While startup equity can vary from company to company, there are some general rules that apply to all founders. Startup equity packages are typically expressed as shares, so if you are offered 50,000 shares, this doesn’t mean you’ll own 50% of the company. It’s best to ask the company how many shares they actually have outstanding. This will make your equity package clearer. If the company doesn’t specify an equity percentage, ask how much the equity will be over the course of the next three to five years.
In the early stages, founders should be the first priority when deciding how much startup equity to give each partner. Founders will almost always receive 60% of the company’s equity, but their partners may have contributed ideas or intellectual property. When determining who will receive what percent of the startup, you should look at the founders’ contribution to the company’s growth and the expected value of each person’s share. Startups are still growing and their base teams are likely to be much smaller than those of the nearest competitor.
The startup equity you receive from venture capitalists is usually expressed as a percentage of the company’s stock. Startups often have no liquid assets when they launch, so equity is important for those seeking funding. The more equity you have, the more you’ll be able to attract outside investors. Besides raising money for a startup, you can also get help from friends, family, and even mentors. Ultimately, your startup equity will determine how much money you make. But the more you contribute to its success, the more value you’ll have.
When you’ve chosen the number of co-founders and the amount of startup equity you’ll receive from them, it’s time to divide the equity among them. After the co-founders, you’ll need to split the remaining equity with third-party investors. However, remember that the investors take the biggest risk when investing in your startup, so they deserve a large percentage. There’s nothing wrong with splitting startup equity with third parties. If you’re unable to raise the required funds, you can ask your friends and family to invest a portion of their own money, as long as they’re willing to make a small equity investment.