What is the typical equity structure in startups?

What is the typical equity structure in startups?

In startups, equity is often divided among founders, employees, and investors. Founders usually retain a significant portion, often around 50-80%, while employees might receive 10-20% through stock options. Investors typically take 20-30% during funding rounds.

How does equity distribution change over funding rounds?

As startups go through funding rounds, equity distribution can shift significantly. Early investors may see their percentage decrease as new investors come in, while founders and employees may also experience dilution unless they negotiate for anti-dilution provisions.

What are stock options and how do they work?

Stock options give employees the right to purchase shares at a predetermined price, usually after a vesting period. This incentivizes employees to contribute to the company's growth, as the value of their options increases with the company's success.

What are the common mistakes in equity distribution?

Common mistakes include over-allocating equity to early employees, not reserving enough for future hires, and failing to communicate the equity structure clearly, which can lead to misunderstandings and dissatisfaction.