How much equity should I be giving an early (angel/f&f stage) employee who is important but not critical? I will not promote

[u/prettyborrring]

I've been working with an industrial designer who has been very helpful in getting our cosmetic prototypes designed and made. He's even helped source a supplier when our original supplier turned out to be not up to the task. He's very knowledgeable and willing to put in the time needed to make things happen. I would love to formally bring him onboard to lead the industrial design moving forward. However, there are a few things holding me back

1. His function isn't the most critical piece at the moment. We've taken the industrial design as far as we can at the moment. The vast majority of the remaining work will be on the electrical and software engineering side
2. He may not be in it for the long(ish) term. The only reason he has been able to help me so far is because he was laid off earlier this year and had some time to kill as he looks for his next opportunity. He also has a family he has to take care of so finding another role is a necessity. While that's not necessarily a deal-breaker, it does make me wonder if he would be able to continue contributing as much as he's had given his responsibilities as a family man
3. While he's very knowledgeable on the CMF side of things, his "artistic" side leaves a bit to be desired. While this isn't a huge deal, it does affect my opinion on his competency long-term just a little bit.

As additional context, we are currently in the angel/f&f stage. Given all that, how much equity should I consider offering him at this stage?

[u/wesborland1234]

Need more info, but it sounds like you and he would both prefer salary to equity.

Maybe be willing to negotiate 1-5% if you plan on offering him less than he’d make elsewhere.

[u/noacoin]

If you already know he’s not in it for the long term - ish then don’t be pointlessly be generous.

[u/Shichroron]

Are you paying market rate salary? If yes, do you want to retain him? If yes, I would say around 0.5% (cliff + vesting)

[u/prettyborrring → u/Shichroron]

I'm not paying him anything atm actually. He volunteered to work for free up to the next milestone, at which point we would discuss next steps/compensation. He definitely understands the financial constraints we're under and has hinted that he would be happy with equity. But I want to get a better understanding about what to expect for early employees at this stage so I'm prepared for the conversation once we get there.

[u/StartupsAndTravel]

I'd need to know more about number of hours he's put in, how much more he is going to put in, but probably something like 1% (without knowing his effort), vest him for as long as you need him and put a cliff on what he's already done to give him some already vesting. I'm captableguy.com and have done hundreds and hundreds an hundreds of deals and had this discussion countless times. Give him options (not stock), set the exercise price correctly (GFE of FMV is fine if you are pre-rev).

[u/prettyborrring → u/StartupsAndTravel]

So it's interesting because he actually came in after the designer contractor I was originally working with had to take some time off. He's probably put in a good 30-40 hours of work, which isn't that much since a lot of the work was already done by the time he joined. However, from working with him so far, I feel like he would be a good long-term partner.

Is it normal to give options instead of straight equity for early stage employees? I'm not sure if I've ever heard of that before.

[u/StartupsAndTravel → u/prettyborrring]

I am of the very strong opinion that options is ALWAYS the better way to go. For advisors or contributors who have some relatively defined period of time they will help you, give them NSOs with 10 year expiration (so they don't have to pay to exercise when they delivered on what they were supposed to do). Price it at something reasonable but not at par value (I have a blog post going up on this topic, just waiting for it to get published) so they don't write some nominal amount to turn options into shares.

[u/thebigmusic]

The contribution seems limited and if he's good, he'll eventually land somewhere pulling a W-2. I would consider options as they don't vote/control/etc. and a vesting schedule. I would not be talking equity stakes, as this is not a co-founder type who merits it in any world. Good luck.

[u/already_tomorrow]

You don't give equity to people that won't stick around.

Someone: Why's this person on your cap table?

You: He 7 years ago gave me free help while he was looking for a new job.

And you especially don't give out equity just because you in the moment feel a bit overwhelmed with how crucially helpful they were. To you that was life changing, to them it was a random Thursday. And you can't be handing out equity like free samples just because you're inexperienced and overwhelmed with positive emotions or get a bit of fomo. You need to create a business out of this that you actually can work with in the future, not dilute yourself and your future investors down to nothing every time someone is really helpful.