The Top 3 Considerations You Need to Effectively Manage Equity Burn Rate

Pave Data Lab
April 17, 2024
min read
Pave Team

Over the past few years, a volatile market and drastic changes in company valuation have made it difficult for companies to have a clear perspective on their equity strategies. At Pave, we’re committed to helping compensation leaders make decisions with more confidence. One key way comp teams at late-stage private and public companies can do this is by having an informed, clear strategy on how they’re managing equity burn.

Today, Pave is excited to announce Equity Burn Benchmarks. Comp leaders can now find real-time data on equity burn, from both public and private companies, in the Pave platform. This data provides a basis for justifying decisions about equity burn and how it impacts overall compensation strategy. 

Understanding Equity Burn

Equity burn refers to the rate at which a company's equity is being allocated and distributed among its employees and executives. It's a critical metric for compensation teams to monitor, as it directly impacts a company's financial health and how it’s perceived by stakeholders—like boards, comp committees, and employees.

Introducing Equity Burn Benchmarks

Pave’s new Equity Burn Benchmarks, a feature joining our Advanced Equity capabilities, allows teams to understand industry standard burn rates and how their burn compares. Teams can view relevant benchmarks by filtering for specific company stage, industry, grant type, and recipient. Ultimately, they can ensure that their equity compensation remains competitive without distributing more equity than what the market demands for talent.

With real-time Equity Burn Benchmarks to compare against, comp leaders can build an optimal equity strategy that’s in line with the market, and back it up with reliable data.

3 Questions to Consider When Managing Equity Burn 

With Equity Burn Benchmarks, comp teams can uncover the most important insights to evaluate when determining the strategy that’s best for their company. 

1. How is your burn trending relative to capital raised? 

Data in Pave show that equity burn tends to steadily increase as capital raised increases. This is because the percent of equity per grant decreases significantly as a company grows, but is then outweighed by the dramatic increase in the number of grants issued. 

In other words, as a company grows, the growth in number of employees outpaces the increase in fully diluted shares, resulting in a slightly positive relationship between capital raised and equity burn rate.

Use Equity Burn Benchmarks to filter directly against Capital Raised, or other Company Stage data points, to better understand the market landscape for burn at comparable companies.

2. How is your hiring rate influencing your burn rate? 

Hiring growth is one of the most significant drivers of equity burn. During years of high employee growth—over 30% headcount growth, according to Pave—equity burn increases significantly, driven by new hire grants. In this scenario, over half of a company’s equity burn can be attributed to new hire grants.  Balancing equity burn across new hire and refresh grants is crucial for managing growth effectively.   

With this in mind, Equity Burn Benchmarks can help analyze market burn rates across new hire and refresh grants, to understand your own burn breakdown relative to the market. 

3. How is equity split between executives and employees? 

Our data show that the percentage of equity allocated to executives versus employees tends to grow as a company scales. Striking the right balance between executive and employee equity allocation is essential for managing burn rates. On the one hand, as companies scale, it’s crucial for executives to feel like they have skin in the game. On the other hand, spending too much or too little on execs can have a significant impact on a company’s burn rate. 

In Equity Burn Benchmarks, comp teams can dive into burn distribution between executives and employees, with filters for company size, valuation, capital raised, and revenue.   

Demystify Equity Strategy With Real-time Burn Data

With Equity Burn Benchmarks, comp teams can uncover the most important insights to evaluate when building their equity strategy. With these insights, companies can ensure that their equity programs remain competitive, sustainable, and aligned with growth goals.

Make informed, data-backed decisions about burn with Equity Burn Benchmarks. Schedule a demo today.

Learn more about Pave’s end-to-end compensation platform
Pave Team
Pave Team
Pave is a world class team committed to reinventing the world of compensation and help build a more transparent future of work.

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