how much equity should i ask for series bhow much equity should i ask for series b

), but if youre new to the industry, understanding how much to ask for in any given opportunity might be somewhat of a mystery to you. The percentages really vary dramatically, Beninato says. One other important formula tells us the percentage of equity sold to investors: Equity owned by investors = Cash raised / Post-money valuation. 70% of the 1000 companies that were seed funded in the 2008-2010 timeframe had no exit. The first VC round makes up Series A. Let's assume that the venture capitalist puts your company's current value at $4 million (pre-money valuation) and decides to invest $2 million. The number of shares or options you own divided by the total shares outstanding is the percent of the company you own. Series A funding is generally much more significant than the funding procured through angel investors, with funds of more than $10 million usually being procured. By the way, think of yourself as a partner, not an employee. Find the right formula for financial success. $6M is almost a big seed round, and 0.1% in Series-A is for junior employees. Stanton walks us through the process of determining how dilution will affect the value of your shares over three rounds of investment. Different . In the very early days, employees are often paid more than founders / senior executives. The prolific internet entrepreneur and investor shares stories about the hard-fought success at PayPal, discusses his failures and what it was like at the very peak of the dot com bubble. It's paramount to keep in mind that salary and equity compensation are two very different things. Compare, Schedule a demo And even though that person was her own reflection looking in the mirror, those words have carried her through the thick of it all. There are several ways to grant someone an equity interest in a company, including outright grants of Common Stock, grants of Common Stock with restrictions that allow the company to repurchase some or all of the stock subject to a vesting schedule (RSUs), stock options that give someone the right to purchase stock in the future, and warrants Around 5% is what existing shareholders will expect. Range:5% same amount of other founders. Factors to consider: More than 20% creates too much dilution for the original founding teamas most startups go through multipleround of financing. After all, its an easy way to preserve your cash as you staff your startup with top-notch hires that can significantly increase your chances of success. Valuation at this stage is determined with a direct approach, these companiesusually have a track record, they have been existing for a while and they have comparables. In some cases, an employee may receive both salary and equity and there are two ways to think about how much each portion should be worth. To summarize all of this, in my opinion the best time for me to join a startup is right before they raise their Series D round. 1-3% of equity, with standard vesting. In terms of which you should take more of, it depends on how risk-averse you are are you willing to bet on the odds of the company being successful (i.e. Think of it as a shared Dropbox folder, but optimized for the types of content you interact with daily on your phone - Maps, contacts, links, images, notes, and much much more. For startups, a variety of data is easier to come by. This practice of withholding options until you've hit a certain milestone is known as a vesting cliff. Founders can reward their early employees by giving them some equity ownership of your business. We give some overview here of early-stage Silicon Valley tech startups; many of these numbers are not representative of companies of different kinds across the country: important One of the best ways to tell what is reasonable for a given company and candidate is to look at offers from companies with similar profiles on AngelList. Of all the compensation questions, this is perhaps the most sought out one. The guide also identifies landmines to avoid and breaks down the equity ownership of a pair of sample companies whose employee pools range from 9% to 20%. To quote Paul Graham, there is a great deal of play in these numbers. Having equity in a company means that you have a percentage of ownership in that company. So you pay them all .2% and hope one gives you that idea that more than pays for itself.. Thanks for pointing out the math error though! Turning this around and looking at this from the perspective of an employee - your task is to convince the founder that giving up n% of the company will make the average outcome of the company better by 1/(1-n). I would adjust these numbers down somewhat if the company is generating significant revenue (>$1M) or can be fairly valued (by a third party, such as a VC) at over USD $10M. VCs often sneak in additional economics for themselves by increasing the amount of the option pool on a pre-money basis, warn Brad Feld and Jason Mendelson in their book, Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. Do you prefer podcasts? Traditionally, startups have used a four-year benchmark with a one-year cliff: no ownership until an employee has worked twelve months, and then 25% for each year worked (or an additional 1/48th for every month worked). All about startups, technology, entrepreneurship, venture capital, and tech community growth in the UK and Europe. ), Currier, the serial entrepreneur turned venture capitalist, says he typically offered between .1% and .3% of the company to attract an advisor to one of his companies. Why you will never get rich from working in a startup. The entrepreneur can say, look, I strongly believe we have enough options to cover our needs, Feld and Mendelson advise. The Co-Founder and CEO of Care.com talks about the winding road she took from a small coconut farm in the Philippines to becoming one of a handful women CEOs leading a publicly traded company. Valuing and deciding how much equity to sell of a company that youve put your heart and soul into is not easy. Lets take the total amount that the company spends on you to be 1.5x your salary (including overheads etc). Because advisors may not add value for as many years as an employee, a common vesting schedule for an advisor is two years with a three-month cliff. This can be painful for companies as they have a limited option pool to begin with, and having startup equity owned by people who no longer work at the company can be a real hindrance. Once you have some revenue though, along with a plan to scale, youre on a roll. This blog is the story of my financial journey. So, youve now given someone $48,000 in start up equity from the day they start - cool. Valuation Report The general formula is: Total Company Value = Total Investment + Net Profit - Debt + Equity. I say shoot for no less than 15%. On one hand, you dont want to take too much if it comes with responsibilities that you are not in the position to fulfill, and on the other hand, you dont want too little because, well, we all like money and generally speaking, there is money to be made behind equity ownership. Small variations in year one do not justify massively different founder equity splits in year 2-10. The problem is you dont know which one of the five or six people youd brought in as advisors will be that person. These equity investments are often dependent. This means that equity is now back in the options pool and the company can give new or existing employees equity. Lets take the hypothetical case of Jurassic Park Inc. again, and assume you are interviewing for the position of the CTO. Here are some cold hard facts from CB Insights, documenting the startup class of 2008-2010. It makes sense: the earlier someone commits to your startup, the more risk the hire is taking on. Instead of raising a single larger amount in one go which would carry you for 12-18 months, an increasing number of companies are opting for a series of smaller raises giving away 2% 6% . Youre close to launching, you now want to raise money for that last mile of product development and for marketing. That means you and all your current and future colleagues will receive equity out of this pool. You'll be negotiating your equity as a percentage of the company's "Fully Diluted Capital." Fully Diluted Capital = the number of shares issued to founders ("Founder Stock") + the number of shares reserved for employees ("Employee Pool") + the number of shares issued to other investors ("preferred shares"). For Series A, expect 25% to 50% on average. The first people get more, and it goes down over time.. When it comes time to negotiate, which should be soon, use the comp level of the other C level officers as a benchmark. Meanwhile, the salaries are WAY below market e.g. You sit there trying to decide the value of your company and how much of it you are happy to give away. Rebecca Bellan. FREE Workshop Wednesdays Industry News GitLab's CEO on Building One of the World's Largest All-Remote Companies Reference: This article draws heavily from Paul Grahams essay - http://paulgraham.com/equity.html including the calculations, because I didnt find a better resource anywhere. Thanks. At the very least it can give you a baseline figure from which to start your negotiations. For co-founder COOs, these figures were roughly 71,000 ($96,000 USD) for seed-stage companies, and 125,000 ($169,000 USD) for Series B companies. Eventually, founders need to think about creating an employee option pool a more disciplined way to award equity over shaving off more shares with each new hire. Every time a friend thinks of starting a new venture, I hand her/him a copy (thank you for providing the availability of a discounted multi-copy option, Mike!). This button displays the currently selected search type. For example, if you work in an office and get paid $10 an hour, then your salary would be $10 per hour. In days gone by, this type of raising pattern would have been inadvisable for a few reasons:1. Equity is also suitable for drawing a different kind of talent to your company: experienced people in the field who wont come to work for you full-time but, if their interests were aligned with yours, might serve as advisors who increase your chances of success. The next stage of the startup funding process is Series A funding. The second is whether or not this job offers benefits like healthcare or retirement planning options (such as 401(k)). Raising is incredibly hard, so understand what you need to hit your KPIs, think about what would be nice in terms of breathing space, and be realistic about the amount that would in fact place too much pressure on you in terms of deliverables and managing investor expectations. So, how much should you ask for? More equity = more motivation. Suppose you. What do Series A investors look for? Is this employee #5 were talking about or employee #25? asks serial entrepreneur Joe Beninato, who has founded or cofounded four startups and worked at another four. Lets tackle that now. As a result, longer vesting schedules are becoming more commonplace. There are two types of CFOs: outward-facing and inward-facing. About me: I run growth at Cubeit where we are building an app which allows you to collaborate oncontent from your favourite apps. Index Ventures, for instance, has published a handbook aimed at helping entrepreneurs figure out option grants at the seed level. If you can prove this, then they are usually willing to injectmore capital. As a rule of thumb, a non-founder CEO joining an early-stage startup (that has been running less than a year) would receive 7-10% equity. so i've taken a gap year and you can only withdraw from UCI and keep your admissions if you are a "returning student", which means you have to complete at least 1 quarter. The owner of these options has no obligation not only because they don't need approval from anyone else; this lets them decide when it's right for them financially before buying out those shares. What youre hoping for is that one advisor who tells you something that triples the value of your company, he says. By having a clawback provision (basically the reverse of a vesting schedule) companies have the right to take back vested stock under certain conditions, increasing equity levels in the option pool. How much equity should startups give to investors? Leo Polovets created a survey of AngelList job postings from 2014, an excellent summary of equity levels for the first few dozen hires at these early-stage startups. So youre already getting 4.5% of the company as your salary. If youre interested in asking for more equity than they offer, weighing out all the factors will help determine how much would be appropriate and beneficial for both parties involved.. Seed-funded startups would offer higher equitysometimes much higher if there is little funding, but base salaries will be lower. The dream is alive: find a young, promising startup, put in four years of hard work, and end up a deca-millionaire. First of all, as I already established, the chances of any series A or series B company ending up a Unicorn are in the 2-3% range so it's highly doubtful that anyone would get lucky enough to find the next Uber. The general rule of thumb for angel/seed stage rounds is that founders should sell between 10% and 20% of the equity in the company. Alternatively - a vesting cliff and a vesting schedule can be used in conjunction. Of those that reached series A (500~), only 307 made it to Series B. How much equity should youask for? Existing investors will demand around 5%. Some advisors say to raise as much as you can. The series B company is giving roughly 2.5x more equity in terms of % of outstanding shares, and both teams are equally as strong, with possibility of capturing large markets. 2) What percentage of the company should I sell? There has to be someone who is reading this and thinking, "Yea yea, but what if I had joined Uber early? Other Resources, About us If you were to ask different VCs, theyre likely to come up with a wide variety of responses, including: Some VCs are led by their head, others by the heart. Many first-time founders make this mistake with early-stage employees, (especially the first employees), and dole out their startups equity without any restrictions. However, as a target figure, founders shouldn't share more than 33% of the equity in a seed round." Angel Investors Not cool. You can't have one without the other, so it's always best to negotiate both together. Founder & CEO of Walker & Company on courage, patience, and building things that solve problems. In this respect, deciding how much money you actually need right now and how much you should delegate to future rounds (hopefully at a higher valuation), is crucial. July 12th, 2022| By: Sarah Humphreys. Director Middle Stage - Series A+ The percentages of equity are going to start going down as the startup matures. A couple of anecdotal examples I can give you may help out: I helped recruit a very seasoned (20+ years experience) CMO at a 4-year-old venture-backed firm for $180K base salary and 9% equity vesting over 4 years. Youre somewhere between Idea and Launch, with a valuation to match. Unfortunately, there isnt one cut and dry answer to this, as each opportunity is in itself, a unique one. Valuation: 500K-1MYouve spent a year building the product with your co-founders, probably not paying yourselves a salary, plus youve invested 50K of your own money/time in the project. When expanded it provides a list of search options that will switch the search inputs to match the current selection. But if a head of sales or VP of marketing joins once a startup has a product to sell and promote, they may get between 1% and 2%, depending on experience. Let's say you just raised your Series B funding. In that case, they will be looking to lower the equity/salary component to make their outcome better. You may find her singing in her car, cleaning things as stress relief, or using humor in uncomfortable situations. If we do a simple math- if investors take 20-30% equity at pre-series A, and then again at series A, the . Based on what I've seen in the past, 0.5% to 3% is typical for an experienced VP post Series A funding. Firstly, thanks Im glad you like the post! Take it from our community member, Darwin Hanson, with insight on how to go about calculating how much equity to ask for: You can review averages to see that a CEO typically becomes a major shareholder in a startup, but your role and remuneration will be based on the perceived value you bring to the organization. Let's say your VP Product is making $175k per year. This might not accurately represent your startup environment if youre outside the UK, but at least this will give you an idea of whats going on in Europe and outside the US: Valuation: 300K-500KYoure looking to raise 50K to 100K to get your idea off the ground. That's barely 1%. It really depends on your situation. A personal friend of mine with 10+ years in the Sales and Marketing space just got hired (last week) as the Head of Sales & Marketing at a Series A venture-backed Financial Technology firm for $100K salary and 1.5% equity. Paul Graham generalizes this from the perspective of a founder, or the person offering the equity. While there is no single answer, at SeedLegals weve analysed data over hundreds of rounds to help you make an informed decision, and perhaps more importantly to be able to justify that valuation to your investors. Is it based on experience or some data? When an investor comes along offering a new round with a valuation of $4 million, then their offer would be worth about 1/4th of the business. Note that Silicon Valley numbers will often be much higher so dont be tempted to use those for any markets outside the US, or investors will think youve been drinking too much Silicon Valley Kool-Aid. Whats the experience of the person coming over? They apply if each of these roles were filled just after an A round and the new hires are also being paid a salary (so are not founders or employees hired before the A round). Founder compensation is another topic entirely that may still be of interest to employees. There are many factors that go into determining how much employee equity you should ask for when joining a new company. One of the biggest dilemmas faced by Founders is deciding what percentage of equity is worth the investment they seek during a funding round. Startup founders and employees usually get common stock. Shares and stock options are both forms of equity. Vesting cliff and a vesting schedule can be used in conjunction them all.2 and... Options that will switch the search inputs to match the current selection do a simple if... 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Creates too much dilution for the original founding teamas most startups go through multipleround of financing something that triples value... Come by willing to injectmore capital vesting schedules are becoming more commonplace type of raising would... Will be looking to lower the equity/salary component to make their outcome better youre close launching. 401 ( k ) ) your current and future colleagues will receive equity out this. To give away dilution will affect the value of your company, he says case of Jurassic Inc.... Shares and stock options are both forms of equity sold to investors: equity by... The options pool and the company should I sell first people get more, tech! Another four original founding teamas most startups go through multipleround of financing equity is worth investment! Cut and dry answer to this, as each opportunity is in itself, a variety of data is to. Director Middle stage - Series A+ the percentages of equity is now back in the UK Europe! 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Way below market e.g start up equity from the day they start - cool us percentage. Negotiate both together her singing in her car, cleaning things as stress relief, or using humor in situations! Very least it can give you a baseline figure from which to start your negotiations something that the. Equity to sell of a company means that you have some revenue though, along with a plan scale... It can give new or existing employees equity sought out one, has published a aimed... Equity in a startup the current selection are going to start your negotiations s say you just raised your B... Of equity are going to start your negotiations oncontent from your favourite apps process is Series a, 25! Six people youd brought in as advisors will be that person all about startups, variety... Founders can reward their early employees by giving them some equity ownership of your company how! Owned by investors = Cash raised / Post-money valuation pays for itself a result, longer vesting are. Consider: more than pays for itself as your salary serial entrepreneur Joe Beninato, has! Say you just raised your Series B you that idea that more than pays for itself can say look! To collaborate oncontent from your favourite apps to employees job offers benefits like healthcare or retirement planning options ( as. Us through the process of determining how much of it you are interviewing for the position the. Opportunity is in itself, a unique one more than 20 % creates too dilution. Other important formula tells us the percentage of the company you own perhaps the most sought out.! Again at Series a, expect 25 % to 50 % on.. You now want to raise money for that last mile of product development and for marketing inadvisable a! Cb Insights, documenting the startup funding process is Series a, the more risk the hire taking! So youre already getting 4.5 % of the five or six people youd brought in as advisors will be person! Founder, or using humor in uncomfortable situations on you to collaborate oncontent your... By, this type of raising pattern would have been inadvisable for a reasons:1! Gone by, this type of raising pattern would have been inadvisable for a few.! More, and then again at Series a funding round massively different founder equity splits year... 70 % of the biggest dilemmas faced by founders is deciding what percentage of ownership that. Will switch the search inputs to match the current selection certain milestone is known as a vesting cliff and vesting... Come by joining a new company new company tech community growth in the options pool and the company give... Match the current selection # 25 out one idea that more than pays itself! Venture capital, and tech community growth in the very least it can give new or employees... Meanwhile, the salaries are way below market e.g funding round paramount to keep in that. This, as each opportunity is in itself, a unique one given $... In uncomfortable situations the day they start - cool needs, Feld and Mendelson.! & CEO of Walker & company on courage, patience, and 0.1 % in Series-A is junior! Stock options are both forms of equity how much equity should i ask for series b to investors: equity owned by =... In a company that youve put your heart and soul into is not...., and assume you are interviewing for the original founding teamas most startups go through multipleround of.! Certain milestone is known as a result, longer vesting schedules are becoming more commonplace two! Where we are building an app which allows you to be 1.5x your.... You like the post 48,000 in start up equity from the day they start - cool would have been for... Deal of play in these numbers to be someone who is reading how much equity should i ask for series b and thinking, Yea! Senior executives the story of my financial journey dilution will affect the value of your shares over three rounds investment! Is that one advisor who tells you something that triples the value of your shares over three of! The percent of the startup funding process is Series a funding allows you to collaborate from! They will be looking to lower the equity/salary component to make their outcome better youve put your and. Best to negotiate both together 4.5 % of the biggest dilemmas faced by founders is what. Your salary six people youd brought in as advisors will be looking lower. These numbers, thanks Im glad you like the post funding round round! Options that will switch the search inputs to match it to Series B funding some advisors say to raise much! % to 50 % on average are both forms of equity youre on roll! For that last mile of product development and how much equity should i ask for series b marketing figure out option at... Own divided by the total amount that the company can give new or existing equity... Series a, and tech community growth in the very early days employees. Case of Jurassic Park Inc. again, and tech community growth in options. Dry answer to this, as each opportunity is in itself, a unique.! We do a simple math- if investors take 20-30 % equity at pre-series a, and it goes over! Of your company and how much equity to sell of a company that! Go into determining how dilution will affect the value of your business somewhere between and! Variations in year one do not justify massively different founder equity splits in one. Hit a certain milestone is known as a result, longer vesting schedules are becoming more commonplace which to going. Out option grants at the very early days, employees are often more... Search inputs to match the current selection over time 15 % etc ) their outcome better percent! Faced by founders is deciding what percentage of equity are going to start your negotiations a roll options to our... Building an app which allows you to collaborate oncontent from your favourite.... - Debt + equity you like the post both together startup funding process is Series a 500~! Your heart and soul into is not easy, has published a handbook aimed at helping figure... Say, look, I strongly believe we have enough options to cover our needs Feld.

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