Startup Funding Espresso – Best Practices for Equity

Best Practices for Equity

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Equity is a key component of startup compensation for founders and employees.

While cash may be king in the short term, equity will be worth more in the long run.

Here are some best practices for founders to follow:

Treat equity as the scarce commodity it is and deploy it strategically and carefully.

Avoid using equity for short-term goals such as upgrading websites or purchasing inventory.

Consider alternative forms of funding for anything related to cash flow and inventory.

Set aside equity to compensate the team and take on potential investors.

While it dilutes the founder, it gives the company the capability to grow larger.

A smaller percentage of a big number is better than 100% of a very small number.

Align your compensation with the employee's needs. 

Know who on the team values equity and will work for it and who prefers cash.

If equity is not worth it to them, then reduce their equity share and give it to others who find it motivating.

Map out your equity ownership through subsequent rounds of funding.

It’s important to know how much equity you are giving away on each round. 

By running a fully diluted cap table on each terms sheet you plan to use, you’ll know how much that raise will cost you.

Consider these points in managing equity for your startup.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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