Imagine the following…
You’re growing fast and you need to hire a new biz dev guy.
He’s convinced that he’s going to add a lot of value to your company, and asked for 1% of your startup, so you give it to him.
After a few months, you pivot the business and he’s no longer needed (plus he didn’t actually do anything while he was around).
Next thing you know, you are just about to raise the first round of funding for a different product and you realize he’s still got 1%.
What do you do…?
You jump on a plane, waste time trying to convince them to sell you their equity share before you close…
This is a true story that happened to me while I was building Flowtown.
Equity is a great way to keep your employees motivated to scale your company, but it’s important to do it right or it can backfire against bigtime.
In today’s video, I cover the 7 steps to ensure the right equity allocation that will make the most sense for your company.
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Here are the 7 steps:
- Build your dream team
- Carve out your equity pool
- Research compensation
- Vesting schedule
- Stock options vs other options
- Plan for grants and promotions
- Set an expiration timeline
Each of these steps is crucial when it comes to doing equity right, but researching compensation is especially important for tying salary with equity for your employees.
It all basically boils down to offering compensation and equity opportunities that are relevant for the region of your business.
A CTO in San Francisco does not get the same compensation as a CTO in Nebraska, so make sure you do your research by consulting glassdoor.com or similar resources.
The industry baseline in the region will give you a ballpark figure, which you can then combine with equity at different risk levels.
Give your hires the ability to choose between small, medium, and larger amounts of high-risk equity.
The option will give them a higher salary but lower amount of equity, while the high-risk option will give them the opposite (more equity).
This strategy will help you recognize the highly motivated and long-term committed hires which will drive your company forward.
Watch the full video to learn my other equity tips, and be sure to leave a comment below.