Equity is one of the most valuable tools you have as a founder to attract talent to your startup. It is an opportunity applicants can’t get from any other job.<\/p>\n\n\n\n
That said, there is a huge information gap between founders and most early hires about the benefits and pitfalls of owning equity. The best founders give employees a realistic understanding of what their equity is worth, while also highlighting what makes your company able to succeed. For help explaining equity to your employees check out our Equity 101<\/a>. <\/p>\n\n\n\n Here are five tips on how you can create a culture of trust and shared risk-taking at your startup by being more transparent about equity. <\/p>\n\n\n\n Too many founders give employees options without ever explaining what these options are worth. The whole point of giving an employee options is to get them bought into the future success of your business. There is a reason why early equity is often called “sweat-equity”. Everyone on your team is going to be working long hours with low pay in the hopes of a future payoff. Make sure your employees know what this payoff might look like.<\/p>\n\n\n\n To help, check out Carta\u2019s open-sourced \u201cBetter Offer Letter.\u201d<\/a> You can use this template to explain how much you gave to the employee, what percent ownership their shares represent, as well as how much an employee will get paid based on different exit scenarios.<\/p>\n\n\n\n Nothing will erode the trust of your employees faster than over-promising on the value of the equity you are giving them. Even when your equity offer<\/a> is light, if you are upfront about what the equity is worth, employees will respect you for sharing this.<\/p>\n\n\n\n We recommend that with every option grant you give, you offer the disclaimer that all equity is worth $0 until your company reaches a liquidation event. If you want to go further and note that even if the company exits at an unexpectedly lower value, preferred investors might get all the payout. Again, this clarity will help build trust with your employees, while encouraging everyone to grow the company.<\/p>\n\n\n\n Too often employees negotiate for options and then forget about them entirely a few days after signing their new hire agreement. You should send an email to employees when they pass their cliff (usually their 1 year anniversary at your company) and let them know their first set of shares have vested. This will be a powerful reminder that they are invested in the long-term success of your business.<\/p>\n\n\n\n1. It starts with the offer letter.<\/h2>\n\n\n\n
2. Don\u2019t oversell the value of equity.<\/h2>\n\n\n\n
3. Celebrate milestones.<\/h2>\n\n\n\n