There are key issues to consider: your company's best interests, the employee's best interests and your potential investors. Equity in your company is a legal issue and not a simple handshake and internal document deal. An attorney experienced in equity agreements will explain what the options are. You may find the best option for all concerned is not what you thought. Also consider how does equity change if the employee leaves or the company fails. Seek legal advice and have an attorney prepare the agreement to safeguard all parties.