How do you value shares in a startup?

To determine the current value of a share (called the fair market value, or FMV), you divide the valuation by the number of shares outstanding. For example, if a company is valued at $1 million and it has 100,000 shares outstanding, the FMV of a share is $10.

How many shares should a startup have?

How many shares do startup founders need to issue? The commonly accepted standard for new companies is 10 million shares. When you build a venture-backed startup designed to scale, you will need to issue shares to an increasing number of employees.

What is the fair market value of a startup?

The FMV (also known as “strike price” or “exercise price”) is the price per share that startup employees pay when they buy their stock options. The 409A valuation, used to determine FMV, takes several factors into account, including: The value of the startups assets. The startups future cash flows.

How is valuation of a startup done?

The various methods through which the value of a startup is determined include the (1) Berkus Approach, (2) Cost-To-Duplicate Approach, (3) Future Valuation Method, (4) the Market Multiple Approach, (5) the Risk Factor Summation Method, and (6) Discounted Cash Flow (DCF) Method.

How much equity should a Startup Owner have?

If you have an advisor or a professor who contributes to the startup project, put this person before your first employees. 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.

How much equity do founders of public tech companies have?

On Craft, we have in-depth profiles of each of the 71 public tech companies, so we searched our database for the names of the founders, and the amount of equity they held at the IPO. On average, all founders combined owned 15\% of the company, which was worth $100 million.

How do you distribute founder equity to co-founders?

For a co-founder who makes considerable capital contribution, you may consider giving them additional founder shares in return. Alternatively, you can consider distributing founder equity on the basis of the individual level of work contribution (sweat equity) from each individual.

How to plan a successful equity compensation program for a startup?

Considering the fact that executing an equity compensation program is a complicated affair, companies have to plan and utilize appropriate accounting, legal and tax advice and planning. Typically, founders get equity share in the startup’s initial period and either forego their salary or settle for a low one.