One of the most critical and frequently asked questions among seed-stage founders is: "How much equity should I allocate to my first hires?" This decision carries significant weight. Offer too little, and you risk failing to attract top-tier talent; grant too much, and you might face regret by Series B when trying to recruit a CFO with a depleted option pool.

Fortunately, Carta's latest State of Seed report provides invaluable benchmarks from tens of thousands of startups, offering a data-driven perspective on this high-stakes challenge.

The First Five Hires: What the Data Shows

The report's headline numbers reveal clear patterns for fully diluted equity grants, typically vesting over four years with a one-year cliff. The equity percentage drops sharply with each subsequent hire:

Hire #1: 1.50% (median)

  • 25th percentile: 0.50%
  • 75th percentile: 4.00%

Hire #2: 0.85% (median)

  • 25th percentile: 0.30%
  • 75th percentile: 2.00%

Hire #3: 0.50% (median)

  • 25th percentile: 0.20%
  • 75th percentile: 1.20%

Hire #4: 0.44% (median)

  • 25th percentile: 0.18%
  • 75th percentile: 1.00%

Hire #5: 0.33% (median)

  • 25th percentile: 0.13%
  • 75th percentile: 0.80%

This data clearly illustrates a rapid decline in equity grants. The first hire typically receives nearly five times the equity of the fifth hire at the median. By the time a startup reaches its fifth hire, the equity grants often fall into the "normal employee" range.

The Equity Curve is Steeper Than Many Founders Realize

Several key insights emerge from this data regarding early employee equity:

  • A Significant Drop from Hire #1 to #2: The equity grant plummets from a median of 1.50% for the first hire to 0.85% for the second—a 43% decrease. This highlights the unique value and risk associated with joining a startup at its absolute earliest stage, often with little more than a vision.
  • Below 1% by Hire #3: Contrary to many founders' assumptions of granting "1-2%" to their initial several employees, the data indicates that only the very first hire typically breaks the 1% median threshold.
  • Enormous Range in Grants: For the first hire, the equity grant can range from 0.50% (25th percentile) to 4.00% (75th percentile), an eight-fold spread. This vast difference underscores that context matters significantly, with factors like stage, role, seniority, location, and urgency all influencing the final offer.

Advisor Equity: Benchmarks and Expectations

Founders often tend to over-grant equity to advisors. The Carta report also sheds light on typical advisor equity grants, which usually vest over two years:

Pre-Seed Advisors:

  • 25th percentile: 0.09%
  • Median: 0.24%
  • 75th percentile: 0.50%
  • 90th percentile: 1.00%

Seed Advisors:

  • 25th percentile: 0.06%
  • Median: 0.12%
  • 75th percentile: 0.25%
  • 90th percentile: 0.49%

Series A Advisors:

  • 25th percentile: 0.02%
  • Median: 0.05%
  • 75th percentile: 0.11%
  • 90th percentile: 0.25%

A crucial takeaway is that only 10% of pre-seed advisors receive more than 1% equity. If an advisor requests 1% or more, they should be bringing something truly exceptional to the table—such as a critical customer introduction, a key hire, or indispensable domain expertise. Most advisors typically fall within the 0.1-0.25% range with a two-year vesting schedule. If a prospective advisor balks at these figures, their potential value might be questionable.

Common Mistakes Founders Make with Equity

The data highlights several recurring errors founders make when distributing equity:

  • Mistake #1: Treating all early employees equally. The data shows a 4-5x difference in median equity between the first and fifth hires. Flattening this curve can undervalue the earliest contributors.
  • Mistake #2: Over-granting to advisors. Some founders give 1% to advisors who provide minimal value. The median advisor equity at the seed stage is 0.12%, which should serve as a practical anchor.
  • Mistake #3: Not reserving equity for future senior hires. Giving away too much equity to early hires can deplete the option pool, causing significant pain when trying to recruit crucial senior roles like a VP of Engineering or CFO at Series A/B, which often require 0.5-1.5% at later stages.
  • Mistake #4: Ignoring the equity range. While medians are useful benchmarks, the ideal grant depends on the candidate's specific profile. A first hire with prior CTO experience at a successful startup warrants more equity than a talented but unproven engineer. Utilizing the 25th-75th percentile range allows for better calibration.

The Significance of Being a Non-Founder First Hire

The data unequivocally demonstrates that the first non-founder employee receives approximately 1.5% equity, dropping to about 0.85% for the second, and settling around 0.33% by the fifth hire. The equity curve is notably steep, and founders consistently underestimate how rapidly equity grants should decrease. Similarly, advisors typically receive far less equity than many founders anticipate, with a median of 0.12% at the seed stage, and only the top 10% exceeding 0.5%.

These benchmarks serve as valuable starting points. Ultimately, equity compensation is a strategic tool to attract the right talent at the right time for your company. While the data provides insights into what is considered "normal," founders must apply these learnings to their unique circumstances to determine the most appropriate equity strategy.