The first engineer in a United States seed-stage startup now receives a median 1.49 percent stake, while the fifth hire receives just 0.34 percent, according to a 2024 TechCrunch analysis of Carta data covering more than 8,000 initial option grants TechCrunch.

Founders keep double-digit holdings and board seats, yet early hires work comparable hours and face the same risk of company failure. That imbalance turns small variations in paperwork into large shifts in personal outcome.

For workers who trade big-company pay for the startup gamble, the most important variables are vesting mechanics, board procedure, and state employment law – not the headline percentage in the offer email.

Key Takeaways for Early Startup Employees

  • Median equity for the first hire is 1.49 percent; by hire five it falls to 0.34 percent.
  • Carta data show about half of startup employees depart within 37 months, often before full vesting under standard four-year schedules.
  • Option grants are not legally in effect until the board approves them and the grant is properly documented in company records.
  • At-will employment lets companies end roles quickly, erasing unvested equity.
  • Written offers, board-approved grants, and double-trigger acceleration reduce risk.

Shrinking slices from the start


Carta’s seed-stage database shows ownership concentration begins almost immediately. Non-founder hires one through five hold a combined median near four percent of fully diluted shares, leaving founders with the remaining common stock and a large option pool.

Dilution compounds over time. A one-percent grant before a Series A round may slip below 0.25 percent by exit as later investors and refresh pools expand the cap table. Salary growth rarely compensates for that erosion.

Because most equity plans follow four-year vesting with a one-year cliff, employees must stay at least twelve months to receive even one quarter of the award. Any termination before that milestone resets the equity to zero, returning shares to the pool.

Tenure rarely lasts the vest


The median tenure at venture-backed startups is two years, well below the 4.2-year economy-wide average reported in a 2018 study by Carta.

Carta’s survival analysis shows a sharp jump in voluntary departures at month thirteen, the moment the cliff vests. Workers who leave at that point capture only 25 percent of the original grant, while the remaining 75 percent returns to the company.

Half of all startup employees have exited by month 37, so many never reach full vesting under standard four-year schedules. In practice, the realized equity for early employees is often closer to the first cliff tranche than to the headline grant.

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Why legal formality matters


An option is not legally effective until a board of directors approves it and the grant is properly documented in the company’s records. "If the board has not approved an option grant, no options have actually been granted," warns a 2020 post by Carta.

Approval timing intersects with tax rules. To rely on Internal Revenue Code Section 409A safe-harbor pricing, companies must refresh an independent valuation at least every twelve months or after any material financing. Options issued after a new valuation often carry higher strike prices, reducing upside for new hires.

U.S. at-will employment amplifies the gap. "Either the startup or the employee can terminate the relationship for any reason, at any time, with or without prior notice," observes Fenwick & West’s hiring guide Fenwick & West.

Common rug-pull patterns


Startup lawyers and employees report that delayed paperwork remains one of the simplest risks. Founders sometimes promise an option block, start the cliff informally, then wait to issue the grant until after a fund-raise that lifts the strike price. The employee accepts the higher basis without extra shares.

Another risk employees describe is termination just before or after a financing round. Canceling unvested equity can clear room to recruit replacements at lower percentages because the company’s valuation has already risen.

Acquisitions introduce different math. Unless contracts specify acceleration, buyers can cancel unvested options or substitute cashless replacements. Some acquirers structure deals so that employees re-earn equity in the new parent entity.

Negotiating protective terms


A precise written offer letter should state the number of shares or the fully diluted percentage, vesting schedule, cliff length, option type, and the post-termination exercise window. Candidates should request proof that the board has already approved the grant or that approval is scheduled before the start date.

Double-trigger acceleration – vesting that speeds up only if a change of control occurs and the employee is later terminated without cause – "has become very popular with early-stage companies," notes Cooley LLP’s Craig Jacoby in a 2022 explainer for Cooley GO.

Other points to negotiate include partial cliff-free vesting for critical hires, an exercise window of twelve to twenty-four months instead of the standard ninety days, and annual refresh grants tied to performance or financing milestones.

Checklist before signing


Confirm that a stock-option plan exists and that the pool holds enough shares for the grant. Startup law firm Nyemaster pegs healthy pools at six to twelve percent of fully diluted shares Nyemaster.

Ask for the date of the last 409A valuation and whether a refresh is pending. A valuation within the next quarter can lift strike prices for grants not yet issued.

Review company repurchase rights and claw-backs in the plan documents. Some charters allow the company to repurchase vested shares at cost if an employee leaves within a defined period.

Understand any state-law limits on at-will employment and whether the company has a severance policy. These protections generally do not apply automatically in early-stage firms.

Emerging policy debates


Investor groups and governance advocates have floated shorter cliffs or milestone-based vesting to align equity accrual with near-term product risk, but no consensus standard has emerged as of 2025.

According to startup lawyers and founders, some venture funds now push for fair acceleration clauses for non-founder key contributors before releasing capital, seeking to avoid reputational damage from post-acquisition layoffs.

To date, regulators have taken a light touch. Securities lawyers expect option-grant disclosures to attract more scrutiny if secondary markets for private-company shares expand, but as of 2025 no formal rulemaking focused specifically on startup option grants is on the docket.

Conclusion


Early employees bet founder-level time against odds that a high-growth firm will survive to exit. Because neither statute nor custom guarantees protection, meticulous paperwork and negotiated terms remain the best defense.

Clarifying grant details, confirming board approval, and adding acceleration triggers shift part of the risk back to the company – a critical adjustment when tenure rarely matches the vesting schedule.

This article is for informational purposes only and does not constitute legal, tax, or investment advice. Employees should consult qualified counsel about their specific situation.

Sources