What is a fair equity split?

What Is an Equity Split? Equity refers to non-cash compensation that represents partial ownership in a company. The equity is usually divided up, or split, among the early founders, financial supporters, and sometimes employees who join the startup in its earliest stages.

What is a good percentage of equity?

The number of shares or options you own divided by the total shares outstanding is the percent of the company you own. At a typical venture-backed startup, the employee equity pool tends to fall somewhere between 10-20\% of the total shares outstanding.

What is an equity split and why is it important?

For founders, the equity split also helps determine decision-making power. An even split means that the founders will need consensus. If questions pop up around the fairness of the equity split, and the founders are unable to resolve these issues, impasses and the inability to move forward can negatively impact the company.

How do you calculate the founder’s equity split?

Each element’s weight is then multiplied by the ranked level of the founder and added up to indicate the founder’s equity split. For example, founder 1 has a ranking of 10 for Ideas, meaning that he contributed the most to this. We multiply 10 by the weight of 7 to get 70 points. We repeat this process as shown below:

What happens if there is an even split?

An even split means that the founders will need consensus. If questions pop up around the fairness of the equity split, and the founders are unable to resolve these issues, impasses and the inability to move forward can negatively impact the company.

Do you need to split equity before pitch to a venture capitalist?

A common question among entrepreneurs is whether they need to have the equity split determined before they make their pitches to a venture capitalist. “And the quick answer to that is no, you don’t have to have everything figured out,” he says. But the founders need to provide investors with a good reason for the delay.