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