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MenuIf a startup is bootstrapping, and it's already profitable after one year, how much stock should a founder offer a key hire?
I'm hiring two new Vice Presidents, and I'd like to offer them some stock, but I'm really not sure how much to offer. The company is already profitable, and it looks like it's going to be around for quite some time. Revenue growth is strong.
We're bootstrapping and following a model similar to Balsamiq. Honestly, I don't see us ever accepting investors or even going over 10 employees. Right now, I'm paying a bit below market rate salaries, but should be able to rectify that within the next 6-12 months if revenue growth stays strong.
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A typical rule of thumb would be that an established company sets aside around 15% of the outstanding shares at any point in time for employee options. Those get split up among employees based on their contributions.
Depending how key these VPs are relative to other employees you have (remember to give them something also) or expect to hire, you might give them 2-5% each.
This assumes that you are an established company. If one of the VPs is going to quintuple the size of the business, they might push for being more of a 'partner'.
The answers so far are generally what I'd agree on but two points I'd add. First, it always makes me nervous when a company that is bootstrapping is adding "Two Vice Presidents" It raises some flags around the structure of the org. Really, in a bootstrapped org, there should be a max of three key people. Sales, Tech & Growth (previously known as Marketing).
As a general rule of thumb, creating a Stock Option Plan worth 15% of the total shares of the company all of which vests over a 3 or 4-year period is par for the course and most hires, even great hires can be granted equity from that pool.
However, the point that hasn't been made here is that it all depends on the talent you're recruiting. More specifically, it depends on how much value you expect each contributor will make. In other words, I would dilute 20% if I was recruiting someone who could add significant, transformational value to your enterprise.
It also depends very much on where you're based and how competitive a market there is for this same kind of talent. Finally, if you're paying below market rates, you should always be adding a premium equity component, even if the premium component is only earn-able as bonus.
I think if you're able to recruit "VP" level talent at under market rates with only a small amount of equity, you're probably not going to be hiring the best talent to grow your company.
Happy to talk with you in a call so that I can understand your location, business, and staffing plan a bit better and provide more actionable advice on how to optimize the recruiting packages and also ensure you're hiring the best talent for your objectives.
Good question and congratulations on your achievements with bootstrapping. I've been advocating for bootstrapping and/or MVF (Min. Viable Funding) for quite a while now. More here: RMentrepreneur.fyi.to/Bootstrap . As for your question, I'd offer them as little as possible, but enough to get them to join you. The entrepreneurial battle is not without its surprises, thus you want to keep your arsenal of weaponry as resourceful as possible. How to find the perfect number? I've hired hundreds of employees in my businesses and made a handful millionaires. Tony Reis' testimonial is on my profile. You can find more here: RMentrepreneur.fyi.to/LinkedIn Happy to take your call (reduced rates during the festive season btw).
Kamal's answer is pretty spot on, but I would like to add that it's important to stipulate that their shares vest over a period of 3-4 years. A one year cliff is also appropriate.
The future is always the future...don't tie anything to where you expect to go. Some stock should be the first two ppl in your stock option plan which should be no more than abt 5 percent. You need to keep as much equity as you can and if you're paying them and pretty well be satisfied with that...a lot of companies offer more stock if they can't pay. You can always do a lower buy in, faster vesting etc to incentivize them but keep the actual minimal as you never know what future holds
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