A typical vesting schedule provides for incremental vesting over a four or five year period with a large portion of options vesting at the end of the first year. Fill out as many of the questions below as possible. Equity compensation for employees is less common. It is critical that you identify the structure that appropriately aligns with your short and long-term business goals and provides you optimal legal protection. Broadly speaking, there are two forms of capital: equity capital and debt capital. Startup equity is a lottery ticket—not a replacement for salary. If you’re an entrepreneur trying to divide your shares wisely, you should brush up on the concept of startup equity vesting. But first, a disclaimer: I am not an expert of startups, neither do I specialize in organization structure. Startup founders cashing out upon a liquidity event (M&A or IPO). Pre-Seed Round Structure. Startup Structure. Once your options vest, you have the right to purchase them (or not). For C-Level Executives (think COO, CTO, CFO, CMO), of which most Series A and B startups will have no more than 3 true non-founding C-level Execs, options are generally granted at 0.8 to 2.5 % of the total diluted equity amount (see Figure 2). These blended rounds include a mix of angel investors, strategic investors and customers alongside the offline venture capital investors. They are Salary, Benefits, and Equity. If you make the company better, your equity is worth more. Is an investment you can keep. While it’s easy to understand cash salary, the equity portion can be difficult to assess, particularly for someone new to tech or startups. Linkedin. For Vice-Presidents, of which you are likely to have 5 to 8 in the organisation at Series A and B, then you might grant a lower amount of 0.3 to 2 %. Give yourself a hug. What does a typical startup’s share capital structure look like? At a typical venture-backed startup, the employee equity pool tends to fall somewhere between 10-20% of the total shares outstanding. This is in no way considered to be legal advice either (blah, blah typical disclosures)…but rather just an example about how others have their equity structure.. Fortunately, there are plenty of resources to help entrepreneurs with the nuts and bolts of cap tables. To help you gauge “market rate” for your equity compensation, there are some free benchmarking resources. Spreadsheet to calculate share/equity between startup/business co-founders One of the first and most important questions a new startup, business or company should have is how to divide the stock amongst its co-founders or stockholders. Equity is often the most confusing and intriguing part of a compensation package at a startup. the better the startup will be. – The Main Take Aways. Offers a potential big win. There is a reason why this is is the standard, classic path for founder equity compensation. Check out 25 cute animals hugging — it’s exactly what it sounds like — and give yourself a hug. Boiling down a startup's path to a "typical" or "standard" route is impossible. Startup Equity & Vesting: How to Compensate Team Members Without Money Startup finance can be incredibly tricky, especially when it comes to compensating co-founders and employees, as most startups usually don’t start their journey with money to spend. Who doesn't want to be build-my-dog-a-theme-park rich? The typical vesting schedule gives you one-fourth of your options at the end of your first year, and then 1/48th every month after that. Standard terms are 4 years vesting (including provisions for partial vesting), with unexercised vested shares going back into the pool. How to structure your startup as the company grows by Conner Forrest in Start-Ups on September 22, 2015, 5:58 AM PST Often, startups overlook organizational structure until it's too late. Early employee equity — Here again, the percentage varies, but it’s typical to set aside 20% (on a fully diluted basis) in an employee pool. 2. It is based on almost 3 years of one-on-one discussions with entrepreneurs through the co-founders meetup and 8 editions of the startup conference. In a typical start-up share capital structure, founders, employees, consultants, directors and officers receive common shares. How much equity should early stage startups give advisors? Venture investors choose to invest in startup companies (private companies) because they stand to make outsized gains if the company goes public, or if another liquidity event occurs, such as an acquisition by another company. That means you and all your current and future colleagues will receive equity out of this pool. 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