How To Distribute Startup Equity (The Smart Way)


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

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100 thoughts on “How To Distribute Startup Equity (The Smart Way)

  1. Hi Dan great great video thanks very much for the info but I was wondering if you could share more information on actually how to divide equity between the founders, we have three, me I am the founder and the inventor and also an investor now the father of the idea then there is a project manager and a coder a developer how do you roughly go here thanks very much appreciate your help.

  2. Hi me again adding more details I know that you need to know more about the whole business in order to provide correct recommendations feel free to ask thanks very much appreciate really really a lot. I was thinking anywhere in the region of 70% to split between us the founders. Thanks man

  3. Thank you very much Dan!!! I'm a startupper looking for investors, so your video was G R E A T for me :-).

    THANK AGAIN!!!

  4. if i build a company with 5 people in it and each invest about let say $100. so the total would be $500 and we split the equity evenly resulting in 20% each person. suddenly an investor is interested in investing let say about $80. How much equity for the investor ?

  5. i just partnered with someone for a new company. i gave them 10% the question is how does dilution work. and how do class a shares work vs class b if we go public?

  6. Hi, I have a question. Let's say I gave 20% for my 1st investor. Will the equity for the next investment round be split taking in
    consideration the 1st investor's share or will it be deducted only from the founders' remaining share? In other words, will the 1st investor keep his/her 20% after the next round? Thanks in advance.

  7. Very informative..
    I am planning my start up, and one guy, who is technically sound want to get more into the business, I am wondering if I should offer him equity or hire him as technical consultant? Though I have offered my complete website development task to a company but I need this person just to guide me at technical front from time to time.

    Please suggest.

  8. Im thinking of negotiating 15% equity for an initial $50,000 investment for a restaurant concept startup. We need $250,000 to get off the ground. I'm struggling to figure out if that is too low or too high of a percentage, and I keep going back and fourth. I still need to find more investors too, so I don't want to give up too much just for $50k. Thanks!

  9. I am a founded of a company and all the idea is mine i am searching for co founders then how much equity do i need to give them

  10. Hi Dan, Great vid. I found an investor who is willing to cover all business expenses for 50% equity. I also have a friend who is an expert at starting up businesses to consult me. I don't have money to pay him and he says that he is in it for the long-run. He is literally going to hold my hand through the entire process of building this business. Do you have advice as to how he should get reimbursed when the company makes money? How much equity should I offer him? Thanks for your time and for the vid!

  11. Dan I'm on board with a company that already did a first round. I think I have a real good opportunity is it possible for me to set up a phone appointment with you.

  12. Informative video.

    I would like to ask a question here, what happens when a co-founder quits or isn't contributing as other?

    Do they keep their share life long? How do other founders benefit from the equity share they retain? Because if we call for dividends the co-founder who left benefits from it so how do we resolve this problem?

  13. me and my friend started a business. he invested 10k US$ and rest of the things are mine… idea, execution, business plan every thing… he is doing nothing else but as we were friends I made him founder… so how much equity I should give him?

  14. Great video thanks!
    I'm in a predicament here:
    Partner A has built audience of 23,000 followers over 5 years, and is starting a staffing agency. Will be busy with company #1 around 50-60 hours a week. Investing initial capital to startup (paying partner B salary of 50K, and buying website/CRM software).
    Partner B will be developing business from scratch using that audience, his B2B sales experience (good track record), and putting in 70 hours a week. Already has been for months on company #1. Will be responsible for learning industry, making sales process, and day to day operations of getting revenue.

    Question is: What % of company should each partner get here? Partner A will be very busy, but investing capital and giving his audience info for leverage. B will be doing lots of work here to develop it.

  15. May be a stupid question, I'm launching a clothing line. I don't have the money to launch the startup just yet (legal name, sample products, website) estimates maybe 1G. I have a guy who wants to invest to help me launch. He wants 50/50 for it. Obviously I'm not going to give him half. He doesn't bring much value besides his money and the ability to create a website and his network a bit. I have the social media following, my idea, I'm supplying the content and advertising. I was thinking 25% would be sufficient. What would be your thoughts.

  16. Hi.. I started a company and ran it for 1 year. after that one of the guy joined in. He helps me in various things like website, strategies, he is more of an adviser. He spent 3 months with me working out on different busines models and stuff but now he wants to have some paper work ready for equity sharing. I am not sure how much equity I should be giving to him..please advise.

  17. Hi Dan Martell, i am working on my startup, team consist of 3 people and we are ready with our beta version of the product. Right now we thought of incorporating the company, since all the 2 people work as a part time on the product. how much equity should i need to give them. or should i need to ask them to deposit some money give the equity. or should i incorporate company once i get the little customer traction, revenue in the company and my friend is ready put some money in the company. i am confused i dono what to do now… Please help me.

  18. Hi, I am a startup and i am trying to fund from my personal network. They are small level funders who promise to fund me every month with a less money.

    On what basis can i provide them a equity..

  19. Hi, I like the way you made it simple but I really wanna know, are there any useful books in the market regarding this kinda topics? if yes, can you please suggest some?

    Thank you

  20. I am starting a starup and i have two guys who are interested in helping me, how do i share equity so i still have overall say in the company. thank you

  21. I AM STARTING A START UP NEXT MONTH BUT I HAVE VERY LESS KNOWLEADGE REGARDING EQUITY……I HAVE AN INVESTOR WHO IS GIVING ME AN INVESTMENT IN RETURN OF EQUITY……SO I WOULD LIKE TO KNOW WHAT ACTUALLY EQUITY STANDS FOR …DOES IT GIVES THE OWNERSHIP STAKES TO THE INVESTOR AND INCLUDE THEM IN BOARD OF DIRECTORS??? PLZ REPLY ASAP

  22. Hi, can you explain.
    1. what if the another co-founder leaves, should he sell his shares?
    2. about the team, could you elaborate monthly vests up to four years. meaning?

  23. small business making 20k a year in profit . how much should they pay investor back , asking for 10k. what percentage should be paid back and how many times a year will this be paid ? for how long

  24. What does an actual equity transaction look like. For example, if I were watching a private company issue five shares of stock to an investor, what would I see? Would I see the company CEO hand five signed certificates to the investor, while the investor hands cash to the CEO?

  25. Thank you, Dan!
    I am starting a small company – fully funded by me, but it will operated in different market where I have the business associate/friend, I been doing lots of work together (I trust him). I would run the company remotely, but most of the field work would be done by him. Would it be fair to give him equity of only 20%, but then give him more revenue share (e.g. 50%) to incentivize his operation? Much appreciate your advice.

  26. amazing video. love that there are no images, animation etc.. just u talking straight n giving broad estimates. short too.. phew!

  27. hey Dan!!

    Bro. I have a business idea which would generate large money in years time..

    But I have no money to invest… Its still an idea..

    I went to an uncle of mine.. I explained the concept and everything.. He is ready to invest 3k $ for this idea..

    I'm from India, in India 3000$ are large amount to invest in business idea…

    Now the question is how much equity should I offer and as initially my self being the CEO of the company should I draw some salary out of it…. If YES.. how much it should be…

    please help me out… thanks..

  28. I'm a big Shark Tank fan, and I've heard them talk about "advisory shares" a few times. "I'll offer you $250,000 for 7.5% plus 2.5% in advisory shares." What is an advisory share? Is it just their creative way of saying "I'm taking 10%" or what?

  29. In the camera view your off to the left which led me to believe that you were going to have some sort of infographics to the right while you were speaking even something as simple as showing the percentage that you're talking about why you say it would have been helpful. Aside from that great video and thanks for the information

  30. This video is a very good start, but this blog article has more details: https://blog.founderkit.co/founders/need-know-equity-splitting/

  31. Hi Dan, I liked your video bur i still feel loss in my case which is, A friend who have got the raw idea and gonna work full time on the business, and me who gonna invest money and full time job in the business. The question is, How the equity distribution will look like?

  32. HI DAN..THANKS SO MUCH.
    I showed some friends my business plans and they want to invest in my small upcoming business. How can i determine what share to give them?

  33. Thanks Dan This is exactly that I was looking for and this video has really really hit the nail on the head,
    I am sure there might be little digging to be done, but one knows where to dig now

  34. Hi Dan,

    I have a few questions. When looking at the termination and buy-back provisions in an equity agreement, how does one structure those provisions to protect oneself from termination for cause ?

    How do you know if the buyback provision is fair, should be removed, or should be increased?

  35. What if I own the idea, did a MVP and succeeded to get into an incubation program with 0 equity seed fund. I need to join other 2 members to operate the company with me. We will do approximately the same effort. How could this be devided?

  36. I have a founding team of 8 right now. Is there some type of weights or metrics I can use to distribute equity properly. Some bring more value then others so I want that to reflect

  37. Awesome video…

    But I have a question. I have a team of 4 software developers. We're doing IT Consulting and Software Development for Institutions. Two weeks ago, an experienced Director from well-known IT Training and Certification set up a meeting with us and willing to take our business to higher level. With his experience and Network with highly potential customers such as government institutions, I believe we could get a big scale project. He also suggested a scheme of Collaboration with my company, when he got a software development project (mostly from their IT Training clients), he will pass it to us to develop the software and he got few percentages for training the client's staff to operate our software. He also will provide us an office along with its facilities.

    With my new company which only have done several small scale projects, how much equity do you think should I give him?

  38. What percentage should I offer a Co-Founder that I want to run the company/be the CEO. I wish to play the role as the founder/owner of a new APP that will be released soon.

  39. HI DAN, great video!

    My product is in development and has not launched yet. There are only 2 members in team, me and programmer. Need funding 300K for basic needs and product development so i offered a VC 40% as equity share. Is that too much?
    I forgot to discuss about option pool for the team, can i count the option pool from my equity and investor's when i already have the team later?
    Lets say 10% option pool is taken from my 60% and 40% from investor.
    Need your advice!
    Thanks in advance

  40. I currently have a profitable multi-million dollar company that has been in business for 12 years. We want to go to the next level and expand our reach, which will require investors. Does the approach you explain here still apply to me? Valuation, determine what percentage I'm willing to give up and then fund-raise?

  41. That one doubt in your head that annoys your for months and then one day a 4:19 mins video clears everything. Thank you so much

  42. What if an idea for a mobile app was conceived by two guys and another guy (investor) puts in 3k, only for the entire project to die 1 year later. Now both of the original idea guys want to revive it, put up whatever money it takes and bring it to life. These guys does not want to leave the original investor out after his initial investment of 3k even though the code purchased from the original investment can no longer be used. So now how should this be structured for the two idea guys (now self investing) and the 1 original investor?

  43. sir i has basic dought ,
    suppose i developed app ,i has no money to launch it so, i has to took all 100 % money from investor , then what will be my profite ,
    i just not understanding what mean by equity ,
    pls ans sir

  44. By far the best start-up equity video online. The simplicity of this tutorial is absolutely priceless. THANK YOU!!!

  45. I came up with an idea for a startup and have some capital to invest in it, I got 2 developers which got 15% equity each and I am saving the rest for future investors, now that the time to sign documents has come, they are asking to renegotiate the amount of equity; here's the situation:
    1. I have been working on the market that I am aiming to provide with my solution for over 5 years.
    2. I am the only one investing capital
    3. I am a top seller at the company I work for and it doesn't provide the solution to the regions I am aiming to serve.
    4. my developers are really good but they are still studying
    5. they have full time jobs and they are only investing a few hours during the week
    6. I am not paying them anything as they preferred to have equity
    7. I am doing all the business plan, makes research, surveys and will do the sales and marketing later on as well as hire 2 more people to increase the sales.

    Is 15% fair, too little or too much? I am new to all this and it is my savings that are at risk, what do you suggest?

  46. Hi dan, we are on start up stage of restaurant company
    Considering Equity
    >Founder me: (invest 1million + creator of company, brand, concepts & 100% managing the business, CEO) 24% equity?
    >Co founder: (invest 1 million + provides big market influence & Marketing) 22% equity?

    >1st investor (invest 5 million + provides start up office & resources). I consider giving 20% ?
    >2nd investor (invest 2.5 Million each + provides big market influence) I consider giving 10%.?
    >3rd investor (invest 2.5 Million each) I consider giving 10%.?
    >4th investor (invest 1.5 Million each + business consultancy) I consider giving 7% ?
    >5th investor (invest 1.5 Million each) I consider giving 7% ?

    After confirming the 5 years ROI, the amount is not too attractive.

    My 1st question is; can i give the Equity % that I consider, and then give them more of my profits in cash to keep the major % of the equity??
    2nd question, what's better equity % to give base on the investment & other stuff they provide??

    Please let me know, and wish you millions of subscribers because there's lots of information & knowledge that people can learn from you!

  47. I had started a company alone some time back. I met this friend of mine from the college I attended. He really liked the idea and we both see the idea booming in near future. He has asked me to divide equal equity. What should I do? Is it really okay to share my 50% equity for the idea which I thought of? I am very much sure about his skill set and zeal but the thought of sharing a big 50 is daunting me. What should I do? Please advice.

  48. in a nutshell:
    60%: Founder and CoFounders
    10%: Team (with cliff vesting)
    5%: Advisors (max 1% each)
    Up to 25%: VCs (about $1'M of funds in a $5'M pre-money valuation)

  49. how to decide equity share at the time of seed investment through angel investor? Lets suppose I need 50 lacks seed money to start the company, so how much money should i ask to angel investor and at what equity share? plz answer

  50. Hi Dan, very helpful video, thank you. Quick questions – can I base the equity of a co-founder on the basis of the capital they bring in? (Will that be based on% of what I am putting in?) Also can I give away Sweat Equity to family members without investment?

  51. I've worked on a startup for three years. Mostly pre-revenue, pipeline of decent contract opportunities, new patentable technology invented (now on third generation). I'm an inventor/engineer. A much more senior person is interested in being CEO and help raise via original connections. His competence is nicely complementary to mine. Wants 1/3 pre-seed. What's your advice on this?

  52. Hey Dan do we split the 1% equity between all the advisor's or give them each 1%? Does that hold true for board members?

  53. How much does it cost to have a starup? with the shares? 100$ equals 100 shares at a 1$? or is it advised to get like $10 000 equals 10 000 shares at 10cents?

  54. Excellent video, I wonder if its a website and app that solves problem of people how to protect that idea from people we share, if they do not sign or asked NDA?

  55. Can I get your email address please…I am an entrepreneur of a Real Estate sector where I found a guy who wants to give me a 10M USD then How much equty I can give him…If a company has 3 founders can one person could hold 40% and 2 will hold 20% is it possible..? How the profits will share of the company will be devided on share basic in the company

  56. Hey Dan,
    I'm about to start a digital signage business. I will be advertising local business through my platform (mainly gas stations). I've already 100 plus gas station to put the digital signage for advertisement. I've met some of the investors. Some of the investors want to do a partnership. I'm not quite sure on how much % to give if they go on to a partnership.

  57. Hey Dan Great video!! This has helped me a lot Thanks. I have a quick question: How would I go about getting a price evaluation for my start up that’s in infancy stage?

  58. My first App version is out, Deal Spotted: i need $250k for users acquisition but not sure what percentage I should give away? What do you think?

  59. hey Dan, i have this business , am writing a proposal for them so how i bring just an idea and make them invest in my idea

  60. Thanks Dan! This is the very best on Start-up Equity i've seen so far. Very brief, concise and straight to the point. Keep up the good work

  61. Hi Dan, amazingly simple explanation. Its very helpful. I have been offered a Partnership in existing business due to my industry expertise and network. I may get a fixed salary for existing business and profit share in the new business firm will generate. There are other new Partners also joining on the same terms. I fear that only one of existing Partner and me is likely to bring in new business, other new Partners may just execute the work. Whether its a good idea to negotiate the profit sharing ratio based on the revenue each Partner brings in for 70% of profits? And balance 30% profit to be distributed equally as kind of variable salary for all partners?

  62. I'm the lone founder of a prelaunch beverage company. My company has not yet raised seed funding. I have a celebrity musician who is interested in helping me get product to market, should I consider offering contribution equity to him for initial funding?…if so any advice on how much?

  63. Hi, Im starting up a business . one of the cofunder wanna become investor and doesnt wanna involve daily operating . does he need to shareholders' agreement with us or we have to sign the shareholders agreement and incorporate the company then ask him to put in the money into company ?

  64. Great video. But look. When you raising funds you are not usually giving a shares to the investors. The company issues new shares. Each round dilutes others. Is it ok when advisors’ shares got diluted from… let’s say 2% to 0.2% ?

  65. Hi Dan. I work for a company that has established itself by innovating a new product to the construction market by safety through innovation and now has 11 branches throughout Australia.
    I have come up with an innovation product for the construction sector that will serve a big issue at hand worldwide that is only going to get dramatically worse in the near future.

    I would love to try partner up with the company I work for as they have already walked the path that I would need to trek down if I was to do it on my own
    (saving with time/management efficiency and resources )

    The thing is I have no capital but have a friend that is willing to invest up to 500k.

    🔵 would it be smart for me to take the 500k and try partner up with the company I work for so I don't go to the table with nothing OR
    🔵Would you recommend I just try to get the company I work for to invest if they are interested? And how would % workout for both scenarios?

    Sorry for long message, it just gets confusing for me sometimes to figure out the best direction to take when you are trying to sail in uncharted seas.

    I really hope you can reply. Thank you Dan!

  66. Let say if investor A came and he invested with 25% of equity. Btu what if investor B will be in interested? What would be an option to give equity to the next investor ?

  67. Thank you so much for all your great information! I’m so thankful for you! Have you ever seen this book? If so what is your opinion? www.slicingpie.com Slicing Pie is a universal, one-size-fits all model that creates a perfectly fair equity split in an early-stage, bootstrapped start-up company.

  68. THANK YOU SO MUCH MAN THIS IS EXACTLY WHAT I WAS LOOKING FOR
    Since im here if your interested in working with a start up luxury corporate housing company let’s talk. just pm me

  69. I was offered 3% equity of a startup company. My role in the company will be unpaid. What do you think of this?

  70. WE HAVE INVESTED 25 LACS SO FAR IN BOUTIQUE AND NOW WE WANTVO EXPAND , AND IF SOME ONE IS KEEN TO INVEST 3 LACS VHEN WHAT SHOULD BE EQUITY OR PROFIT TO BE SHARED ……..PLEASE SUGGEST

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