Early employee wants 2% equity — is this reasonable for employee #3?

Hiring our third employee — senior engineer. Offering $140K salary (below market) + equity. She's asking for 2% ownership. We're pre-seed, bootstrapped, ~$20K MRR. Is 2% reasonable or am I being taken advantage of?

General benchmarks for early employees (not cofounders):

Employee #1-2: 1-2%
Employee #3-5: 0.5-1%
Employee #6-10: 0.25-0.5%
Employee #11-20: 0.1-0.25%

2% for employee #3 is on the high end but not unreasonable if she's truly senior and taking a significant pay cut.

what's market rate for her level? if she'd make $200K elsewhere, that's a $60K/year discount she's taking. over 4 years, that's $240K in foregone salary. is 2% of your company worth $240K? depends on your valuation expectations

She'd probably make $180-190K at a bigger company. So ~$40-50K/year discount. 2% would vest over 4 years with 1-year cliff, right?

Yes, standard is 4-year vesting with 1-year cliff. So after year 1, she gets 0.5%. Then monthly vesting for the remaining 1.5% over 3 years.

Also make sure to use ISOs (Incentive Stock Options) if she qualifies — better tax treatment for her. And have her file an 83(b) election if you're granting restricted stock.

don't forget dilution. if you raise a seed round at standard terms, that 2% becomes ~1.5%. after Series A, maybe 1%. after Series B, 0.6-0.7%. 2% today isn't 2% forever

Structure matters as much as percentage. Options vs restricted stock, strike price, acceleration on acquisition, etc. A 1% grant with single-trigger acceleration might be worth more than 2% without it.

Also: set up a proper option pool (usually 10-15%) if you haven't already. Investors will require this anyway.

UPDATE: Offered 1.5% with 4-year vesting, 1-year cliff, and double-trigger acceleration. She accepted. Also bumped salary to $150K since we just closed a small angel round. Thanks for the sanity check everyone!