What is startup equity and how does it work?

What is startup equity and how does it work?

Startup equity refers to the ownership stake in a company, typically represented in shares. It determines how much of the company you own and can affect your financial returns.

How is equity typically divided among founders and investors?

Equity is usually divided based on the contributions of each founder, the amount of investment from investors, and negotiations. Founders might split equity based on their roles and responsibilities.

What are stock options and how do they relate to equity?

Stock options give employees the right to purchase shares at a predetermined price. They are a way to incentivize employees and align their interests with the company's success.

What happens to equity if a startup gets acquired?

In an acquisition, equity holders may receive cash or shares in the acquiring company, depending on the deal structure. The value of their equity can significantly change based on the acquisition terms.

Can you explain vesting schedules?

Vesting schedules determine when employees earn their equity over time. For example, a common schedule is four years with a one-year cliff, meaning employees earn 25% of their options after one year and the rest monthly thereafter.