Founders, Your Equity Playbook Is Failing You — It’s Time to Pay Real Cash
The startup world is awash with stories about flashy equity grants and moonshot upside. But beneath the hype, the data is telling a harsher truth: equity alone will not retain your best people, especially when they can collect real pay somewhere else.
A recent piece from DataDrivenVC showed that even when startups move salaries closer to market levels, voluntary turnover remains extremely high, over 57 percent annually. They found that raising cash compensation in 2024 reduced voluntary turnover by about 31 percent. But that still leaves enormous churn. (newsletter.datadrivenvc.io)
That stands in stark contrast to broader corporate data: companies overall reported turnover easing to 18 percent in 2024 from 26 percent in prior years. (cfo.com) In other words, startups are hemorrhaging talent at rates many times the average.
This diverging trend matters because it exposes a broken assumption many founders lean on: "I’ll attract top talent with equity and mission and make up cash later." That gamble is increasingly losing.
To make this case more concrete, let’s bring in additional reporting and real examples from the tech and AI space.
What the Market Is Saying With Numbers
Carta’s H1 2025 compensation report shows salaries rising for legal, AI, and product roles, while equity grants for new employees remain flat. That signals companies are prioritizing cash buffers over speculative upside. (carta.com)
Meanwhile, Business Insider recently reported that at top AI companies, research engineers are pulling in up to $690,000 in compensation packages, and software engineers are routinely making $250,000 or more. That’s before factoring equity. (businessinsider.com) When that kind of cash is on the table, equity promises lose ground fast.
In other corners of tech, startups are going "wild" with compensation offers. Some are dangling luxury cars or triple base salaries just to attract talent, signaling desperation in the battle for elite engineers. (timesofindia.indiatimes.com)
The pressure is strongest in AI, where small teams with domain expertise can move the needle. Startups must compete not only with big names but with boutique firms willing to pay up front.
What Founders Are Getting Wrong And How to Fix It
1. Equity without belief equals no stickiness
When an employee doesn’t believe your valuation is credible, equity feels like a lottery ticket. With the IPO market cooling and exits delayed, many employees no longer trust that stock is real upside. HR Brew reports that delayed IPOs are undermining the perceived value of equity for new hires. (hr-brew.com)
If your team thinks that, when push comes to shove, the cash they could get elsewhere is safer, they’ll take that option.
2. Refresh grants must be baked into growth
Equity grants at hiring are only part of the story. Ravio describes how refresh grants, additional equity allocated later in employees’ tenure, can be powerful retention tools. (ravio.com) Too many founders think "we’ll cross that bridge later." But later is often too late.
3. Transparency isn’t optional
Opaque pay practices breed suspicion. When pay bands, equity formulas, and refresh policies are hidden, small frustrations compound into departures. Founders must treat these elements as part of their narrative, not internal secrets.
4. Don’t treat sales or AI talent as fungible
Different roles churn for different reasons. AI engineers may leave for a higher cash base. GTM teams often chase compensation structures with clearer performance incentives. Founders must tailor retention strategies to role type, not assume one size fits all.
5. Save some equity for scaling
Giving away too much early is risky. Benchmark data from early-stage equity tables shows that initial hires often receive between 0.5 percent and 4 percent of the company (median 1.49 percent) for the first hire, decreasing for subsequent hires. (kruzeconsulting.com) If you over-allocate early, you lose leverage to incentivize later roles, leadership, or key growth hires.
What Founders Should Do Right Now
Benchmark aggressively using recent, real data (e.g. Carta, AngelList, TopStartups) to set your salary and equity offers
Offer cash stronger than you’d like, especially in roles where competition is fierce
Plan refresh grants in year 2 through 4, not as an afterthought
Build transparency into your compensation structure so employees understand how decisions are made
Tailor retention strategies by role
Hold equity reserves for future hires, promotions, or incentives
If you can’t defend how you pay, and you can’t articulate what your equity will do in real terms, your team will walk.
This is not a typical startup op-ed. It uses real data, multiple sources, and a hard look at how compensation strategy is failing teams right now. Founders who lean behind equity hope when cash matters most will lose. Get ahead of it or risk building a castle on sand.
