Startup Funding Espresso -- Founders Equity

Founders Equity

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

Founders of the startup receive equity to generate loyalty to the firm.

Cofounders also receive equity.

In splitting equity between the founder and cofounder, avoid the 50/50 split as this puts no one in a position to make final decisions.

There are many tough choices to make in a startup and one founder needs to take that role.

Equity should be set based on the contributions each one makes and vested over time.

Consider the following in splitting the equity:

Experience of the founder

Time commitment made

Responsibilities

Funding raised 

These are the key factors in an early-stage company.

Consider setting aside shares for employees and incentive stock options.

Initial employees receive equity after the first round of funding. 

This round of equity replaces salary which comes into play when revenue starts.

Also, consider that investors typically take 20-25% of the equity in each round of funding.  

This dilutes the founders and early employees.

Capture the decisions in writing and consider setting up a cap table as a proof of record.

 

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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