TEAM EQUITY SERIES: Funding Rounds and Team Distribution

Welcome back! In this comprehensive guide, we combine insights from our previous discussions on equity in startups. We'll explore how equity is typically distributed during various funding stages and delve into the nuances of allocating equity amongst team members.

The Funding Journey and Equity Breakdown

In the early stages of a startup, particularly during the angel/seed stage rounds, founders often part with 10% to 20% of the company equity. As the startup progresses through subsequent funding rounds, a median of 15-20% equity is typically relinquished in each round. This journey is a crucial part of startup growth.

By the time a startup is ready for a strategic sale or an IPO, the equity breakdown usually looks like this: 40-60% allocated to investors, 10-20% to employees, and 10-20% remaining with the founders. It's essential for founders to retain enough equity to stay motivated and aligned with the company’s trajectory.

Investor’s Perspective

Investors typically claim 20-30% of startup shares, providing crucial financial support for scaling. The challenge lies in allocating equity fairly while retaining enough control and motivation for the founders.

Allocating Equity Amongst Your Team

Your team is your startup's most significant asset, and allocating equity to them is a strategic move. The amount of equity awarded often depends on seniority, with C-level executives potentially receiving between 0.8% and 2.5%, and other roles receiving varying percentages.

Advisers and Their Equity

Advisers, including board advisors, technology advisors, or general advisors, often receive equity as compensation for their expertise and guidance. Early-stage startups typically compensate advisors with around 1% equity in the company.

Balancing Equity and Commitment

Balancing the equity allocated to salaried employees and advisers with their commitment and contribution to your startup is crucial. Fair and motivational allocation ensures a harmonious and productive journey ahead. Consider whether team members are receiving a salary or other forms of compensation, and ensure that their equity is commensurate with their contribution and commitment to the company. Open and transparent discussions are key to ensuring everyone feels valued and motivated.

We hope this guide on equity in startups has provided valuable insights into the distribution of equity during funding stages and the allocation amongst team members. Remember, your team is your biggest asset, so treat them well and keep dreaming big!

If you need help or some advice on how to approach team equity shares, do not hesitate to get in touch here and we’ll be happy to give you all the answers you need!