Startup equity is one of those things that it’s fair to say every startup founder without an MBA struggles with. Most people don’t have to think about this stuff until it’s really important. But if you’re starting to freak out about who gets what slice of your startup pie, take a deep breath, calm down, and get ready for Startup Equity 101.
Equity. Stocks. Shares. Vesting. Fair market value. The minute you dive into figuring out startup equity compensation, you’re slammed from every side with a bunch of words that you might have heard in the past and you might be able to fake knowledge of at a dinner party.
But let’s be real: You definitely don’t have an active, working knowledge of them. One paragraph in to any explanatory blog post and your eyes are already crossing, your fingers itching for the Facebook tab on your browser because all you want is to clear your brain with a mindless scroll through News Feed.
So before we dive into different ways to split up the startup equity distribution, let’s take a look at what all of these new words actually mean. Feel free to come back to this list as we go if you’re feeling lost.
Let’s start with the most basic of basics: Who actually gets startup equity. There are four groups that typically get a portion of the startup pie:
Every startup will offer equity to some combination of those four categories. But not every startup is going to offer equity to employees; not every startup is going to offer equity to advisors; and not every startup is going to take on investors.
But it’s a fair bet to say that every startup is going to have to figure out how to structure and portion out equity to the founders of the company. So let’s start there.