The term startup equity refers to the ownership of a startup, usually demonstrated as a percentage of ownership (or shares) given to individuals that contribute to the growth of a business. These could be your co-founders, investors, employees, and even experienced advisors.

What is Startup Equity?

Fun fact: Did you know that Jeff Bezos, the 4th richest person alive and the CEO of Amazon, owns less than <a href="https://www.forbes.com/profile/jeff-bezos/">10 percent </a>equity in Amazon, a company he founded? 😉

Fun Fact

Contribution. One of the most common factors to consider when splitting equity is the relative contribution of each founder, advisor, or employee. This can include things like the time and effort that each one puts into the company, the expertise they bring to the table, and any intellectual property they contribute.

Factors to consider when splitting startup equity (1)

Roles and responsibilities. Founders should consider the roles and responsibilities of each team member when determining equity splits. For example, a founder who is taking on a key leadership role or an employee who has a more specialized skill set may be entitled to a larger share of the equity.

Factors to consider when splitting startup equity (2)

Market conditions. The state of the market and the industry in which the company operates may also influence equity distribution. Say, if a company is in a highly competitive market or seeking future funding from external investors, the founders need to give a larger share of equity in order to secure necessary capital.

Factors to consider when splitting startup equity (4)

Legal and tax considerations. There may also be legal and tax implications to consider when splitting startup equity. For example, founders may want to consult with a lawyer or accountant to understand the tax implications of different scenarios to ensure that the company is structured in the most tax-efficient manner possible.

Factors to consider when splitting startup equity (5)

Future plans. Founders should also think about long-term goals and how equity splits may impact those plans. For example, if one founder plans to take on a full-time role with the company while the other intends to remain a passive investor, this may affect equity split.

Factors to consider when splitting startup equity (3)

When your startup is in the initial stages, the founder or the co-founders usually own it entirely, typically in a 50/50 split, or 60/40, depending on various conditions.As you grow, equity is distributed among those who contributed to fund your startup, give you advise, or develop your product/service offerings:<ul><li>Co-founders that invested into the vision or business idea.</li><li>Friends or family members who contributed seed money.</li><li>Employees who invested their time and skills.</li><li>Advisors who gave expert advise or network.</li><li>Investors who provided capital.</li><li>Other service providers.</li></ul>

Who gets equity in a startup?

Because we don't think about how to distribute equity in a startup until is late and when it is complicated to change things.

Startup equity distribution is just like a ceremonial cutting of the cake. You want to split the cake in a way that makes sense (and profitable!) for yourself and every one in your team. This guide tackles the essential things you need to know about startup equity.