Stock comp is a bill that comes due. Start thinking about it now
April 2026
Alline Akintore
A few weeks ago stock-based compensation (SBC) in tech companies was having a moment in the spotlight. In March after Nvidia’s decision to stop excluding SBC expense from its earnings, investors began calling out public software companies for equity spending that has ballooned out of proportion with the rest of corporate America.
For background: the median software company in the Russell 1000 spent 13.8% of revenue on SBC in 2024; compare that to the median of 1.1% across all industries. For example, Snowflake’s SBC was 34% of revenues last year, down from 41% of revenue in the prior year, as they work toward modest long-term targets.
If you're running an early stage startup, this might seem like a public company problem or one that you won’t have to think about for a while. Not true. It is an aspect of company building that you need to be thoughtful about, ideally from early on.
Equity culture compounds: The SBC norms you set at Series A don't reset with an exit. If your team is accustomed to generous grants during hypergrowth, any attempt to rationalize equity later, even as part of an exit, could create retention problems. Worth remembering that the companies now spending years unwinding bloated SBC programs didn't plan to end up here.
Just like with a venture investment, in an acquisition, your cap table is the negotiation: When you’re fundraising, every round is a negotiation over ownership, and this is equally true when you’re eyeing a liquidation event. A cap table that shows discipline signals operational rigor; given that most startups exit via acquisitions (and not IPOs), if you’re acquired, a bloated equity structure comes with headaches.
Obviously as a target there is more to the picture than your cap table but, a disciplined equity structure where grants are right-sized, vesting schedules are thoughtful, and concentration aligns with the people an acquirer actually needs to retain, makes you a cleaner, more attractive target and puts you in a stronger negotiating position.
The market is repricing around this: With AI uncertainty already weighing on software valuations, investors are scrutinizing SBC more aggressively than at any point since the post 2020 boom. Of note, that scrutiny isn’t confined to public markets; it filters into how late-stage and growth investors underwrite your company, and into how acquirers model the true cost of a deal. This is not surprising: SBC shows up as a non-cash expense on your P&L but to call it non-cash is a bit of a misnomer. Going back to Snowflake: the company spent 78% of its free cash flow on share buy backs to offset dilution from equity grants – cash that isn’t funding product or growth, and investors and acquirers are sensitive to that.
There is obviously a lot to unpack on this subject but if you are building an early stage company, if you take anything away from this let it be this: treat your equity pool like the finite expensive resource it is. Public companies learning this lesson painfully right now are giving you a free look at the road ahead, regardless of the exit path you’re building toward.
If you’re an early stage founder in Oregon or Southern Washington, looking for a thought partner on this topic, please reach out to me Alline@OregonVentureFund.com or Deepthi@OregonVentureFund.com.