Founder Dilution

A VC : Venture Capital and Technology

I’ve written a bunch on this topic and here are two posts that address this exact issue: Founder Dilution – How Much Is “Normal”? Employee Equity: Dilution. In both posts, I lay out how the equity gets shared with employees and investors as the company grows and scales. The equity split at 20% for the founders will typically be; 20-25% for the management team, 20% for the founders, and 55-60% for the investors (angel all the way to late stage VC).

How does equity dilution work for startups?

Gust

Equity dilution works when the same pie is divided among more people. Over time, other people receive pieces of equity in exchange for work (employee stock options), money (seed, angel and venture investors), services (attorneys, directors, etc.).

Trending Sources

Mathematical vs. Economic Dilution of Startup Equity: Thinner Slices of an Extra-Large Pizza

Gust

Let’s get right down to business: Dilution of founders’ and other early shareholders’ equity in startups is frequently a subject of intense interest and debate. That’s the concept of what some call mathematical dilution.

Understanding How Dilution Affects You at a Startup

Both Sides of the Table

Dilution. million pre-money valuation, which is a $10 million post-money) you get diluted by 25% (2.5m / 10m). But understanding how you’re likely to get diluted over time is a more difficult concept. So here is our crack at explaining the world of dilution to you.

Non-Dilution Rights are Wrong

The Startup Lawyer

I hate non-dilution rights and if you are an entrepreneur you should, too. I’m not talking about price-based anti-dilution protection that is typical in an angel or VC round. What I’m referring to is a right given to a particular stockholder so that such stockholder’s equity in the company is not diluted by any future issuance of stock — regardless of the price. Startup Issues non-dilution startup

How to Divide Founder Equity: 4 Criteria to Discuss

View from Seed

Editor’s note: Understanding how to divide founder equity at a startup can be tricky, even to the point of reaching emotional riffs between founders. Below, Lee Hower offers advice for approaching these equity discussions objectively and properly.

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Dividing Founder Equity in the Very Beginning

Andrew Payne

I’ve probably had a thousand or more discussions about startup equity: figuring out how much to offer, negotiating, or advising others. In practice, most equity grants within a company are driven by broad calibrations with existing employees. Five percent might feel fair in a particular situation for a near-founder post-funding, but how much is that pre-funding, with unknown dilution?

Punch & Pie: How Should Co-Founders Divide Equity?

Agile VC

As a result, one of the trickier things co-founders tackle is determining the equity split amongst the founding group of individuals. Sometimes co-founders put off the equity split question for some time. Both of these are typically reflected in the founder equity split.

Visualization of Startup CTO Equity and Salary Data

SoCal CTO

A long-time friend and colleague, Steve Wexler, who is great at visualization took my Startup CTO Salary and Equity Data and produced a really need interactive visualization via Tableau. Of course, as you would suspect, equity percentages dilute based on years in business.

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How To Allocate Founder and Employee Equity

A VC : Venture Capital and Technology

Before factoring in dilution from investors, the founders should end up with about 50% of the company, total. It never makes sense to give anyone equity without vesting. The thing I love the most about Joel's post is he throws darts into a lot of conventional wisdom about founder equity allocation. I particularly like his notion that the person with the idea should not command a premium on equity allocation.

How to Divide Equity to Startup Founders, Advisors, and Employees

thinkspace.com

How to Divide Equity to Startup Founders, Advisors, and Employees. The part that I’d like to zero in on is when you’ve got a high growth company what are some of the best practices out there to distribute equity to the founders, advisors, and employees? Equity for Founders.

Visualization of Startup CTO Equity and Salary Data

SoCal CTO

A long-time friend and colleague, Steve Wexler, who is great at visualization took my Startup CTO Salary and Equity Data and produced a really need interactive visualization via Tableau. Of course, as you would suspect, equity percentages dilute based on years in business.

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Finance Fridays: Getting Started – Allocating Equity and Founder’s Investment

Feld Thoughts

Finance Friday’s gets off the ground with today’s post by introducing you to an imaginary startup, the entrepreneurs that we’ll being following throughout the series, and their first challenges: splitting up the founders’ equity and addressing the case where one of the founders provides the initial seed capital for the business. Jane and Dick each brings a similar level of skill and capability to the business, making it easy for them to agree to a 50/50 equity split.

Founders Should Set Aside More Equity for Their Team & “Split the Pain” With Investors

Hunter Walker

Employee options pools, typically created at the point of financings, shouldn’t be treated as haggling over dilution, but rather a strategic resource that will help founders build the best team and, by extension, a more valuable company.

Startup Equity For Employees

www.payne.org

Startup Equity For Employees. 3 Dilution. 7 Salary vs Equity. The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and Im getting more calls from friends asking for help understanding startup stock (equity) offers. UPDATE: If youre a founder or near-founder, your equity terms are likely defined by the funding terms negotiated with the investors. Dilution. diluted) terms. Salary vs Equity.

Reminder: Entrepreneurs, use OwnYourVenture, an equity simulator to overcome your dilution fears or questions in no time!

Grade A Entrepreneurs

For most entrepreneurs, it’s hard to get funded, and then, when they receive a term-sheet, at the same time they are thrilled, they worry (for good or bad reasons) about dilution, often terrified at the idea that they might have been ripped off.

The Dilution Concern for Founders

Recent Buzzes - VC Experts, Inc.

There are three phenomena that trivialize even the best of investment strategies: Dilution, Dilution, Dilution.". The problem is, of course, dilution. Dilution - Dilution - Dilution. By Joseph W.

Equity Compensation at a Startup is a Big Gamble

Startup Professionals Musings

It never hurts to ask in a job interview what stock options are available, and don’t accept an offer which promises to “work out the equity terms later.” Any offers of equity compensation before the first round of institutional capital should be considered purely speculative.

Second-Class Investor Citizens: Facebook’s IPO and Dual-Class Equity Structures

Gust

As a quick review, most startups begin life as corporations with a single class of equity securities, referred to as Common Stock , issued to founders, employees, and outside service providers.

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Sorry Startup Employee #100, Your Equity Probably Won’t Make You Rich

Hunter Walker

In no particular order: Startup Equity Is Unlikely to Make You Fabulously Wealthy After Four Years Unless One or More of the Following Apply… You were a founder. Even in successful companies, most initial equity grants will be worth a few hundred thousand dollars to perhaps $1-2m, when fully vested. Assume you get.25% of a company and you’re diluted 50-75% before IPO. On the employee end they should realize there’s often a tradeoff between salary and equity.

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Deciding How Much Equity to Give - How Much is Less Important Than What It's Worth!

Small Business Force

Equity and percentage ownership has always been a lightning rod for discussion and controversy with startups and entrepreneurs. It is also less understood than it should be, with dilution and control issues being major points of concern. Often you use that very equity to do that.

How Much Equity a Technical Cofounder Should Get - Nathan Hurst's Blog

Nathan Hurst

This covers one of the most common situations I encounter: For a pre-funding web startup whose team includes only a non-technical cofounder, how much equity should an incoming technical cofounder get? 6a] Salary upon funding -0%: No extra equity for getting a salary upon funding.

Anatomy of a Term Sheet: Conversion and Anti-dilution

VC Ready Blog

NOTE: This is the sixth post in our series about standard terms in early stage equity financings. Anti-dilution Provisions. While the timing of conversion is not a very hot topic in negotiating a term sheet, the anti-dilution provision can be if the investors decide to play hardball. These adjustments are referred to as “price-based” anti-dilution protection. The anti-dilution protection provisions can, therefore, have a significant economic impact.

Pay for Publicity with Equity

Inc Startups

The price: A little equity. If they do absolutely nothing, their share is diluted. Wahooly will negotiate a percentage of equity based on the number of users it will deliver plus other factors, such as stage status, co-founder Dana Severson said.)

Is Convertible Debt Preferable to Equity?

Both Sides of the Table

Convertible debt is an investment that “converts&# into equity in the future usually at a discount to your next funding round price and sometimes has a “cap&# (maximum price). prefer equity to convertible debt): If you’re an early stage investor (e.g.

Co-founder dilution

StartupCFO

When entrepreneurs talk about dilution to their share ownership, most of the time they’re talking about dilution from outside investors. Yet, more dilution, especially early on, can come from adding co-founders which is something no one seems to talk about. Yet, they both have the same equity stake. i.e. if one of you will lead the company, he or she should have more equity than someone who will be a developer or chief architect.

Anti-Dilution Provisions - An Example

Recent Buzzes - VC Experts, Inc.

Anti-Dilution provisions can be a key negotiating point when it comes to the Deal Terms of a new round of financing, especially in the presence of a. Full Ratchet when it comes to the effects of equity % held by early investors and founders. View an example of Anti-Dilution Provisions By VC Experts Analyst Team. Down Round. Broad Based Weighted Average can be a more friendly provision as compared to.

A VC: Employee Equity: How Much?

www.avc.com

Employee Equity: How Much? The most common comment in this long and complicated MBA Mondays series on Employee Equity is the question of how much equity should you grant when you make a hire. And the amount of equity you need to grant to accomplish these hires is also an art and most certainly not a science. However, a rule of thumb for those first few hires is that you will be granting them in terms of points of equity (ie 1%, 2%, 5%, 10%).

The Dark Side of Equity Crowdfunding

Inc Startups

If your company can be cash-flow positive with one round of financing, equity crowd funding might work for you. Here''s why Many entrepreneurs are excited about the prospect of raising capital via crowd equity, courtesy of the JOBS act.

Careful about equity and options in early stage businesses

Berkonomics

For those negotiating equity allocations it covers some of the most complex issues to address in the process. Equity is divided between the founders and the business begun. An option plan should carve out an addition of about 15% of the “fully diluted” shares. Close.

Raising Financing: Convertible Debt vs. Equity

Instigator Blog

Seth Levine from Foundry Group touched off a debate on which is the best way to raise startup financing: convertible debt or equity. That’s the way you would price it for equity. When you raise the next round, they would of course get diluted. When you raise the next round, the initial investors convert their debt into equity, but typically at a discount. And I’ve spoken to others that have done so (and others that have raised money through equity.).

Strategy Roundtable For Entrepreneurs: Non-dilutive Financing Through Revenue Sharing

ReadWriteStart

And, oh by the way, we also really like the idea of the 1M/1M entrepreneurs building valuation and negotiating leverage through these business development efforts, instead of signing off large chunks of their company in form of equity early on.

How Often Do Employees Of VC-backed Startups Get Stock Options?

Ask The VC

In the previous post I talked some about “re-up grants” In some cases, especially if there is a lot of dilution from a financing, there are occasionally broad grants across all employees post financing. However, in many cases, there aren’t, and employees should expect to take at least some of the dilution from subsequent financings, especially in up-round cases where the value of their underlying equity is increasing. Equity employees equity stock options

How to calculate the equity split between co-founders in a startup

The Next Web

There are a lot of variables to go into calculating a fair equity split a startup team. So, a fair split, would be closer to 60/40 in favor of the funding founder, when diluted for the cash. How do you manage your equity split in your company?

Wenger: Presenting Option Grants to Boards

Ask The VC

Percentage size of grant fully diluted. Total size of option pool and remaining available pool (absolute numbers and percentages fully diluted). Equity board of directors equity options wengerToday’s VC post of the day is from Albert Wenger (USV) and titled Presenting Option Grants to Boards. This is feedback I give to CEOs 98% of the time after my first board meeting.

Government Grants Cost No Equity, But are Not Free

Startup Professionals Musings

A grant is not an equity investment, so the entrepreneur doesn’t have to give up a stake in the company either. To the investors, it means less dilution and lower overall risk.

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Unicorpse and The Moral Hazard of Making Unicorns

Non-Linear Growth

If that means not raising capital or raising less capital (and taking less dilution) all the better. Company Building Entrepreneuriship Growth Equity Lessons Learned Raising Capital Venture Capital growth equity moral hazard unicorn unicorpse

Dilution and Investors and Tension

ithacaVC

Here is the big problem with investors – they dilute the founders’ ownership in the company. Let’s cover some basics: It is impossible to issue stock to investors without existing shareholders (founders, employees and prior investors) being diluted. It is impossible to do a stock for stock business combination without existing shareholders being diluted. But now the diluted shareholders own a smaller piece of a larger pie hopefully.

7 Best Strategies for Maintaining Equity

Early Growth Financial Services

Of utmost concern to many entrepreneurs is how to retain maximum equity in their startups. Whether you’re funded, seeking funding, or still bootstrapping, here are some of the best strategies for avoiding dilution and maintaining maximum equity: 1. In my opinion, the best strategy for retaining maximum equity in your startup is to do milestone raises. Doing so will prevent unnecessary dilution and it allows you to get the highest possible value for each round.

Convertible and SAFE Notes

A VC : Venture Capital and Technology

Angel/seed rounds used to be done via priced equity securities, either common or preferred. Here is why: They defer the issue of valuation and, more importantly, dilution, until a later date. I think dilution is way too important of an issue to defer, for even a second. They obfuscate the amount of dilution the founder(s) is taking. As I wrote seven years ago, the cost of doing a simple seed equity deal has come way down.