reflects that. If you’re a non-technical founder making this hire, read our companion guide on your first engineering hire — the equity number matters less than getting the person right.

The standard vesting schedule: 4 years, 1-year cliff

Equity grants almost never hand someone their full stake on day one. They vest — the employee earns the shares over time. The near-universal standard is four-year vesting with a one-year cliff, and deviating from it without a strong reason confuses candidates and investors.

Here’s exactly how it works:

• The cliff (year 1): Nothing vests for the first 12 months. If the employee leaves — or you part ways — before their one-year anniversary, they walk away with zero equity. This protects the company from granting a permanent slice to someone who doesn’t work out early.
• The cliff date: On the 12-month anniversary, 25% of the total grant vests in a single moment.
• Monthly thereafter (months 13–48): The remaining 75% vests in equal monthly increments — roughly 1/48 of the total grant each month — until the grant is fully vested at four years.

Two refinements worth knowing. Acceleration clauses (single-trigger or double-trigger) let equity vest early if the company is acquired; these are usually reserved for executives and negotiated individually. And the post-termination exercise window — how long a departing employee has to buy their vested options — is a quietly important term; the traditional 90 days can effectively forfeit equity someone earned, and some founders extend it to stay competitive.

Sizing your option pool (and who eats the dilution)

Individual grants come out of a single reserved bucket: the employee option pool. At seed, set aside 10–15% of fully diluted shares (some companies go to 20%). The right size isn’t a round number — it’s driven by a hiring plan. Map the roles you expect to fill over the next 18–24 months, add each one’s target grant from the tables above, add a 20–30% buffer for grants you can’t predict, and that sum is your pool.

Get this wrong in the stingy direction and you’ll run out mid-cycle, forcing a pool “refresh” that dilutes everyone at an awkward moment. Get it wrong in the generous direction and you’ve handed away ownership you didn’t need to.

Now the part founders learn the hard way: at a priced round, investors almost always require the option pool to be created or expanded pre-money. That means the new shares reserved for future employees dilute the existing shareholders — the founders — not the incoming investor. A term sheet that says “20% post-close option pool” can quietly cost founders several points of ownership. Negotiating that pool down by even 2–3 percentage points, backed by a credible hiring plan showing you don’t need that much, is one of the highest-leverage moves available in a financing. It’s the same math that governs your own dilution — the mechanics we cover in pre-seed fundraising, decided by data.

A worked example: what “1%” actually becomes

Percentages hide dilution. Walk through a realistic path so you — and your candidate — see the real trajectory.

Say you grant employee #1 1.0% of a company with 10,000,000 fully diluted shares. That’s 100,000 shares. Over the next few years:

• Seed (grant date): 1.00% — 100,000 of 10,000,000 shares.
• Series A raises and issues new shares (say ~20% dilution): the same 100,000 shares now represent roughly 0.80%.
• Series B (another ~20% dilution): roughly 0.64%.

The share count never changed — 100,000 shares throughout — but the percentage fell by more than a third. This isn’t the company cheating the employee; it’s how equity works, and it applies to founders too. The whole bet is that the company’s value grows far faster than each slice shrinks: 0.64% of a company worth $500M is worth vastly more than 1% of a company worth $10M. The lesson for grants is to think in share counts and expected value, not just today’s percentage — and to be transparent that the percentage will decline.

The tax basics you’re responsible for

You don’t need to be a tax expert, but issuing equity without understanding two things creates real problems:

• 409A valuation. Before you grant a single option, you need a 409A — an independent appraisal of your common stock’s fair market value. The 409A sets the option strike price. Pricing options at fair market value is what keeps them from creating immediate taxable income for the employee, so this isn’t optional paperwork; it’s what makes the grant clean.
• ISOs vs NSOs. Employees are granted Incentive Stock Options (ISOs), which carry favorable tax treatment when holding-period rules are met. Advisors and contractors get Non-Qualified Stock Options (NSOs). Watch the $100,000 ISO limit: the value of options (measured at grant) that first become exercisable in a single calendar year above $100,000 automatically converts to NSO treatment by law. A standard four-year schedule keeps most rank-and-file grants well under this, but large executive grants at a higher 409A can blow past it — model it when structuring senior offers.

This is genuinely the point to involve a startup lawyer and your accountant. The cost of doing it right is small; the cost of a botched 409A or a mis-issued grant is not.

How to actually decide a number for a real person

Benchmarks give you a range. Four factors move a specific candidate within it:

1. Seniority and track record. A former founder or a senior engineer from a company that exited is worth the top of the band; a talented but unproven hire sits in the middle or lower.
2. Cash-vs-equity tradeoff. Someone accepting a below-market salary to join early is buying equity with foregone cash — pay them for it at the high end. Someone at full market salary should be lower in the range.
3. Timing and risk. The earlier and riskier the stage when they join, the higher the grant. This is why the hire-number curve is so steep.
4. Criticality of the role. A hire who owns a function you can’t run without (your first real engineer, your first salesperson building the motion) justifies more than a role you could backfill.

A clean method: pick the role’s band from the stage table, start at the median, then move up or down based on these four factors. Sanity-check the result against the hire-number curve so you don’t accidentally hand employee #4 more than employee #1.

Explain the offer honestly — this is where founders lose people

Here’s the part almost every benchmark article ignores: a percentage on its own is worthless to a candidate, and a vague one erodes trust. Great early employees are more sophisticated than they used to be. Waving “1% equity!” at someone who can do math signals either that you don’t understand your own cap table or that you’re hoping they don’t.

Give every candidate the full picture, in writing:

• The number of shares they’re being granted (not just the percentage).
• Total shares outstanding / fully diluted, so they can compute the percentage themselves.
• The current 409A / strike price, so they know what exercising costs.
• The vesting schedule — 4 years, 1-year cliff — spelled out.
• An honest note on dilution: their percentage will decline as you raise, and that’s expected.

You don’t have to promise an outcome, and you shouldn’t quote a fantasy valuation. But a founder who explains equity clearly and honestly stands out, because so many don’t. The candidates worth hiring notice the difference — the same way they notice a real offer versus a hand-wave, which is exactly the judgment we argue for in validating before you build and modeling your runway and burn before you commit cash and equity you can’t get back.

Five mistakes to avoid

• Flattening the curve. Treating hires #1 through #5 as the same category. The data shows a 4–5x median difference between your first and fifth hire — respect it.
• No pool, no plan. Promising “about 1%” with no formal option pool, no 409A, and no vesting paperwork. Informal equity promises cause disputes and can’t be granted cleanly later.
• Leaving nothing for senior hires. Giving away 10–15% across your first ten employees, then having no room for the VP of Engineering or CFO you need at Series A — roles that themselves want 0.5–1.5%.
• Ignoring the range. Anchoring on the median and refusing to pay up for an exceptional first hire, or overpaying a middling one. Calibrate with the 25th–75th percentile spread.
• Hiding the math. Quoting a percentage with no share count, strike price, or dilution context. It reads as either sloppy or manipulative — and your best candidates will read it that way too.

The bottom line

Start from the data: first hire around 1.5% at median, dropping fast to well under 1% by hire #3, granted on a four-year schedule with a one-year cliff, from an option pool of 10–15% you’ve sized against a real hiring plan. Then adjust for the person in front of you — seniority, salary tradeoff, timing, and how critical the role is. Set up a 409A and a proper pool before you grant anything, and explain the offer in shares, strike price, and honest dilution rather than a lonely percentage. Do that and equity becomes what it’s supposed to be: the tool that turns your first employees into genuine owners, without giving away the company you’ll need to keep hiring great people.

For the hiring decision itself, keep reading with our guide to your first engineering hire, and browse the full Team & Hiring pillar for more on building an early team.