How to structure equity and hiring for early-stage startups

Yuri Sagalov, a managing director at the venture capital firm General Catalyst, outlines the critical importance of a startup’s first five to 10 hires. Speaking on the Build Mode podcast hosted by Isabelle Johannessen, Sagalov—who was previously affiliated with Wayfinder Ventures—emphasized that these early employees will significantly impact company culture and set precedents that are difficult to change down the road. Because of this lasting impact, he advises founders to seek missionaries who prioritize the company’s mission over compensation, while remaining honest with them about the risks of the journey. The podcast series, which focuses on early-stage company formation, will also feature upcoming guest Sarah Lucena, the founder of Mappa.

Sagalov also categorizes startup investors into three distinct buckets: those who are heavily involved as an extension of the team, those who provide capital and vanish, and those who micromanage. He warns founders to avoid investors who are overly involved and meddle in operations. “The only bucket that I avoid is this third bucket of investors who give you money and they’re kind of in your kitchen, meddling. They have an opinion on everything. They get stressed out when things don’t go right,” Sagalov said. To identify these behaviors early, he recommends that founders perform reference checks by talking to other portfolio companies about how those investors behaved when things went wrong.

When managing capitalization tables—the documents that show equity ownership—Sagalov advises co-founders to structure their equity splits with a slight differentiation. Specifically, he suggests a difference of plus or minus one share to allow for clear deadlock resolution.

According to Sagalov, founders often over-index on the initial idea creation when dividing equity, ignoring the fact that most of the company’s journey is still ahead of them. He warns that failing to plan for the long term can lead to resentment five years into the future if co-founders feel they are contributing equal effort but only own a small portion, such as one-fifth, of the equity.

Why it matters

Early-stage founders often make irreversible mistakes regarding team culture and equity; this advice provides a framework for avoiding structural misalignment.