Some thoughts on employee stock options in startup land

The vast majority of tech startups grant employees with stock options. The hard truth these stock options are worthless if the company fails. But in many cases they are valuable and in some cases they are life changing. That is how it goes in startup land. Founders and employees are all taking a signficant risk to build or make something that may not work — but providing equity to all employees provides alignment in focus, goals and reward.

I’m now in my 16th year as a venture capitalist and before that I spent about 10 years working inside startups. One of the biggest changes I’ve witnessed is the amount of equity rank and file employees receive in these startups. As the market has become more competitive, executive stock options grants have held relatively steady but founder grants have only gone in one direction — up.

The end result: the individual contributor is receiving less and less equity.

Now, I don’t want to paint with a broad brush. There are great examples of a fair employee option pool. But I’m seeing too many venture backed companies where the employees hold less than 5% of the company. In some cases a lot less. And the VCs don’t own a lot.

I am glad this market has become more competitive and founders have an increased number of sources when it comes to capital. But I encourage us all to think carefully about the employee option pool. Consider where it has been, where things stand now and what sort of impact this all makes on the culture of our industry and the world.