Cracking the Code: Median ESOP Allocations and What They Mean for Your Startup

Fueling startups begins with the right incentives.

The ESOP (Employee stock option pool) is essential to structure your option pool to balance the dilution effects on previous founders with your potential hiring plan. Every company's cap table is unique, and while dilution and hiring plans are highly specific, benchmarking current market ESOP allocations can provide valuable insights. Check out Peter Walker’s post on LinkedIn (Carta) - here - for the current median ESOP percentages based on company valuation.

As a rule of thumb, as the company grows, so does your option pool. This is because for a startup, the option pool acts as a dual incentive for contributors: ownership and alignment with the company's success. Naturally, this sense of ownership motivates employees to contribute more effectively toward the company’s growth and objectives. Additionally, a growing option pool allows the company to attract and retain top talent by offering competitive equity-based compensation packages, which are especially valuable in high-growth startups where cash flow may be limited but the potential upside is significant.

For founders: Balancing ESOP size is a critical part of attracting and retaining top talent while managing dilution for investors. It's a signal of your commitment to creating value for the team and rewarding long-term contributors. Remember, a well-structured ESOP ensures alignment between employees and the company’s success. 

How are you thinking about structuring your ESOP? Reach out!

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