| name | equity-management |
| description | Complete equity management for SaaS founders — cap tables, 409A valuations, option pools (ISO vs NSO vs RSU), 83(b) elections, equity grants for employees/advisors/contractors, dilution modeling, secondary sales, and equity tools (Carta, Pulley, AngelList Equity). Use when setting up equity, granting options, planning option pools, modeling dilution, or preparing for fundraising. Triggers on: "cap table", "409A valuation", "option pool", "equity grant", "ISO vs NSO", "83(b)", "equity for employees". |
| license | MIT |
| compatibility | Claude Code, Jesse, Codex, Hermes, Windsurf, OpenCode, Gemini CLI, Copilot, Zed, VS Code, Goose |
| metadata | {"version":"1.0.0","author":"LeadMagic","category":"founder-led","tags":["equity","cap-table","409a","options","iso","nso","dilution","stock-options"],"related_skills":["co-founder-dynamics","fundraising-strategy","first-hires-playbook","legal-for-founders","financial-modeling"],"frameworks":["Carta — Equity management platform and cap table benchmarks","Pulley — Cap table management for startups","Fred Wilson (Union Square Ventures) — Employee equity","Andy Rachleff (Wealthfront) — Equity compensation","Sam Altman — Employee equity","Leo Polovets (Humba Ventures/YC) — Technical founder equity guide"]} |
Equity Management
Overview
Equity is the hardest-working tool in a startup's compensation arsenal — it
aligns incentives across founders, employees, advisors, and investors. The
mistake: treating equity as an afterthought, granting shares on napkins, and
discovering during Series A that your cap table is a disaster. This skill
covers the complete equity stack: cap tables, 409A valuations, option types,
grant guidelines by role and stage, dilution modeling, and the tools that
keep it all clean.
Authoritative Foundations
- Carta — Equity management platform and cap table benchmarks — Equity management platform and cap table benchmarks
- Pulley — Cap table management for startups — Cap table management for startups
- Fred Wilson (Union Square Ventures) — Employee equity — Employee equity
- Andy Rachleff (Wealthfront) — Equity compensation — Equity compensation
- Sam Altman — Employee equity — Employee equity
- Leo Polovets (Humba Ventures/YC) — Technical founder equity guide — Startup operating cadence — default alive, talk to users, launch fast.
When to Use
Trigger phrases: "set up cap table", "409A valuation", "option pool planning",
"equity grant guidelines", "ISO vs NSO", "83(b) election", "equity for
employees", "dilution modeling", "how much equity to give", "Carta vs Pulley"
Step-by-Step Process
Phase 1: Equity Types
| Type | Who Gets It | Tax Treatment | Key Rules |
|---|
| ISO (Incentive Stock Option) | Employees only | No tax at exercise (AMT may apply). Capital gains if held 1yr+ after exercise, 2yr+ after grant. | $100K vest limit/yr. Must exercise within 90 days of leaving. |
| NSO (Non-Qualified Stock Option) | Advisors, contractors, anyone | Taxed at exercise (ordinary income on spread). | More flexible. No $100K limit. |
| RSU (Restricted Stock Unit) | Later-stage employees | Taxed at vest (ordinary income on FMV). No exercise cost. | Common post-Series B. Not great for early stage (taxed at vest even if illiquid). |
| Restricted Stock | Founders, very early employees | Taxed at grant (can be $0 if 83(b) filed). Capital gains on sale. | Founders should file 83(b) immediately. |
Rule of thumb: Early stage → ISOs for employees, NSOs for advisors.
Later stage → RSUs become more common.
Phase 2: 409A Valuation
What it is: An independent appraisal of your common stock's fair market
value (FMV). Required by IRS to set the strike price for stock options.
When to get one:
- Before granting your first stock options (required by law)
- After every priced fundraising round
- Every 12 months (or when a material event occurs)
- Before an acquisition (the acquirer will require a recent 409A)
Cost: $1,000-3,000. Providers: Carta, Pulley, Aranca, Scalar.
The 409A discount: Common stock (what employees get) is valued at a
discount to preferred stock (what investors buy). Typical discounts: 10-30%
for early stage, narrowing at later stages.
Why 409A matters: If you grant options below FMV, both you and the
employee face tax penalties. The IRS takes 409A seriously.
Phase 3: Option Pool Planning
Option pool sizing:
| Stage | Pool Size | Who's in the Pool |
|---|
| Seed | 10-15% | Future employees, advisors |
| Series A | 15-20% | Expanding team — AEs, engineers, CS |
| Series B | 15-20% (refreshed) | Scaling all functions |
| Growth+ | 10-15% (ongoing) | Refreshes, executive hires |
Key insight: The option pool is created from pre-money shares at Series A.
This means the dilution from the pool comes ENTIRELY from founders and
existing shareholders, not from new investors. Negotiate for the SMALLEST
pool your hiring plan requires.
Option pool calculator:
Pool Size = Sum of all equity grants to be made before next funding round
+ 20-30% buffer for hires you haven't planned yet
Example:
- VP Engineering: 1.5%
- 5 engineers: 0.25-0.5% each = 1.75%
- VP Sales: 1.0%
- 3 AEs: 0.1-0.2% each = 0.45%
- First Marketer: 0.4%
- CS Lead: 0.5%
- Buffer (30%): 1.4%
Total Pool: ~7.0% (round to 10% for Series A standard)
Phase 4: Equity Grant Guidelines
By role and stage (approximate, adjust for your situation):
| Hire # | Role | Grant Range |
|---|
| Founder | CEO/CTO | 25-50% each (with vesting) |
| 1st | Founding Engineer | 1-3% |
| 2-5 | Early Engineers | 0.5-1.5% |
| 1st | VP Engineering | 1-2% |
| 1st | VP Sales / CRO | 1-3% |
| 1-3 | AEs | 0.1-0.3% |
| 1st | Head of Marketing | 0.5-1.0% |
| 1st | Head of CS | 0.5-1.0% |
| 1st | Head of Product | 0.5-1.5% |
| 50th | Senior Engineer | 0.05-0.1% |
| Advisor | Individual | 0.15-0.5% (2-year vest, no cliff) |
When NOT to give equity:
- Contractors (pay cash, not equity — unless they're effectively a co-founder)
- Agencies (cash only)
- Part-time advisors who don't deliver (vesting protects you)
Phase 5: Cap Table Management
Your cap table must ALWAYS be current. A messy cap table kills
fundraising and can kill an acquisition.
Cap table best practices:
- Use cap table software (Carta, Pulley, AngelList Equity). NOT Excel.
- Update immediately after every grant, exercise, or transfer.
- Keep it clean: no "we'll figure out the details later" entries.
- Model dilution before fundraising. Know exactly who owns what.
- Get 409As on schedule. Don't let them lapse.
Cap table software comparison:
| Tool | Best For | Cost |
|---|
| Carta | Funded startups, Series A+ | $100-500/mo+ |
| Pulley | Early stage, simple cap tables | Free-$100/mo |
| AngelList Equity | Early stage, integrated with banking | Free |
| Clerky | Incorporation + first cap table | $99 one-time |
Phase 6: Secondary Sales and Liquidity
Can employees sell their shares?
- Early stage: typically no (shares are illiquid)
- Series C+: sometimes. Company may run a tender offer.
- IPO: yes (but lockup periods apply)
Founder secondary: Some founders sell 5-10% of their shares in later
rounds to take money off the table. This is becoming more accepted. It
reduces pressure to exit prematurely.
Output Format
EQUITY PLAN — [Company]
CAP TABLE: [link in Carta/Pulley]
Last 409A: [date]. FMV per share: $X. Next due: [date].
OPTION POOL: X% (X,XXX,XXX shares)
- Allocated: X% (X shares to X recipients)
- Available: X% (X shares remaining)
GRANT POLICY:
| Role | Grant Range | Vesting | Cliff |
|---|---|---|
| [role] | X-Y% | 4 years | 1 year |
UPCOMING GRANTS:
- [Hire/role] — [date] — [grant size]
Implementation Checklist
Quality Check
Before delivering, verify:
Common Pitfalls
-
Cap table in Excel. Excel can't handle cap table complexity (option
exercises, early exercises, multiple funding rounds). Fix: Carta or Pulley
from day 1.
-
No 409A valuation. You're granting options at an arbitrary price =
IRS penalties for you and your employees. Fix: 409A before first grant.
Renew annually.
-
Nowhere near enough equity for key hires. "0.1% for our VP Engineering"
won't close a candidate who can get 1%+ elsewhere. Fix: Benchmark against
stage and role. Don't be stingy on your most critical hires.
-
Forgotten option pool at fundraising. You model dilution from the new
round but forget the option pool refresh. Surprise: an extra 15% dilution.
Fix: Model dilution including option pool. Negotiate pool size at term
sheet stage.
-
Missing 83(b) for founders. Miss it and you owe tax on phantom income
as your shares vest over 4 years. Fix: File within 30 days. Keep proof.
This is the #1 unforced error in startup equity.
⚠️ Disclaimer
This skill provides general informational guidance based on publicly available frameworks and operator experience. It is NOT legal advice, accounting advice, tax advice, financial advice, insurance advice, or professional services advice.
Consult qualified professionals for your specific situation — attorneys for legal/equity matters, CPAs for tax and accounting, licensed brokers for insurance, and certified security assessors for compliance. This skill does not create a professional-client relationship. Use it as a starting point for research and preparation.
Execution Artifacts
references/framework-notes.md — Named frameworks and reference tablestemplates/output-template.md — Deliverable shell for agent outputscripts/check-output.py — Lightweight deliverable validator
Related Skills
co-founder-dynamics — Founder equity splitsfundraising-strategy — Dilution from SAFE/priced roundsfirst-hires-playbook — Equity as part of compensationlegal-for-founders — 83(b), incorporation, stock plansfinancial-modeling — Dilution modeling in financial projections
