Then you're way beyond the stage any of this conversation is about... But let's say you said a smaller number.
> Well, no. I can definitely offer them that 0.5% since I control the equity,
... no you can't. You can grant equity out of the option pool, which you defined in collaboration with your investors. If you want to grow the pool you're going to have to talk to them first. You don't have free reign to dilute the investors away at will.
> but I can't just go to a VC and tell them "hey, here's 0.5% of my shares, now give me their fair value worth of $500k".
Well sure, not on a daily basis. You have to raise a round of funding, obviously. Hopefully you don't do that too often, but when you do, you make sure to raise enough to pay your employees a fair salary until the next round.
If you can't raise a round of funding, then your stock is worth nothing and the employee should consider it to be worth nothing.
> Ever been close to a startup raising money from VCs?
> You can grant equity out of the option pool, which you defined in collaboration with your investors.
Obviously I'm simplifying here, but overall yes, it's far easier for a startup to give equity than cash, for the reasons I mentioned.
Especially if I'm an early stage startup, maybe after a small seed round, I will surely have enough options in the pool, or investors lenient enough to let me issue these extra stock in the unlikely case I'll need them.
> I have raised money from VCs.
So you know how unrealistic it is to raise VC rounds just to support salaries for a handful of new engineering hires.
At a $6M seed stage valuation, 1% in equity (vesting over four years) is worth the same as $15k in salary.*
Which is harder for a founder to authorize, 1% in equity or $15k in base salary? Honestly $15k salary sounds a whole lot easier and cheaper to me.
$105k in salary converts to 7% in equity. So if you want to hire than $400k Googler you're going to be paying them $200k salary and 14% equity.
An entire option pool is typically 20% or less.
The only reason giving away equity seems so much easier than cash is because you can trick people into taking far less of it.
* Disregarding the fact that the valuation is based on preferred shares while the equity grant is common shares, which only makes the equity grant even more worthless.
> So you know how unrealistic it is to raise VC rounds just to support salaries for a handful of new engineering hires.
That's literally the entire point of raising a VC round?
Then you're way beyond the stage any of this conversation is about... But let's say you said a smaller number.
> Well, no. I can definitely offer them that 0.5% since I control the equity,
... no you can't. You can grant equity out of the option pool, which you defined in collaboration with your investors. If you want to grow the pool you're going to have to talk to them first. You don't have free reign to dilute the investors away at will.
> but I can't just go to a VC and tell them "hey, here's 0.5% of my shares, now give me their fair value worth of $500k".
Well sure, not on a daily basis. You have to raise a round of funding, obviously. Hopefully you don't do that too often, but when you do, you make sure to raise enough to pay your employees a fair salary until the next round.
If you can't raise a round of funding, then your stock is worth nothing and the employee should consider it to be worth nothing.
> Ever been close to a startup raising money from VCs?
I have raised money from VCs.