Your first three hires are different from every hire that follows. They join when there is no product, or when the product is barely working. They accept salaries that are probably below market. They take a real risk that the company might not exist in 18 months. And they set a precedent: the equity grants you give these people become the baseline that all future employees will compare themselves against, whether or not you share those numbers publicly.
Getting this right matters for two separate reasons. It matters for the first three employees themselves, because they deserve to be compensated fairly for the risk they took. And it matters for every subsequent hire, because the structure you establish now will constrain your options later. An overly generous first round of grants can lead to dilution problems before your first fundraise. An overly stingy first round creates resentment and retention risk precisely in the people who are most critical to your survival.
How to think about the size of an early-employee grant
There is no universal right answer for how much equity to give a first employee, but there are anchors that help frame the question. One useful anchor is: at the stage you are hiring this person, what percentage of the company are you willing to say "yes, this person should own that much of the outcome if the company succeeds"?
At the seed stage in Japan's startup ecosystem, early engineering hires at founding-team-adjacent startups typically receive somewhere in the 0.5 to 1.5 percent range on a fully diluted basis, depending on seniority and how early they are joining. Non-technical early hires who are genuinely critical to the business, a first sales leader, a first product designer, a first operations hire who keeps the company running, often land in the 0.25 to 0.75 percent range. These are not rules. They are data points from actual early-stage hiring conversations.
What you want to avoid is anchoring to a specific percentage and not thinking about what that percentage will represent after future dilution. A 1 percent grant today, at a seed-stage fully diluted cap of 10 million shares, will be 0.6 percent after a priced financing round that creates 6.7 million new shares. If the person understood they were getting 1 percent of the current company and not 1 percent of the final outcome, the conversation at the time of fundraising may be uncomfortable.
Zeisei-tekikaku considerations for first grants
For a Japanese startup issuing stock options, the zeisei-tekikaku qualification requirements apply from the first grant. There is no grace period or simplified process for early-stage companies. The statutory requirements under Article 29-2 of the Sozei Tokubetsu Sochi Ho apply regardless of how small the company is or how informal the team culture feels.
The most important requirement for a first grant is setting the exercise price correctly. For an unlisted company, the fair market value at grant date must be determined through an approved calculation method. Setting a low exercise price because it "feels" right for an early-stage company is not sufficient. If the exercise price is below the calculated fair market value, the grant does not qualify for the favorable tax treatment, and the employee will owe income tax at exercise rather than capital gains tax at sale.
For a company that was just incorporated and has essentially no assets, the fair market value calculation may produce a very low per-share value, which means a low exercise price is also the correct one. But this calculation needs to be documented, not just assumed. The documentation protects the company in any future due diligence process and protects the employee if the tax treatment of their options is ever questioned.
Setting precedent carefully
The grant structure you use for your first employees will be visible to every subsequent employee you hire. Even if you maintain confidentiality about individual grant sizes, the general terms, vesting schedule, exercise price at the time of hire, and option pool percentage, will become part of your company's equity culture. If employee 4 joins six months later at a higher exercise price and a smaller grant than employee 1, they should be able to understand why, and the explanation should feel fair.
This means thinking through the coherent logic of your equity program from the beginning, even if you do not formalize it into a written compensation framework until later. The logic is something like: employees who join earlier, when the risk is higher and the exercise price is lower, receive larger grants. Employees who join later, when the product is more proven and the exercise price reflects a higher valuation, receive smaller grants. Seniority and role criticality also factor in. That logic, applied consistently, produces outcomes that feel fair even when specific numbers differ.
What to include in the offer conversation
When you make an equity offer to your first employees, the conversation should cover five things clearly. First, how many options are being offered and at what exercise price. Second, the vesting schedule including the cliff. Third, the total fully diluted share count and what the grant represents as a percentage. Fourth, the exercise period and the two-year minimum under the zeisei-tekikaku regime. Fifth, that the options are designed to qualify for zeisei-tekikaku treatment, what that means for the tax outcome at exercise versus sale, and that this qualification depends on the company maintaining compliance with the statutory requirements.
That last point deserves emphasis. You are making a representation to your employee that these are tax-qualified options. Maintaining that qualification is an ongoing obligation for the company. If the company ever issues a grant in a way that retroactively disqualifies prior grants, or fails to maintain the required documentation, the tax treatment that the employee was counting on changes. Being clear about this from the beginning sets honest expectations and makes clear why the administrative compliance matters.
First grants and the option pool
Before you make any grants, you need to know how large your option pool is. In Japan, the option pool is typically established as part of the articles of incorporation or by a separate board authorization to issue stock acquisition rights (shinkabu yoyakuken). The pool size determines the upper bound of how much equity you can grant without additional shareholder approval.
A common approach at the seed stage is to reserve 10 to 15 percent of the fully diluted shares as an option pool before the first external fundraise. This gives you enough room to hire a core team and still have options available after a fundraise. Setting the pool too small forces you to go back to shareholders for approval every time you want to make a new grant, which adds friction and signals to potential hires that equity is scarce.
The first grants you make will come out of this pool. Budget them accordingly: if you are planning to hire six people in the next 18 months and you want to reserve appropriate equity for each, work backward from the total pool to decide how much you can offer employee 1 without running out of room by employee 6.
