how much equity to give lawyer startup

How much equity should a startup advisor get?

between 0.25% and 1%An advisor may receive between 0.25% and 1% of shares, depending on the stage of the startup and the nature of the advice provided. There are ways to structure such compensation to ensure that founders get value for those shares while retaining the flexibility to replace advisors without losing equity.

How much equity is fair in a startup?

Employee option pools can range from 5% to 30% of a startup's equity, according to Carta data. Steinberg recommends establishing a pool of about 10% for early key hires and 10% for future employees. But relying on rules of thumb alone can be dangerous, as every company has different cash and talent requirements.Oct 23, 2021

How much equity can I ask for in a startup?

If a key hire is the third person joining a two-person team, he or she can almost be considered a co-founder and may get as much as 10% of the company. But if a head of sales or VP of marketing joins once a startup has a product to sell and promote, they may get between 1% and 2%, depending on experience.Jan 9, 2020

Is 1% equity in a startup good?

1% may make sense for an employee joining after a Series A financing, but do not make the mistake of thinking that an early-stage employee is the same as a post-Series A employee. First, your ownership percentage will be significantly diluted at the Series A financing.Aug 7, 2019

How much equity should a founder keep?

As a rule, independent startup advisors get up to 5% of shares (or no equity at all). Investors claim 20-30% of startup shares, while founders should have over 60% in total.

Is equity in a startup worth it?

Averaging data, Stanton's research suggests that most equity offers from early-stage startups end up being worth roughly 10% of the initial grant.

How much equity should a CFO get in a startup?

CFO Equity: How Much Equity Could a CFO Expect? Typically, CFOs might expect to receive between . 1% and 3% of a company's value. In some cases, it may be much more, depending on the stage at which the CFO joins the executive leadership or founders.Feb 22, 2022

How do you negotiate equity in a startup?

How to Negotiate Your Startup OfferKnow your minimum number. Leverage sites like PayScale and Glassdoor to learn to learn what employers in your city are paying for similar roles and industries. ... Provide a salary range. ... Consider the whole package — not just salary. ... Ensure your pay increases with funding.Aug 6, 2021

What is startup equity?

Startup Equity Dictionary. (All definitions are from Google’s dictionary, unless otherwise linked.) Equity: “the value of the shares issued by a company.” “one’s degree of ownership in any asset after all debts associated with that asset are paid off.”. Exercise shares: to choose to buy or sell your shares in a company.

How is equity compensation determined?

More likely than not, the amount of equity compensation an investor gets will be determined by conversations you have with them as you’re negotiating their investment. But in order to get the most out of that conversation as possible, you have to go in with an idea about the valuation of your company.

What is an advisor in a startup?

Advisors are an amazing part of the startup ecosystem. They’re the people who contribute their time and expertise to startups — time and expertise that’s absolutely invaluable as founders often to wear a million different hats and learn on the go.

What is stock option?

Stock options: “a benefit in the form of an option given by a company to an employee to buy stock in the company at a discount or at a stated fixed price.”. Shares: “a part or portion of a larger amount that is divided among a number of people, or to which a number of people contribute.”.

What is exercise shares?

Exercise shares: to choose to buy or sell your shares in a company. Fair market value: the current value of the share. Stock grant: “A stock grant occurs when an employer pays a part or all of the compensation of an employee in the form of corporate stock.”.

Do you have an active working knowledge of Facebook?

But let’s be real: You definitely don’t have an active, working knowledge of them. One paragraph in to any explanatory blog post and your eyes are already crossing, your fingers itching for the Facebook tab on your browser because all you want is to clear your brain with a mindless scroll through News Feed.

Does every startup offer equity?

Every startup will offer equity to some combination of those four categories. But not every startup is going to offer equity to employees; not every startup is going to offer equity to advisors; and not every startup is going to take on investors. But it’s a fair bet to say that every startup is going to have to figure out how to structure ...

Saar Klein

Great article, I was wondering regarding your example: Salary is 4.5% and you add 0.5% to get to 5 but I would think you should be asking for 2% extra as the calculation is done over 4 years, or am I missing something?

Mithun Madhusudan

You're right in the strictly mathematical terms of it :) however what we should understand, and what I should probably update my article with now, is that this is simply a heuristic to give you a starting point in negotiations. How it works in the real world is seldom so objective.

Victorian Doucette III

Great article. I have been negotiating with a startup and used this some of the info offered hear. Thanks

Mike Moyer

Hi Mithun, I'd love to introduce you to the Slicing Pie model. It's a universal formula for solving this exact problem. See more at SlicingPie.com, I'd be happy to talk!

Nima Jafarian

Great book. Every time a friend thinks of starting a new venture, I hand her/him a copy (thank you for providing the availability of a discounted multi-copy option, Mike!)

Abhishek Kumar

Great one again Mithun, Did feel like a continuation of previous one!!! Thanks.

Key Takeaways

Even equity distributions are the most common, but don’t default to 50-50; open conversations about contributions, roles, and goals are crucial.

Splits among co-founders can be even or not, but they should be discussed openly

When Bill Gates and Paul Allen co-founded Microsoft, they split the company 64% to 36%. Google’s co-founders, Larry Page and Sergey Brin, went 50%-50%. Which model should you follow? It depends. You should weigh a variety of factors including circumstances, experience, contributions and roles.

Equal or not?

Equal splits. Whether they are 50-50, 33-33-33 and so on, equal splits remain the most common type of arrangement among startup founders. Dettmer, who has put together many hundreds of ownership deals for emerging companies, figures that just over half fall in that category. “But that means that almost half are not,” he says.

Not all CEOs are the same

Yet Dettmer cautions against giving too much weight to another kind of CEO — the de facto CEO who is simply assigned to lead the company until it gets big enough to require a real chief executive officer. “Very often a young company gets started by three engineers — three buddies,” he says.

The Takeaway: Think hard about how to split equity

Maybe the best argument for having a serious ownership discussion early is highlighted in the results of a study by Noam Wasserman, a professor of clinical entrepreneurship at the University of Southern California and founding director of USC’s Founder Central Initiative.

Insights from SVB Industry Experts

SVB experts provide our customers with industry insights, proprietary research and insightful content. Check out these related articles that may be of interest to you.

What is equity in tech?

Equity, typically in the form of stock options, is the currency of the tech and startup worlds. After dividing initial stakes among themselves, founders use it to lure talent and compensate employees for the salary cut that they almost inevitably will take when joining a startup.

How long does equity vest?

Equity awards, regardless of their form, are subject to vesting schedules. Traditionally, startups have used a four-year benchmark with a one-year cliff: no ownership until an employee has worked twelve months, and then 25% for each year worked (or an additional 1/48th for every month worked).

How much does Currier offer?

Currier, the serial entrepreneur turned venture capitalist, says he typically offered between .1% and .3% of the company to attract an advisor to one of his companies. “What you’re hoping for is that one advisor who tells you something that triples the value of your company,” he says.

How long do you have to exercise stock options after leaving a company?

The growing time it takes companies to go public or be acquired is also affecting other stock option terms. Typically, employees have had up to 90 days after leaving a company to exercise their options, which can be costly and come with a large tax bill.

How much of a company can a key hire get?

If a key hire is the third person joining a two-person team, he or she can almost be considered a co-founder and may get as much as 10% of the company.

What is Artemis Fund?

The Artemis Fund is a Houston-based firm built by three women with the goal of encouraging more women-led startups. The company launched in 2019 and has raised a $15 million initial fund, which clo...

When did Shukla start RewardsPay?

“At that point, there wasn’t much cash in the company,” Shukla says of RewardsPay, the company she founded in 2010 to help consumers convert rewards points into a commodity they could spend elsewhere.

How to value your startup and how much equity to give away (Guest Post)

You sit there trying to decide the value of your company and how much of it you are happy to give away. Of course, any idea you might have about this will ultimately have to withstand the “test of the market”. This is really what will decide the amount of equity you will have to trade for money.

Option 1: Decide how much money you want to raise

Some advisors say to raise as much as you can. VCs and investors will usually say you should plan to raise enough to last 12–18 months before you need to raise money again.

Option 2: Decide how much of the company you want to sell

As much as Dragons’ Den makes for great TV, here in the real world, equity investment doesn’t work like that.

So, how should you value your company?

Pitch us a number, if you’re ballsy enough and can justify that valuation based on your product vision, and you and your team’s ability to deliver it, great, we’re in!

UK company valuation estimator

Analysis of UK deal data reveals distinct funding patterns that highlights staged valuation bands. This might not accurately represent your startup environment if you’re outside the UK, but at least this will give you an idea of what’s going on in Europe and outside the US:

What are some examples of winner take most?

Uber, Airbnb, and Facebook are all examples of this winner-take-most model. With all these businesses, each incremental user makes the service more valuable, in turn making it more difficult for users to switch to a competitor.

Why are speedboats considered a startup?

Most startups fall into the sailboat category. That’s because speedboats are riskier and less flexible. But both types need capital. And knowing whether you’re a sailboat or a speedboat is crucial to determining how to make your initial financial decisions.

What is Slack a good example of?

Slack is a great example. Its founders were originally working as a company called Tiny Speck, helping to create a game called Glitch. The game’s founder realized that his team had created fun and engaging ways to encourage people to perform work tasks. He and his team quickly pivoted to Slack in 2013.

Why is it important to speak to a professional early?

It helps to speak to a professional as early as possible because each round of funding implicates future rounds. When it comes to equity, you’ve got to ensure there are enough pie slices to go around. 3. Know which employees are motivated by equity and which aren’t.

Is it important to know if you are a speedboat or a sailboat?

When it comes time to make this sort of decision, it’s important to know whether you’re a speedboat or a sailboat. While both company types experience dilution, they raise money in different ways and over different time frames. It helps to speak to a professional as early as possible because each round of funding implicates future rounds.

Should early stage founders give away equity?

Early-stage founders should be cautious about giving away equity — it’s literally ownership of your company. And if you give up too much, your company isn’t really yours anymore. On the other hand, if you don’t give away any, you’re probably not going to grow fast enough.

Do sailboat companies leave their options open?

The more people use them instead of a competitor, the more likely they’ll be used by the next customer. Sailboat companies, on the other hand, are heading in a general direction, but are at the mercy of the winds. As such, they leave their options open.

What happens if you get paid less than what's market?

Generally speaking, if someone is getting paid significantly less than what’s “market” for their position, they will expect to receive more equity in order to make up for the difference. Very early employees are generally working at below-market (often substantially below market) cash compensation, and therefore receive much larger portions of equity than someone hired post-Series A or Series B.

What does it mean to move away from the founder team?

The further you move away from the founder team, the greater the dilution of a person’s commitment to the “mission” of the startup; and that means more cash to keep them committed. For that reason, at pre-seed and seed stage, it is not uncommon for *true* employee hires to actually be earning more, from a cash perspective, than the founder CEO; obviously with substantially lower equity ownership.

Why is employee vs contractor important?

The employee v. contractor classification is very important, because contractors can be engaged for free from a cash perspective (equity only). Employees, however, need to be paid at least minimum wage, and may be entitled to benefits.

When you reach post series A or series B, it can be helpful when hiring people to obtain hard data on what’

When you reach post-Series A or Series B, it can be helpful when hiring people to obtain hard data on what’s “market” for a certain position, and use that data in negotiations. There are some good services to help with that.

Is an employee under your control?

In general, employees are under your control as to how they work and when they work. Contractors, on the other hand, are required to deliver a service/end-product, but have more control over how it gets done, and they usually are working less than full-time hours and have multiple ‘clients.’.