- How to think about startup equity.
I mean, equity's amazing.
Think about it, you can have incentivized teams.
You can have investors, which is cool.
But most entrepreneurs that are starting off,
they've never done this before,
and they're probably scared they're gonna look stupid
to the investors or that they give away too much
or that they really don't know how
to approach advisers or their team
or even think about co-founders.
That's what I wanna share with you guys in this video.
When I started off, I've been building businesses now
for 15 years, but it was only two companies ago
that I actually raised venture capital.
My company that did really well, Sphere Technologies,
I bootstrap, self-funded it.
Then, I moved to San Francisco, and I want to learn
about this world of equity and venture.
So, Flowtown was my first experience.
And the same challenges
that you're probably experiencing yourself was
I didn't know how much, how do we divvy it up,
how do we think about vesting,
and I did what most people did.
I listened to all the podcasts.
I read all the blog posts.
I bought a few really, really boring books.
Holy moly.
Investor VC books, they're the most...
I don't even, I still don't understand them.
So, what I wanna share with you guys in this video
is the simplest way to think...
Again, this is the base line.
There's always variations, plus or minus, whatever.
I'm just gonna give you my thoughts on it.
There's kind of four big buckets to think about
when you're giving away equity.
One is the founders.
The second is the team.
The third are the advisers to your business,
and then, the fourth is the fun ones,
those are the investors.
They give you money to build your dream.
So, how do you think about that?
Well, number one, I really think that it's
about the co-founders thinking about...
Again, after you raise your first round,
60% is kind of what's left over so that you have to split.
If you have no co-founders, cool.
That's all yours.
If you have three co-founders,
you split up three ways, right?
Again, 60% plus or minus five to 10% is kind of the range.
The next one is the team.
You've got early employees, people that supported you,
and the way I like to think about team
is if they needed a salary to work with you,
then maybe you don't wanna be too generous with your equity.
So, typically, that pool of equity is 10% for the team.
So, if you had to pay somebody 50, 60,000 a year,
you give them a couple percent equity,
and as per traditional, one year cliff,
which means if they leave within the first year,
they get nothing.
And this is true really for,
well, it could vary with the founders, but with the team,
they leave within they don't get nothing.
Then, it's monthly vests up to four years.
So, that 2%, they don't get the first quarter of it
until the first year, and then every month after that,
they give kinda the equivalent.
So, team is 10%.
You split it up amongst whoever you have.
The third bucket is advisers,
and these are people that have knowledge
in a certain industry.
You might use their names in your pitch deck,
but they're strategic.
They might help you close partnership deals,
but the range there is giving each adviser
.1% to 1% equity.
On the very generous side, very generous side, it's 2%.
I've never personally done it.
1% was what I did.
Actually, one of my investors and advisers
was Travis Kalanick, the founder and CEO of Uber,
and we gave him essentially a half percent equity
to kind of be our quarterback in fundraising.
And just an amazing, amazing adviser,
and also investor, and obviously, entrepreneur.
But that was the way we thought about it.
So, I would say for your advisers, about 5%.
So, you've got 60% for the founders.
You have 10% for the team.
You got 5% for your advisers, and then, leftover
is your investors.
Usually, each round of funding, right?
If you raise a million dollars
on five million pre-money valuation,
you'll wanna give up about...
if you're great, 10 to 15%.
Normal is 20 to 25%,
and then, worst case is 30 to 35%
in your round of funding in equity
as a total percentage of the pie.
So, that is how I like to think about startup equity
for your first round of funding.
And usually, again, plus or minus, five to 10%
each time you raise a subsequent round,
you dilute yourself, and that's kinda how it rolls.
So, I wanna ask you guys if you have any questions
about startup equity, just leave them below in the comments.
I'll be sure to answer them there.
If you know somebody that needs to see this video,
be sure to share it with them.
Subscribe to this channel,
and as per usual, I wanna challenge you guys
to live a bigger life and a bigger business,
and I'll see you next Monday.