SaaS Employee Equity: A Guide for Startup Growth Stages

SaaS Employee Equity: A Guide for Startup Growth Stages

Determining employee equity can be challenging. This guide provides a framework for SaaS companies at various growth stages.

1. Pre-Seed/Seed Stage (Pre-Revenue or <$1M ARR)

Early employees take significant risks. Compensate them with higher equity.

• Co-founders: Typically 20%-50% split based on contributions.
• First 10 Employees: Allocate 10%-15% total.
• Key Hires (VP Engineering/Product): 1%-2%
• Senior Engineers/Designers: 0.5%-1%
• Junior Employees: 0.1%-0.25%
• Offer 2x-3x the equity of later-stage hires for mission-critical roles.

Equity Pool: Reserve 15%-20% for employees.

2. Early Growth Stage ($1M-$10M ARR)

As risk decreases, equity becomes more standardized.

• VPs/Executives: 0.5%-1.5%
• Senior Engineers/Managers: 0.2%-0.5%
• Mid-Level Employees: 0.1%-0.2%
• Junior Employees: 0.05%-0.1%

The employee equity pool might reduce to 10%-15%.

3. Scaling Stage ($10M-$50M ARR)

Cash compensation becomes more important than equity.

• Executives: 0.3%-1%
• Senior Managers/Directors: 0.1%-0.3%
• Mid-Level Employees: 0.05%-0.1%
• Junior Employees: 0.01%-0.05%

Equity now focuses on retention.

4. Late Stage ($50M+ ARR)

Cash compensation dominates. Equity is for executives and key hires.

• Executives: 0.1%-0.5%
• Senior Managers/Directors: 0.05%-0.1%
• Mid-Level Employees: 0.01%-0.05%
• Junior Employees: 0.005%-0.01%

Equity refreshes are common for retention.

Key Considerations

Implement 4-5 year vesting with a 1-year cliff. Refresh grants every 2-3 years for high performers.

General Guidelines

• Transparency: Use a clear equity model.
• Adjust for Risk: Higher risk warrants higher equity.
• Flexibility: Adapt the equity pool as needed.