Are you trying to figure out how much equity you should offer to a new employee or co-founder? It can be tricky to balance cash salary, risk, and company valuation. Many startup founders struggle with these numbers and often feel unsure if they are being fair. That’s why we built this simple Gust Equity Calculator. In this article, you’ll not only get a free tool to find your answer instantly, but you’ll also learn the reasoning behind the calculations. By the end of this page, you’ll be able to confidently calculate the right equity percentage and make more informed decisions for your startup.

How to Use This Calculator:

1. Enter Market Rate Salary: This is the amount the employee would typically earn at a stable, large company.
2. Input Actual Cash Salary: The salary your startup is actually paying the employee.
3. Add Company Valuation: The current pre-money valuation of your company.
4. Select Risk Multiplier: Choose based on your startup stage (Idea, Seed, or Series A).
5. Click “Calculate”: Your equity percentage result will be displayed instantly.

The Formula Explained: How It All Works

For those who like to see the magic behind the curtain, here is the exact formula our Gust Equity Calculator uses:

Equity Percentage = (Total Equity Value / Company Valuation) × 100

Total Equity Value = Annual Foregone Salary × Risk Multiplier

Annual Foregone Salary = Market Rate Salary – Actual Cash Salary

Variables and Multipliers:

• Market Rate Salary: The salary the employee would command at a large, stable company.
• Actual Cash Salary: The salary the startup is paying the employee.
• Company Valuation: The current pre-money valuation of the company.
• Risk Multiplier: A factor to compensate for startup risk.
  • Idea/Founder Stage: 3x to 4x
  • Seed/Startup Stage: 2x to 3x
  • Venture-Backed/Series A: 1.5x to 2x

Practical Example: Let’s Walk Through It

Let’s imagine you want to calculate the equity for a new hire. Here are the details:

• Market Rate Salary: $120,000
• Actual Cash Salary: $60,000
• Company Valuation: $5,000,000
• Risk Multiplier: 3x

Step 1: Annual Foregone Salary = 120,000 – 60,000 = $60,000
Step 2: Total Equity Value = 60,000 × 3 = $180,000
Step 3: Equity Percentage = (180,000 ÷ 5,000,000) × 100 = 3.6%

The final result is 3.6%. This means the employee should receive equity equivalent to 3.6% of your company to fairly compensate for the reduced salary and higher risk.

Quick Reference Table for Equity Ranges

Stage	Risk Multiplier	Typical Equity Range
Idea/Founder	3x – 4x	2% – 6%
Seed/Startup	2x – 3x	1% – 4%
Series A (VC-Backed)	1.5x – 2x	0.5% – 2%

Helpful Tips & Tricks

1. Always reassess valuation: Company valuation can shift quickly, so update your numbers before offering equity.
2. Balance cash and equity: Offering slightly more salary may reduce the need to give large equity percentages.
3. Use equity wisely: Equity is a long-term commitment; consider vesting schedules to protect both parties.

FAQs