# Annual equity report 2022 Author: | Read time: 22 minutes Published date: December 1, 2022 ## Overview The startup ecosystem is a massive engine of financial power and opportunity for founders, employees, and investors. But not everyone has had the opportunity to participate in this ecosystem. We partnered with [#ANGELS](https://hashtagangels.com/the-gap-table) in 2018 to report on equity distribution. Every year since, Carta has been committed to creating a new report and to gathering the brightest minds in venture and entrepreneurship around the need to close this gap. We have an opportunity to expand that ecosystem, together—to bring more ownership opportunities to more people. With more than 30,000 companies and over $2.5 trillion in assets on the Carta platform, we have a unique window into a massive dataset about startups and venture capital, and an opportunity to increase transparency. It is only by knowing who makes up this ecosystem— _who gets equity compensation? Who is founding companies? Who has the chance to invest in venture funds and startups?_—that we know who is left out of these opportunities for ownership, and how we can change that, together. ### What’s new this year For the first time, we’re able to share expanded geographic data—to see where in the United States people are more able to participate in the startup and venture ecosystem, and how various metro areas compare. We’re also able to look at parenthood, how it affects employees and founders, and how the impacts vary by gender. When it comes to gender, we were able to expand this year to include data about nonbinary people. Although our sample sizes weren’t sufficient to include this group in every gender metric, we’ve shared this data wherever it was possible. We looked at investor demographics for the first time, including the geography of venture capital firms, and the gender, race, and ethnicity of limited partners. Finally, this year we are able to glimpse beyond traditionally venture-backed companies. While the rest of this report looks at corporations that issue stock shares, there are also more than 2,000 limited liability corporations (LLCs) on the Carta platform. LLCs have different geographic and industry patterns than traditional corporations, and are increasingly issuing LLC-specific types of equity on Carta. We’re thrilled that more types of businesses are embracing the ownership economy, and we’re glad to begin to include more company types in the report this year. ## Employee ownership Throughout this report, we analyzed equity value using notional value, defined as the fair market value per share at the time of the grant multiplied by the number of shares in the grant. We’re using this metric because our focus is on how companies choose to reward employees. This metric does not reflect the uncertain and potentially much higher value that an employee may eventually be able to realize from their equity, which depends on the trajectory of the company’s valuation and opportunities for liquidity. ### Where do employees get equity? Silicon Valley still grants the most equity to its employees. We looked at the makeup of compensation packages and compared the notional value of each employee’s first (or initial) grant of [stock options](https://fund-forecasting@carta.com/learn/equity/stock-options/), which typically vest over four years, to their annual salary by metro area. San Jose had the highest median ratio, with the average employee receiving an initial equity grant whose value was 0.14x their annual salary. With a median salary of $150,000 in San Jose, this would be a notional value of $21,000. In contrast, Atlanta had the lowest median ratio, with the average employee getting an initial equity grant that was 0.06x their annual salary. The median salary in Atlanta was $100,000, and 0.06x this amount would be $6,000, for notional value of equity. A number of cities (Miami, Boston, Washington, DC, Seattle, Salt Lake City, San Diego, and Denver) saw an increase in the ratio of equity to salary when comparing 2019–20 to 2021–22. ### Who gets equity, by race and gender? When looking at equity grants by demographics, we zeroed in on what’s happening this year. While Black and Hispanic & Latine people make up 30% of the [U.S. labor force](https://www.bls.gov/opub/reports/race-and-ethnicity/2019/home.htm), only 16% of equity-receiving employees in 2022 are Black or Latine. Collectively, these Black and Latine employees were granted only 9% of the total notional value of initial equity grants. Despite [efforts to improve racial parity](https://www.cnbc.com/2021/06/06/tech-industry-2020-anti-racism-commitments-progress-check.html) in tech, especially since 2020, these numbers have not budged much since [last year](https://fund-forecasting@carta.com/data/equity-report-2021/). In contrast, 61% of the U.S. labor force is white. This group comprises 60% of employees who were granted equity, and they collectively received 70% of the total value of initial equity grants. East Asian and Southeast Asian employees make up 4% of the workforce and 12% of those granted equity in 2022. Meanwhile South Asian people are 2% of the workforce and 4% of those granted equity. Unlike with white employees, the proportion of notional value granted to Asian employees—17%—was consistent with the percentage of those granted equity at 16%. The percentage of new hires self-identifying as Indigenous American, Middle Eastern, Pacific Islanders, and mixed backgrounds are grouped together here as “Other” because their numbers are too few separately. Women receive less equity compensation than men do. While women make up 47% of the U.S. labor force, they comprised just 36% of equity-receiving employees in 2022. Collectively, they received 28% of the notional value of initial equity grants. ### Parenthood The [well-researched pattern](https://read.dukeupress.edu/demography/article/58/1/247/167586/Motherhood-Penalties-and-Fatherhood-Premiums) of men with children seeing a “fatherhood premium” in salaries also holds true with equity compensation—fathers tend to receive a bump in equity compared to childless employees, in data from 2020-2022. Mothers, however, earn equity at rates similar to non-parents. This data reflects those who hold roles at equity-granting companies, and does not capture the experience of those who may have [left the workforce](https://www.uschamber.com/workforce/data-deep-dive-a-decline-of-women-in-the-workforce) or shifted into roles that don’t grant equity after becoming a parent. ## Hiring ### Who’s being hired by startups? From 2018 to 2022, the percentage of new hires who are Black increased from 6% to 8%, with slightly more Black women than men hired. These numbers remain substantially less than the 12% that would be expected if hiring aligned with the overall U.S. labor force. The percentage of new hires who are white has stayed consistent over the past few years, tracking closely with the 61% of the overall labor force that is white. There has been more change over time in the racial makeup of new hires at the entry and mid levels, as compared with more senior levels. In 2018, 6% of employees at the entry and mid levels were Black. By 2022, this number was 11%. In contrast, at the executive and director levels, the percentage of employees that are Black went from 3% to 4%. Latine employees have seen a smaller increase at the entry and mid levels, going from 9% in 2018 to 10% in 2022. This chart looks at new hires by level in 2022. The rectangular outline is the overall distribution of hires by level—of all employees in the dataset hired this year, 14% were entry level, 27% were mid level, and so on. Only 8% of new hires were at the executive level. However, if we look at startup workers of each race and ethnicity separately, this distribution by level looks quite different. Black men and women were both underrepresented at the executive level. While 18% of 2022 hires who are Black were women at the entry level, the percentage of women executives among hires who are Black rounds down to 0%. The opposite trend is true for white and South Asian men. Both groups had a greater percentage of hires at the executive level than they did at the entry level. Among new hires in 2022 who are white, 6% are men at the executive level, and 5% are men at the entry level. Among new hires who are South Asian, 6% are men at the executive level and just 2% are men at the entry level. Over the past five years, early-stage companies have seen some movement in hiring Black and Latine employees—although, like companies at all stages, these groups are still underrepresented relative to their numbers in the U.S. labor force. In 2018, 5% of new hires at pre-seed and seed-stage companies were Black and 7% were Latine. In 2022, those numbers were 7% and 10%, respectively. Black and Latine hires constituted 17% of hires at Series A companies and 18% of hires at Series B companies this year, compared to 13% and 14% in 2018. Between 2016 and 2019, there were slight improvements in gender parity in hiring in engineering, a field often dominated by men. However, hires of women have plateaued at about 20% for the last three years. The high point for hiring was in 2019, when women were 22% of engineering hires. Human resources and marketing consistently hired more women than men from 2016 to 2022. Marketing saw increasing representation for women over that time. In 2016, operations hires were 41% women; in 2022, women were 51% of hires. Product hires went from 32% women in 2016 to 49%, and sales went from 25% to 35%. ## Employee option exercising Employees who receive equity compensation in the form of stock options must choose whether or not to exercise them, meaning to buy their stock at the [strike price](https://fund-forecasting@carta.com/learn/equity/stock-options/strike-price/) they were offered. There are many reasons an employee may choose not to exercise their options. Some employees may not have easy access to the cash they need to purchase options or the financial flexibility to have a significant portion of their net worth locked up in private market stock. ### Who exercises their options? More than half of entry-level employees did not exercise any of their in-the-money options. Outside of the entry level, the majority of employees exercised at least some of their options. There was a dip between directors and executives when it came to exercising all of their options, possibly due to the much larger size of grants to executives, making fully exercising more expensive. Across most race and ethnicity groups, men exercised their in-the-money options more than their women counterparts did. Overall, 45% of women who shared their gender with us fully exercised their in-the-money options, compared to 52% of men. (Note that exercise rates are somewhat higher among people who have completed their demographic profiles on Carta; overall, including people who have not shared demographic information with us, 46% exercised all of their in-the-money options.) ## Founders ### Race and ethnicity White men founded nearly half (48%) of all companies incorporated in 2021 and 2022. The gender imbalance in founders of all races and ethnicities (represented by the colored bars) was greater than it was for employees hired in this timeframe (represented by the box outline). There are more founders who are Black, Latine, East Asian, South Asian, and “Other” in younger populations. The percentage of white founders rises from just over half of those in their 20s to over three-fourths of those in their 60s and 70s. There’s a gap between founders and equity-receiving employees by race and ethnicity in some metro areas. In Boston, 6% of employees hired in 2016-22 were Black, compared to 3% of founders of companies incorporated in this same timeframe. In Los Angeles, 11% of employees were Latine and 8% were Black, compared with 5% and 4% for founders, respectively.In Washington, DC, 4% of employees were South Asian, compared with 9% of founders. ### Gender The large majority of founders are still men. In the last six years, there has been little change in the percentage of founders who are women, ranging from 13% in 2016 and 2017 to 15% between 2018 and 2020. Men made up 86% of founders who incorporated their companies in 2022. The gender balance of founders varies by industry. The most women founders are in education and health tech; the fewest are in the gaming industry. Even in the most-represented industries, the percentage of women founders was still under 25% in 2022. #### Gender and co-founding teams When there’s a solo founder, the equity split is simple: That founder gets 100% of all founder equity. With more co-founders, the split isn’t always equal. It can be impacted by factors such as job area, experience, and time spent at the company—as well as bias and differences in negotiation style. For founding teams of almost all sizes, women tend to receive less equity than men. This only evens out in cases of six co-founders. ## Investors We analyzed venture capital investment by looking at general partners (GPs)—who run venture capital funds and decide which companies to invest in—and limited partners (LPs) who contribute money to VC funds. GPs often invest their own money in the fund as well as deploying the investments of LPs. The majority of individual limited partners are white men. Overall, 86% of LPs are men and 14% of LPs are women. Seventy percent of LPs are white. Investors are largely concentrated in major metro areas. About one-third of all investors (37% of GPs and 30% of LPs) are in either New York or San Francisco. Women LPs invested in smaller funds than men in 2021–22. On the lower end of investment, men and women invested similarly: The 25th percentile of fund size was similar, at $8 million for women and $9 million for men. The median fund size that women invest in was $15 million, compared to $22 million for men. The 75th percentile for investment by women was $35 million; it was $48 million for men. ## Methodology The Annual Equity Report includes data from more than 1.5 million U.S.-based employee stakeholders who have been issued equity via the Carta platform and over 67,000 founders of corporations who manage their company equity on Carta. Our data on LLCs reflects more than 2,400 LLCs on the Carta platform who use either our core cap table or LLC product. ### Sample sizes We cover analyses only where we have sufficient data. From the point of view of ensuring anonymity, each data point must be backed by at least five entities (people or companies, typically) in order to be included. However, in most cases we have and require much more data than that to reach statistical significance or produce a legible pattern or trend. ### Valuing equity The notional value of an employee’s first equity grant, sometimes shortened to “equity value,” is calculated by multiplying the strike price by the total number of shares in the grant the employee was initially awarded in their role. It is different from the value that the employee may eventually be able to realize from the equity, which is largely driven by opportunities for liquidity and the price an employee is able to get when they sell. This “equity value” allows us to compare the relative amounts that companies have offered to employees by demographics, geography, or job role and level. Because this number is generated when the equity is first granted, it allows us to compare equity compensation sooner than if we waited for the equity value to mature over time. Equity granted at earlier company stages tends to have more uncertainty in its future value, which is reflected in lower strike prices in equity grants issued by early-stage companies. The notional value of equity as we are using it does not reflect any variance in the hypothetical possibility of upside between earlier- and later-stage companies (where the growth curve may be steeper the earlier one joins a company, but the attendant risk is likewise different). Nonetheless, we find this metric helpful to compare how companies are choosing to compensate different groups of employees by role, demographics, and location. To estimate the profit that employees may have realized when exercising their shares, we use the net exercise value, or the difference between the fair market value at the time of exercise and the strike price. We also call this potential profit “paper gain,” as it exists only on paper and may continue to change until the stakeholder is able to access liquidity.