A Founder’s Guide to Equity

What I’ve Learnt From Working With 1,000+ Founders and Investors

One thing I’ve learnt after years of working with founders and investors across Diversity X and Impact Lawyers is this:

Most equity problems don’t show up when you issue the shares, they show up months later, usually in the middle of a fundraise.

And nine times out of ten, the issue could have been avoided with a clearer strategy upfront.

So instead of walking you through the typical “Seed to Series B checklist”, I want to share the patterns I see in the wild, the ones that separate clean, scalable equity plans from the ones that end up causing stress, confusion or unexpected dilution.

This is the version founders tell me is useful.

1. The quickest way equity goes wrong: nobody actually owns the framework

The strongest companies I work with are the ones where equity isn’t a mystery.

They’ve made a deliberate decision about how ownership is shared and why.

The signs of a good equity framework are simple:

• People understand how grants are calculated
• Similar roles receive similar treatment
• Managers can explain the plan without needing a lawyer in the room
• The company knows when the pool needs refreshing well before they meet investors

If your equity philosophy can’t be summarised in one page, you probably don’t have one yet.

You have a collection of one-off decisions that will catch up with you later.

2. How equity actually fits into the fundraising journey

Everyone talks about “dilution”, but very few founders truly map out what it means stage by stage.

Here’s the reality I see:

• Seed: extremely small team, high uncertainty, high potential reward
• Series A: you’re proving sales, processes, repeatability
• Series B: you start building systems and leadership layers
• Later rounds: it’s all about scale, discipline and predictability

Ownership typically reduces at each step — but always by choice, not accident.

Founders who are prepared understand:

• how much money they need (not what looks good)
• how their burn rate drives dilution
• when to raise based on risk reduction, not vibes

The healthiest founder paths I see typically end up around:

• Seed: founders still holding a meaningful majority (think 50-70%)
• Series A: founders circa. plus one-third (30-50%)
• Series B: founders retaining a significant minority (20-30%)

The exact numbers vary but what matters is that you’ve planned them.

3. The option pool is not a formality — it’s your hiring engine

If you want to hire well, you need oxygen. The option pool is that oxygen.

The most consistent pattern I see across companies that hire effectively is:

• Seed: 10–15% reserved
• Post-Series A: ~10–12% available
• Post-Series B: ~6–8% available
• Beyond: smaller, more targeted pools

The biggest mistake founders make? Waiting until they’re negotiating a term sheet to discuss the pool.

Investors will increase the pool before they invest, which dilutes founders. If you leave this late, you often end up trading valuation for pool size under pressure.

The founders who avoid this always schedule a pool review one quarter before the next raise. It changes everything.

4. Your early hires set the tone for everyone who comes after

Here’s the truth no founder wants to hear: "your first ten hires lock in the internal norms that will follow you for years".

They take the biggest career risk, and they create the equity expectations that the rest of the organisation absorbs.

Ranges that tend to work well:

• Hire 1: 1.0–2.0%
• Hire 2: 0.8–1.2%
• Hire 3: 0.5–0.8%
• Hire 4–5: 0.3–0.6%
• Hires 6–10: 0.15–0.35%

Two guardrails:

• Hires 1–5 together ≈ 4%
• Hires 1–10 together ≈ 5%

You’d be surprised how often I see companies burn half their pool on their first hires and leave nothing for the senior leadership team they later need.

5. After 10–12 employees, ditch the % debates and move to value

Once your team grows, negotiating between 0.28% and 0.31% becomes… pointless.

What I recommend, and what I use with founders, is a value-based model:

• C-suite (excluding CEO): equity worth 0.7–2× salary
• Directors / Heads: 0.5–1× salary
• Senior technical or scarce skills: 0.2–0.5× salary
• Others: 0.05–0.2× salary

Then convert that into a % using:

• today’s valuation
• today’s fully diluted shares

This gives candidates clarity on:

• what the equity means today
• the percentage
• the value at different exit scenarios

It removes emotion and introduces fairness.

6. Where things silently break: vesting, leavers, exercise windows

This is the part founders skip and the part that always resurfaces in due diligence.

The basics that work:

• 4-year vesting with a 1-year cliff - standard and simple
• Predictable annual refresh grants
• A clear policy on underwater options
• 6–12 month exercise windows where tax allows
• Well thought out good leaver/bad leaver definitions
• Sensible buy-back provisions

If you’re hiring outside the UK, add:

• compliance with local tax regimes
• appropriate instruments (RSUs, growth shares, phantom options)
• works council or securities filings where needed
• clear mobility provisions for employees relocating

Founders lose a lot of sleep anyway, but founders who invest time here sleep better later.

7. A more practical board checklist

I often ask boards and Remcos one simple set of questions:

1. Do we know the founder and employee ownership targets we want to maintain at each stage?
2. Do we have a clear pool strategy that doesn’t rely on last-minute fixes?
3. Are our grant ranges and valuation-linked frameworks documented and followed?
4. Do offer letters explain equity in plain English?
5. Do we review the equity plan annually to keep it fair, simple and compliant as we scale?

Companies that can confidently answer “yes” to these progress far more smoothly through funding rounds.

Final thought

After working with so many founders and investors across Diversity X and Impact Lawyers, the pattern is clear:

Equity is a strategic asset, not just paperwork.

If you get this right early, you scale faster, hire better and raise with fewer surprises.

If you’d like help sense-checking your cap table, reviewing your option pool or creating an equity framework your whole team can understand, email me at  kevin.withane@impactlawyers.co.uk

Always happy to help founders grow with confidence.

 

---