How do you distribute startup equity?
Dividing equity within a startup company can be broken down into five simple steps:
- Divide equity within the organization.
- Divide equity among company founders.
- Allocate money to investors.
- Divide the option pool into three groups: board of directors, advisors, and employees.
- Create a vesting schedule.
What is the best equity split for founders?
The founder equity split should be a considered, not hasty, decision. Studies show VCs prefer uneven splits, but startups still often split 50/50. Equity splits may be renegotiated down the line, especially at large stage funding events. Dynamic split is a fair way to assert equity based on each individual’s contribution relative to the team.
How should I split equity with investors and employees?
There is no “one size fits all” strategy for distributing startup equity. Determining how to split equity among investors and later employees is fairly straightforward, but determining the equity split among founders and the earliest employees can be tricky. You can learn more about dilution and distributing equity with investors here.
What is dynamic split in equity?
Dynamic split is a way to assign equity based on what founders actually contribute with. The idea is to calculate the value of individual contributions like time relative to other members of the team. There are a number of variables like cash, important relationships with potential customers and investors, or time.
What is a fair split for a co-founder?
A fair split would be closer to 60/40 in favor of the funding founder, when diluted for the cash. The calculation for this would be the original 50/50 diluted down 20\%, which then means 40/40 for the financing, and then the one founder gets that 20\%. Key executives should get a premium stake over non-key executives.