How much equity should engineers and other technology workers expect if they join a startup?
One answer: A little more now than earlier this year.
According to interviews with 40 startup CEOs over the past three months, as well as with a handful of tech recruiters and venture capitalists, the increases -- while not yet large -- are noticeable.
"It's tightened up a bit from six or 12 months ago," said Rick Marini, founder and CEO of BranchOut, a San Francisco startup that's developing career-networking applications that run on Facebook.
The equity inflation is especially applicable to candidates with strong skills in high-demand areas such as software design and development.
The precise amount offered varies depending on the skill level and experience of a candidate, the position he or she is hired into, how many employees the company has at the time of hiring, and how many rounds of venture capital investment it has raised.
Vice presidents of engineering who are among the first 10 to 20 employees at a startup can expect to receive between one and three percent of a company's equity, depending on their experience level.
"You're looking at multiple percentage points for senior engineering leaders," said Jim Smith, a partner with the venture capital firm MDV, formerly Mohr Davidow Ventures.
While that's not "much higher" than in the past, it's at the high end of the historical range, said Smith.
If a company has already raised several rounds of venture capital, that percentage might be lower, because such investors push CEOs to be judicious with equity awards.
A company with more than 30 or so employees that has raised at least two funding rounds usually has its top management team in place. In those companies, engineers and other tech workers brought in at the director level can expect one-quarter or one-half a percentage point of equity.
It can be higher for key product development people -- especially in Silicon Valley and San Francisco, where many startups compete for the same talent.
Although some executives said they will sweeten offers for the right candidates, most said they are leery of hiring someone for whom compensation is the deciding factor.
"We want people who want to work for our company, not go where they'll get the highest paycheck," said Lewis Cirne, founder and CEO of the cloud software company New Relic. "If it becomes a bidding war, we'll back away most of the time," Cirne said.
Yet, given the tight market for talent, "that's getting harder to do in places like San Francisco," Cirne said.
Once a company has more than 50 or 60 employees, the size of equity stakes start to diminish significantly, to the point where individual contributors can expect to receive between two and eight basis points, or between two- and eight-thousandths, of the company's equity.
Still, even those small stakes can be worth a lot at companies that grow into huge valuations. For example, recent funding rounds have reportedly placed valuations of more than $1 billion on Twitter, Groupon and Zynga. A one-basis-point stake in a company valued at $1 billion would be worth $1 million.
The higher levels of equity offered by startups mirrors salary increases that tech workers have been receiving in cities such as Seattle and Austin, Texas.
"It's very competitive for the best engineers. We're seeing people with three to five job offers on the table," said Byron Sebastian, founder and CEO Heroku, an Internet software company based in San Francisco that yesterday agreed to be acquired by Salesforce.com for $212 million in cash.
Write to John Shinal
