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Y Combinator - Tim Brady - How Much Equity Should I Give My First Employees?

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Author: Y Combinator
Categories: Business
Tags: business
Views: 2 · Last viewed: 2026-10-15 07:48 UTC

Short Summary

Main recommendation: Give early employees more equity than later hires, since they take on more risk and work harder, and plan for a 10 to 20 percent equity pool for employee incentives. The first employee typically receives roughly 1 to 2 percent, with the exact amount adjusted by how much cash you have and how much the candidate values equity versus salary.

Key Points

  • Equity should decline with later hiring: the first employee gets more than the 20th, who gets more than the 100th.
  • Early employees are compensated for two things: the higher risk of joining an uncertain startup and the hectic, demanding workload.
  • Startups traditionally reserve 10 to 20 percent of equity for employee incentives, and venture capitalists typically require this pool before investing.
  • Outside hires consume equity quickly: an outside CEO traditionally receives about 5 percent, and an outside CTO or COO about 3 percent.
  • Equity should be treated as a tool to improve the chance of a large financial outcome, since most startups fail and only a small percentage become major successes.

Details Worth Noting

  • Concrete instructions: Before distributing any equity, identify how many people you need to hire, who they are, and how much equity you expect to use for each, then begin distributing.
  • Concrete instructions: For the first employee, start from a 1 to 2 percent range (online ranges run from 0.5 to 3 percent), then adjust based on your cash position: if cash is scarce, offer somewhat lower salary in exchange for more equity.
  • Concrete instructions: Match compensation to the candidate's preferences. If they value salary security over equity, use the lower end of the equity range and the higher end of the salary range.
  • The video frames the first employee as usually an engineer in a traditional Silicon Valley startup.
  • The speaker says he has worked in Silicon Valley for 30 years and has never met a successful entrepreneur who felt they had been too generous with early employees.

Bottom Line

Equity for early hires is a strategic motivation tool rather than a fixed pie, so plan the employee pool and early allocations deliberately before making offers.