Why 3 NYC Startups Give Equity to Employees

by Built In NYC | January 09, 2017

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For many, the draw of working for a startup often revolves around increased responsibilities, the opportunity to learn from true innovators and a flexible, but fast-paced, work environment.

But when it comes to fostering a tangible, company-wide sense of shared success within a young company, equity stands out as one of the most valuable perks of working for a startup. However, while the opportunity to own a piece of a potentially multi-million (or billion) dollar company is assuredly an attractive benefit, equity packages can be complicated and vary widely from startup to startup.

We spoke with several New York-based tech teams who offer equity to employees to better understand the ins and outs of owning a portion of a young company.

 

Breather

Built In: What does it mean to offer equity as a perk?

Breather: We don’t think of equity as a perk, but as a form of compensation that ties our employees’ interests to those of the company in a way that free coffee, gym memberships, ping pong and even salary can’t. There’s a special, almost intrinsic, kind of motivation that comes from working hard on something because it’s yours versus working hard on something because your boss told you to.

BI: What are the advantages for the employees?

Breather: Working for a startup often means making a smaller salary than you could earn at more established companies in exchange for the opportunity to take on greater responsibility and grow something huge from the seed of the idea. In exchange for the salary cut, the risk, and all of the blood, sweat and tears, having equity in a startup means that you share in the upside of the amazing thing you’ve helped create. If you succeed in building something great, equity can more than make up for the salary you’ve turned down.

BI: What are the advantages for the company?

Breather: At Breather, one thing we look for in every potential hire is the ability to act like an owner. When you have employees who act like owners, instilled in the company's vision and strategies, your ability to make smart decisions that are in-line with the decisions the founders would make is able to scale with each hire. Equity is the most tangible form of ownership and can serve as a way to make sure people maintain that owner’s mentality.

Built In: What advice do you have for early stage startups that are flirting with the idea of offering equity?

Breather: Granting equity to early employees is a great motivator and the most common way to reward them for taking an often huge risk to join you when you don’t yet have a lot of traction or cash. Be careful to find the appropriate balance between motivating early employees and leaving enough in the pool for future employees.

 

SeatGeek

Built In: What does it mean to offer equity as a perk?

SeatGeek: Offering equity to startup hires means that in addition to any salary an employee makes, part of their compensation includes partial ownership of the company they are contributing to.

BI: What are the advantages for employees?

SeatGeek: The potential of financial gain may be the most obvious advantage of having equity as an employee. If the chips fall into place for a startup, the payoff can be huge across the organization. However, what may be more impactful on a day-to-day basis is the sense of ownership that results from quite literally being a part-owner of the company an employee works for. The opportunity to be financially invested in the long-term success of a company, in addition to the chance to contribute to its growth, can be one of the most motivating and exciting things about working at a startup.

BI: What are the advantages for the company?

SeatGeek: In the early stages of starting a company, it’s possible to save much-needed cash for other needs by offering equity to early employees as part of compensation packages. This can help young companies hire great talent that is clearly aligned with and invested in the company’s mission and success.

In addition, distributing equity can both help align a startup team with the company’s long-term success and create a culture of ownership at the company. Employee equity reinforces the fact that everyone is on the same team - both the founders and employees are incentivized to grow the company’s value in the same way. While we continue to work hard to make SeatGeek a great place to work day in and day out, employee equity has been one of the several important factors that contribute to what we believe is a motivating and inspiring company culture.

BI: What advice do you have for early stage startups that are flirting with the idea of offering equity?

SeatGeek: The equity conversation can get complicated, fast. If it’s your first time running a company, it’s a good idea to consult with a lawyer who’s familiar with early-stage startups for assistance at the outset.

In addition, try to help educate employees on the benefits of the equity they’ve attained. Equity can be an extremely valuable asset for both employees and the startup they work for, and working to remove some of the mystery around it can make sure there is a fair distribution of knowledge across both the employer and employee. At SeatGeek, we’ve found it important to arm employees with as much knowledge as possible around their equity. By providing resources both internally and externally, we hope the team feels they can make the best possible decisions if and when necessary.

 

CompStak

Built In: What does it mean to offer equity as a perk?

CompStak: Equity as a perk is the icing on the cake when signing the offer letter. By awarding equity, the company’s founders acknowledge that they need the employees’ help to reach their vision. And in giving equity, the employees are now empowered to help achieve this goal because they too have a stake in the success and failure of the organization. From the founders’ perspective, offering equity provides an intrinsic motivator to employees to not just look at their position as just another cog in the machine at the company, but as a means by which to shape the organization and help it succeed.

BI: What are the advantages for the employees?

CompStak: Aside from the obvious monetary advantages of offering equity if the company goes public or is bought out, equity is a unique perk that not many members of the workforce are given. Equity is not a normal part of compensation packages outside of the start-up environment. It also allows employees to have diversified investments for which they do not pay extra. Also, equity provides an unusual investment opportunity in that they are integral to its success by being part of the organization.

BI: What are the advantages for the company?

CompStak: The company is able to better motivate employees with equity offerings because now employees feel a sense of ownership over their work and will want the organization to succeed. Moreover, equity does not cost the company anything at the beginning. It is, however, a valued piece of the compensation package for new hires. It is an added benefit that will incentivize employees to join the organization over other companies that do not offer equity packages.

This post was written by Taylor Majewski. A version of it—with additional responses from other firms—previously appeared at Builtinnyc.com

 

Tags: startups

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