Initial Incentive Plan Made Easy

Model phantom equity plan form

how to think about startup equity I mean equity is amazing you're thinking about 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 their investors or that they give away too much or that they really don't know how to approach advisors or their team or even think about co-founders that's what I want to share with you guys in this video you know when I started off I've been building business now for fifteen years but it was only two companies ago that actually raised venture capital my company that did really well sphere technologies I bootstrap self-funded it but then I moved to San Francisco and I wanted to learn around 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 listen to all the podcasts I read all the blog posts I bought a few really really boring books holy moly investor VC ebooks they're the most I don't even I still don't understand them so what I want to share with you guys in this video is the simplest way to think again these this is like the baseline it's not there's always variations plus or minus whatever I'm just going to 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 advisors 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 well at the end of 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 it 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 kind of supported you in the way I like to think about team is if they needed a salary to work with you then maybe you don't want to be too generous with your equity so typically that pool of equity is 10% for the team so if you had to pay somebody you know 5060 thousand 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 and well it could vary with the founders but with the team they leave within the first year they don't get nothing then it's monthly vast 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 kind of the equivalent so team is 10% you split it up amongst whoever you have the third bucket is advisors and these are people that have knowledge in a certain industry you might use their names in your pitch deck but their strategic they might help you close partnership deals but the range there is giving each advisor you know 0.1 percent to 1 percent equity on the very generous side very generous side it's 2 percent I've never personally done it 1 percent was what I did actually one of my investors and advisors was Travis Cal Nick the founder and CEO of uber and we gave them essentially a half percent equity to kind of be our quarterback in fundraising and just an amazing amazing advisor and also investor and obviously entrepreneur but that was the way we thought about it so I would say for your advisors is about 5% so you've got 60 percent for the team or 60 percent of the founders you have 10 percent for the team you get 5 percent for your advisors and then left over is your investors and usually each round of funding right if you raise a million dollars on five million pre-money valuation you'll want to give up about you know if you're great 10 to 15 percent normal is 20 to 25% and then worst case is 30 to 35 percent in your round of funding in equity as a total percentage of the pie so that is how I like to think about start-up equity for your first round of funding and usually again plus or minus five to ten percent each time you raise a subsequent round you dilute yourself and that's kind of how it rolls so I want to ask you guys if you have any questions about sort of equity just leave them below in the comments I'll be sure to answer them there if you know somebody need to see this video be sure to share it with them subscribe to this channel and as per usual I want to challenge you guys to live a bigger life and a bigger business and I'll see you next Monday