Equity distribution is a topic that startups cannot avoid. If it is not handled well, it may cause internal conflicts and affect the future development of the company. If the equity is divided equally and everyone enjoys the same shares, it seems fair, but in fact it will dissatisfy the partners who have many resources and connections, and it will create a hidden danger. In fact, the ultimate goal of equity allocation is to make participants feel that their efforts have been rewarded and they are willing to take risks.
When making equity allocations, there are several sets of balances to consider. The first is the balance within the company, including the balance between the contributions and equity of company members, and the balance between the risks borne by employees and equity; the second is the balance between the company and investors, including whether the input and output of investors are balanced, and whether investors and the company are balanced. Whether the equity structure is balanced; the last is the balance of each financing stage, which mainly refers to whether the equity allocation has reserved a part of equity for future financing.
On this basis, we need to consider how to be fair and reasonable in the distribution process, which is conducive to the development of the company. To sum up, we need to pay attention to the following points:
First, pay attention to the issue of investment. When allocating equity, whoever invests more should get more shares. To give a simple example, if the founder devotes himself wholeheartedly to the company and devotes time, money, connections, etc., while other members of the company only work part-time in the company, then more shares should be allocated to the founder.
Second, pay attention to the issue of contribution. Each team member of a start-up company will play a certain role in the company based on his technical level and talents. When allocating equity, one must consider each person's role in the company's future development. The greater the role, of course the equity allocated will increase accordingly. On the other hand, if a team member invests key funds in the company, his contribution should also be considered when allocating equity.
Third, pay attention to the issue of control. In the future development of the company, financing is inevitable, and financing will not only change the company's development, but also have an impact on the company's equity structure, and even the transfer of control rights. If entrepreneurs don't want their shares to be diluted too much, they need to consider this issue when they first start allocating equity, reserve a portion of equity for subsequent financing, and set up an option pool.