Buffer's equity formula
Here’s a breakdown of each element in the formula and how we calculate it.
Type of role:
Each key role at Buffer carries with it a base percentage of equity. (Note: Operations and Executive Officer roles have 0 only because the roles are currently filled by Leo and I, who get zero options. We have founder equity as displayed in the table below.)
Choice:
When you finish your 2-month “ Buffer Bootcamp ” period and come on full-time at Buffer, you have a choice to make: $10,000 additional salary or ~30% more equity.
Risk Layer:
When you join a startup, there’s a big risk difference between starting as the 5th person versus starting as the 50th. For Buffer, we use the company’s size to determine a relative “risk layer to reflect this risk.
Seniority:
Right now, we have two levels of seniority: lead and senior. A lead-level team member has or will have a team to manage, while senior-level team members have shown exemplary leadership but may not have a team to manage. We are not at the size to have additional levels such as VPs just yet. In the future we will add these here.
Breakdown by individual
Those are the components of the formula. Here’s how that formula breaks down in percentage equity for each member of the Buffer team today (this is an abbreviated version; you can see lots more at our open salary and equity spreadsheet ).
The reason we use percentage in most areas is that this makes the concept slightly easier to grasp – it seems to be easier to understand that you hold 10% of a company’s value than that you have 1,125,646 options in a company. (An additional 500,279 options belong to a small group of Buffer advisors and former team members who retain options from partial vesting.)
Example acquisition scenarios
In general, choosing more equity means taking more risk. But a small change in equity can mean a big change in monetary outcome. So we also share with each team member a few examples of exit scenarios for Buffer. For example, let’s look at someone with options for 0.5% of Buffer:
Buffer sells for $30M. They make $150,000.
Buffer sells for $60M. They make $300,000.
Buffer sells for $600M. They make $3,000,000.
Keep in mind, these figures would have to be deducted by the amount the employee pays for the options (for example $0.02/share if they are an early employee at Buffer) and any taxes that apply. So in the $150,000 example, effectively with those deductions it would become $148,874.35.
The way the number $0.02/share or $0.17/share is determined is through an outside firm valuing Buffer through a process called a 409a valuation. They come up with the price/share which can then be used to issue options for all Buffer employees. Every company has to do a new 409a valuation once a year.
Our vision for Buffer is to keep going for a long time, so we might not exit. However, there may still be opportunities for team members to sell their options along the way.