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How is equity distributed in a startup?
- jmtame 20y agoI'm not sure how equity works if I have a co-founder and I'm giving him "15%." Is this in stock? Or is this annual revenues? Or am I the one who decides? What's typical? I'm not studying finance at college right now, so keep that in mind. Any sites that might explain this would be helpful. Thanks
- danielha 20y agoEquity is stock in the company. If he's a cofounder, it shouldn't really be thought of as "giving" him 15% -- that sort of implies that you're the sole founder/decision maker and he's an employee, doesn't it?
- jward 20y agoEquity is ownership of the company. It is everything that that the company is after all debts have been settled. Stock is the way this is represented. So the percent of equity you have is the percent of stock you have. The only time it translates into money for you is when it is sold or dividends are declared. Generally, the percent of the equity you have is the percent of the cash you get. I would recommend talking with your cofounders about how you want to split it up. Remember that YC will take a small chunk of it as well. I'm sure if you're accepted there will be help with understanding it all. If you want a generic recommendation, take a chunk and set it aside then divide the reset evenly amongst the cofounders.
- mattculbreth 20y agoI suggest you read Paul's essay on this topic: http://www.paulgraham.com/startupfunding.html http://www.paulgraham.com/startupfunding.html