# Equity Allocation in Startups

DevFeed: [Equity Allocation in Startups](<https://devfeed.tech/articles/equity-allocation-in-startups-28330.md>)

Original publisher: [Read original article](<http://fuzzyblog.io/blog/startup/2019/11/10/equity-allocation-in-startups.html>)

Author: Fuzzygroup

Published: 2019-11-10T00:00:00Z

Content type: opinion

Language: en

Sources: [Scott Johnson](<https://devfeed.tech/sources/scott-johnson.md>)

Topics: [Risk](<https://devfeed.tech/topics/risk.md>), [RSS Feed](<https://devfeed.tech/topics/rss-feed.md>)

Tags: [equity](<https://devfeed.tech/tags/equity.md>), [funding](<https://devfeed.tech/tags/funding.md>), [startup](<https://devfeed.tech/tags/startup.md>), [startups](<https://devfeed.tech/tags/startups.md>), [vp-of-engineering](<https://devfeed.tech/tags/vp-of-engineering.md>)

## AI overview

An opinionated guide to allocating startup equity, arguing that ownership should reflect the risk and timing of each contributor's involvement. It recommends reserving equity for an employee option plan, using options rather than stock, and applying a long vesting schedule. The author illustrates these points with personal experience from Feedster.

## Source excerpt

Once upon a time, I was speaking with a company founder and they mentioned that they had a VP of Engineering to whom they have given a 1/3 stake in the company. I immediately commented that was too much and then said "I'll write this down in a blog post" - and then I never did. Last night, oddly, I woke up from a deep sleep with the desire to write this down. And that brings us to this post. Here's what I can remember from that conversation: Company Stage: Pre Funding Company Type: Medical Equity Split with the VP of Engineering: 1/3 Founder Title: Yes Did VP of Engineering Put in Cash: No You Need to Understand This One of the basic rules of the startup world is that on Day 1, you, the founder, own 100% of something that is worth absolutely nothing. The goal, by the end, is that you own a much smaller percentage of something actually worth something. As an example, owning 10% of something worth $10 million is actually much, much better. The Basic Rules of Thumb for Equity Allocations Here are my rules of thumb to use for equity allocation: The more risk you take, the more you get The earlier you join, the more you get Putting time in is one type of risk Putting cash in is a greater type of risk If you, the founder, give too much equity to someone else then you can be pushed out by simply having that other person align with the investor or investors You only have 80% of the equity to play with - 20% generally goes to an ESOP (employee stock option plan) Make damn sure that you give out options not stock and a long vesting schedule (incremental over say 4 years) The bottom line is that equity, in whatever form, is a reward for taking risk. And the earlier you are involved in a startup, the more risk there is. My Personal Experience from Feedster A long, long time ago, I founded a blog search engine named Feedster. I merged with another RSS search engine shortly after coming to market to address some technical limitations in my architecture. We did the typical nerd fo