Talking about equity is always touchy. Let's be honest: most of the time it ends up being worth nothing, because very few startups ever reach an exit.
I've been lucky. I've lived through two exits from the inside, at Captio and at Typs, and a third experience where what was promised never materialized. Each one taught me something different, which is why I decided to write this article.
Being afraid to give up shares is completely normal. It's your company, you built it, and it's hard to let go of a piece. But when you're starting out you can't pay market rate for the people you need, least of all for senior profiles like a CTO. That's where equity makes sense: you share part of the value that person is going to help you create.
Why think about it from the start
You have to understand this from both sides. For a CTO, taking equity instead of salary means taking on part of the risk: you can spend years on a project and watch your shares end up worth zero. Or the exact opposite can happen. I've seen both.
For the founder, setting up the pool early has two advantages. First, the founders absorb the dilution while the shares are still worth little. Second, you walk into funding rounds with your homework done. If you start building the pool in the middle of a negotiation with an investor, the conversation changes, and the cost usually ends up coming out of the place you'd least like it to.
On top of that, Spain's Startup Act has its own deadlines and requirements, and you don't want to be late. I won't go into detail, because that's what a good advisor is for, but my advice is clear: think about equity while you're building the company, not when you already have a round on the table.
If you're going to use equity to attract talent, it's far better to plan for it while you're still building the company than to try to fix it once there's a round on the table.
The rules of the game
The first step is deciding how much of the equity to set aside for the talent you can't pay with a salary and who may be key to growth. From there, there are a few concepts you need to have very clear.
Cliff and vesting. Shares don't belong to the employee from day one, and that makes sense: it gives you room to course-correct if that person turns out not to be as key as you thought. The usual setup is a four-year plan with a one-year cliff. If they leave before the first year is up, they walk away with nothing; when they hit it, 25% vests, and the rest vests month by month. But it all depends on the deal you strike: there are three-year plans, plans that vest annually, and a thousand other variations. What matters is that both sides know exactly what they've signed.
Vesting is not exercising. It sounds like a technicality, but it isn't. Vesting means the right is now yours. Exercising means turning that right into actual shares, usually by paying the agreed price.
What happens if I leave. This is where good leaver and bad leaver come in. Depending on how you leave, you keep what has vested or the company can buy it back from you. I feel strongly about this: someone can leave after two years having done everything right, and the terms have to tell that apart from a real breach. Leaving doesn't necessarily mean breaking the deal.
Liquidity event. A sale, a merger, an IPO. It's the trigger: the moment when what has been a number in a spreadsheet for years can turn into money. Or not. And you need to explain that clearly too when you offer equity.
The shareholders' agreement: the most important piece
If you ask me, it's the cornerstone. The shareholders' agreement is what turns a promise into a right, and at a minimum it should cover:
- The size of the pool and who absorbs the dilution in each round.
- The founders' own vesting, not just the employees'.
- Good leaver and bad leaver clauses.
- The buyback price, where it applies.
- Drag-along and tag-along rights.
- What happens to the plan in a change of control.
- What happens to the shares when a liquidity event arrives.
I know it looks like overkill at first and you've got a thousand more urgent problems. But trust me, it's worth doing now.
It's much easier to agree on these things when everything is going well than when someone already wants out or there's a buyer sitting at the table.
In the end, I think everybody wins. The founder doesn't have to drag along partners who left years ago, the employee knows exactly what they have, and the investor finds a much cleaner cap table.
How much to set aside, and watch the dilution
At seed, the usual benchmark is between 10 and 12% of the fully diluted capital. But I wouldn't obsess over the number. It's far more useful to start from your hiring plan for the next 18 to 24 months: which profiles you need, how many, and how much equity it will take to win them over.
And then there's dilution. If you don't keep it in check, you can end up with no shares left almost without noticing, and that's when you really have given the company away. But being diluted isn't the same as losing: 10% of €1,000 is not the same as 5% of a million. A CTO who joins with 1% can end up with 0.7% after a couple of rounds. A smaller percentage, yes, but if the company has multiplied in value, a lot more money.
Put it in writing from day one
I learned this the hard way. A promise made in an interview sounds great, but four years later nobody remembers exactly what was said. That's why the grant has to be documented from the start: date, percentage, vesting, price, and what happens if the person leaves or a liquidity event comes.
And it pays off. If the grant is properly documented from the beginning, what that person receives on exit day can be taxed a lot more lightly, and the Startup Act has greatly improved the treatment of stock options at companies certified as startups. You don't need to be a tax expert, but you do need to know enough to ask the right questions and surround yourself with someone who can structure it properly.
What can go wrong
I like the well-known cases because they show that the problem almost always lies in the fine print.
Skype (2011). The plan allowed the company to buy back shares even after they had vested, and at the same price they'd been granted at. Before the sale to Microsoft there were layoffs, and those people missed out on the gains.
Glovo (2022). When Delivery Hero acquired it, the team's options were swapped for shares in the buyer with no price floor. The shares fell before closing, and the package went from being worth more than €700 million to about €290 million.
Snapchat (2014). Reggie Brown was there at the beginning and was pushed out with nothing signed. The company ended up paying him $157.5 million to settle the lawsuit.
And you don't need to be a company worth hundreds of millions to have the same problem. In a small startup, a badly drafted shareholders' agreement has exactly the same effect, just with fewer zeros.
What I've lived through
At Captio, the expense management startup, I went through the acquisition by Certify in 2018. At Typs I went through another one, when Hastee bought the company in 2020. Both taught me something that's hard to grasp from the outside: a percentage that looks small for years takes on a completely different meaning the day the exit arrives.
The third experience was different. What we discussed at the start never came through. I won't go into details, because some things stay where they happened, and I don't think it was bad faith either. I think we lacked experience: nobody understood how important it was to nail certain things down from the beginning. And a letter of intent is not a contract!
That's where my lesson came from. It may sound harsh, but over the years everyone remembers that conversation in their own way.
If it isn't signed and dated, it doesn't exist.
My checklist
If I were starting a company today and wanted to use equity to hire talent, this is what I'd do from day one:
- Size the pool based on the next 18 to 24 months of hiring.
- Be clear about which profiles I want to attract and how much equity makes sense for each.
- Set the vesting and the cliff.
- Spell out what happens when someone leaves.
- Apply vesting to the founders too.
- Document and date every grant.
- Explain to each person, with numbers, what they're really getting.
- Review the legal and tax side with professionals, including certification as a startup.
None of this is complicated. The problem is that when you're starting out you have so much on your mind that it's very easy to put it off. And then a round, a hire or a buyer shows up, and it's too late.
In the end, it's about trust
After going through several of these processes, I believe equity has far more to do with trust than with percentages. The founder shares something that nobody yet knows the value of, and whoever joins early takes on part of the risk in exchange for a share in the success.
That's why, to me, giving out equity is investing in the people who are building the company. Done right, of course. Because good intentions are great, but when the time comes to split things up, what counts is what's in writing.