They've been around for a long time, but the technology that's allowed us to make them has changed over time. Any compensation data out there is hard to come by. Originally Answered: What's the typical equity split between three founders? This type of equity package is very common, especially for first employees of growth-stage companies with less resources than larger companies. Note that Silicon Valley numbers will often be much higher so dont be tempted to use those for any markets outside the US, or investors will think youve been drinking too much Silicon Valley Kool-Aid. If you look online, you'll find that the most amount of equity being offered to early employees is around 2%. This can range from 0.1% to 6%, depending on their role and how early they join the company. The number of shares or options you own divided by the total shares outstanding is the percent of the company you own. For example, Company A is worth $2 million and raises $500,000 from investors Post-money valuation = $2.5 million ($2m pre-money valuation + $500k) An employee in a certain position was given 0.6% ownership initially. $6M is almost a big seed round, and 0.1% in Series-A is for junior employees. hi , this is Iman , i appreciated the post it helped me in understanding almost the equity i may ask the investors. Alternatively - a vesting cliff and a vesting schedule can be used in conjunction. I would also adjust the numbers down if the company has received professional investment from a venture capital firm or a strategic partner. VCs and investors will usually say you should plan to raise enough to last 1218 months before you need to raise money again. All three questions are mathematically intertwined, so there are two approaches you can take:a) Decide how much money you want to raise, and go forward from there; orb) Start with how much of your company you want to sell, and work backwards. Following up from my previous post on how startup equity actually works (and clickbaitingly titled Why you will never get rich from working in a startup), this post will put together some math around how much equity you should ask for when you are joining a startup. Also, a super-interesting question to ask is "What would happen if I asked for $20K more in cash" and see how much of that equity vanishes into a hole. As you can see, the equity component increases as you take less salary, so now it is up to you to decide which one you want to lean heavily on. Is it based on experience or some data? Valuation: 1M-2MYouve launched (congrats!) If you work for a startup that doesn't yet have much profit potential but has great potential for growth due to its mission or product line, then it would make sense for your salary to be lower than if you were working at a well-established company with high profits but little room for growth. ), but if youre new to the industry, understanding how much to ask for in any given opportunity might be somewhat of a mystery to you. It sounds nice, unfortunately it's an incredibly unlikely scenario. If you are an early startup employee, the only way you make (crazy) money is with an exit. These parameters weren't plucked out of thin air. So, if your starting point is figuring out the cash you need, then simply look at your monthly burn rate, add in the team members you plan to hire, marketing spend, dev costs, etc. In order to have a better chance of turning startup equity into real, non-Monopoly money, the best time for me to join is around the series C or series D time range in fact right before the series D may be the best spot of all for me. So that gives us a salary plus overheads of 90k, which is 90,000/2,000,000 = 4.5%. Convertible Note Calculator Hi Mithun, I'd love to introduce you to the Slicing Pie model. By that point, she had founded or cofounded several venture-backed startups (shes up to five). Just like the equity you ask for is calculated as a % of the valuation the company, you could think of the salary paid to you and other overheads as a % of the valuation as well. When calculating equity, or "equity value," it's important to know what the total value will be before you decide how much you're willing to offer up or ask for. Want to attend Free Workshops with SeedLegals in London? Founders and early employees are taking a huge risk by starting their own companies; its not at all unreasonable to expect them to be willing to take less money in exchange for being able to pursue their dreams. As you would imagine, this isn't an exact science, but I do have some ballpark figures to guide my own judgement. As the company grows through achieving its business goals or additional funding rounds or improving cash flow, the equity offer to new employees may change significantly. It should also be realized that equity needs to be distributed. How much equity should a CFO get in a startup? VPs of Sales and CROs that "asked" for 1% a few years ago sometimes ask for 3%+ today. Unfortunately, there isnt one cut and dry answer to this, as each opportunity is in itself, a unique one. Enjoy! First, there are many different types of companies; some are more likely to succeed than others. Why you will never get rich from working in a startup. Listen to the audiohere. 33.3%-33.3%-33.3% is typical. There are two types of CFOs: outward-facing and inward-facing. #tech #start 2,920 4 11 Nov 20, 2020 70% of the 1000 companies that were seed funded in the 2008-2010 timeframe had no exit. Great book. What stake an employee deserves depends on a range of factors, from skills to seniority and employee badge number. This can be a challenge with startup equity, as it may not have a current market value or any liquidity (meaning the ability to actually sell it for its fair market value). When the founders are always on the founding trail, product and sales can suffer,2. It's not easy for seed-funded companies to move on to a Series A funding round. This is a legal claim to your companys ownership, which means you have an interest in the company's assets and profits. Factors to consider: Incentives and long run, Focus: Amount of capital invested equity stake is less relevant. Now multiply this by the number of months runway you need. Whats the experience of the person coming over? In a series A round, founders are advised to give up around 20-25% of equity to investors. Lets take the total amount that the company spends on you to be 1.5x your salary (including overheads etc). My personal favorite early startup employee story is Doug Edward's "I'm Feeling Lucky", which documents his experience as Google employee #59 (stock options and all). Keep in mind, after two rounds of funding with standard dilution, your Board members 1% ownership is likely to be closer to 0.50% or 50 basis points or BPS. Founders tend to make the mistake of splitting equity based on early work. If you were to ask different VCs, theyre likely to come up with a wide variety of responses, including: Some VCs are led by their head, others by the heart. As a rule of thumb, a non-founder CEO joining an early-stage startup (that has been running less than a year) would receive 7-10% equity. Is this employee #5 were talking about or employee #25? asks serial entrepreneur Joe Beninato, who has founded or cofounded four startups and worked at another four. The guide also identifies landmines to avoid and breaks down the equity ownership of a pair of sample companies whose employee pools range from 9% to 20%. Youll know when you get there. Also, remember that salary and equity are both exchangeable and negotiable -- you may be able to get more equity for less salary and vice versa. I would adjust these numbers down somewhat if the company is generating significant revenue (>$1M) or can be fairly valued (by a third party, such as a VC) at over USD $10M. It's different from preferred stock, which usually goes to investors. Of those companies, 10 went on to reach Unicorn status, and 7 exited before raising a Series E. This means that there was a ~28% success rate (financially) for those who joined those Series D companies. Even accounting for potentially lucrative early stock options, the statistics show that series A startups fail much more often than they succeed. Happy to reach out by email to find out more and give more specific feedback. Over time, founders will need to tinker with the option pool as everyones shares are diluted with each venture round. Gap Year : UCI 1 Posted by u/Kevinzhu123 2 years ago Gap Year Hi. Shishir Gupta from our community weighs in on how much equity to give to the "right investor": "There is no set standard, the amount of equity will depend upon the valuation and amount raised. 2) What percentage of the company should I sell? Something to note before hopping to the top table too soon. This blog is the story of my financial journey. Most significant venture capital firms seek a 20% stake in each deal. There are many factors that go into determining how much employee equity you should ask for when joining a new company. It can be distributed in the form of stock options or shares. Indeed, in many circumstances, the timing of an employees decision to join has a disproportionate impact on how much equity is offered. Shares and stock options are both forms of equity. You may find her singing in her car, cleaning things as stress relief, or using humor in uncomfortable situations. Active Series B Investors. Series A funding is generally much more significant than the funding procured through angel investors, with funds of more than $10 million usually being procured. Of course, for the Series E the numbers were even more impressive with 50% of the class ending up in the Unicorn group. Tweet. In my opinion, later stage startups are a much better balance of risk and reward, with a similar depth of experience and culture that people are looking for at startups. In the very early days, employees are often paid more than founders / senior executives. As the company looks less and less like a startup, fewer and fewer startup equity grants will be given. In 2021, seven years after she first started making content, Allison Florea quit her corporate job. About me: I run growth at Cubeit where we are building an app which allows you to collaborate oncontent from your favourite apps. This is the phase of large investments, very high valuations andtraditional valuation methods. I say shoot for no less than 15%. would appreciate really your answer. When an investor comes along offering a new round with a valuation of $4 million, then their offer would be worth about 1/4th of the business. 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