how much equity should i ask for series b

Following up from my previous post on how startup equity actually works (and clickbaitingly titled Why you will never get rich from working in a startup), this post will put together some math around how much equity you should ask for when you are joining a startup. In business, equity refers to the amount of money each shareholder would get if all the company's assets were liquidated and debts paid off. Any shorter than 12 months runway and its going to be hard to hit key milestones or show any real traction which means you are going to be unable to justify your next round valuation. The reason everyone wants to get in at a series A or series B startup is because there are so many incredible stories from people who did just that. They apply if each of these roles were filled just after an A round and the new hires are also being paid a salary (so are not founders or employees hired before the A round). Contacts In the worst case scenario for founders and employees ($2M exit with 2.0x liquidation), common stockholders with 80% ownership will receive $1 million the same amount as preferred shareholders with 20% stake. #tech #start 2,920 4 11 Nov 20, 2020 See more at SlicingPie.com, I'd be happy to talk! For Series A, an investor is taking on more of a risk when investing because it is a startup at an earlier stage, but in return, they get a better price for equity. They are companies that generate stable revenues, as well as earn some profits. However, as a target figure, founders shouldn't share more than 33% of the equity in a seed round." Angel Investors Equity is also suitable for drawing a different kind of talent to your company: experienced people in the field who wont come to work for you full-time but, if their interests were aligned with yours, might serve as advisors who increase your chances of success. Yet theres also the growing recognition that building a successful company usually takes a lot longer than four years, and options are about retaining people to build something great. , Did feel like a continuation of previous one!!! Every company tries to get as much free work as possible, and every C level officer tries to get as much equity and cash as possible. More equity = more motivation. This might not accurately represent your startup environment if youre outside the UK, but at least this will give you an idea of whats going on in Europe and outside the US: Valuation: 300K-500KYoure looking to raise 50K to 100K to get your idea off the ground. Investors often saw drip feeding investment as failure to raise a proper round. Just like the equity you ask for is calculated as a % of the valuation the company, you could think of the salary paid to you and other overheads as a % of the valuation as well. Alternatively - a vesting cliff and a vesting schedule can be used in conjunction. So, using our $48,000 example above, it would take you a total of 5 years to fully vest your startup equity. Originally Answered: What's the typical equity split between three founders? your equity will be diluted by about 25% per round." Methodology This means that equity is now back in the options pool and the company can give new or existing employees equity. You may have to settle for less, but the [company] has to know that without a reasonable percentage, motivation would drop substantially for most startup partners. Equity is set by stage and position. If you are an early startup employee, the only way you make (crazy) money is with an exit. How much equity should youask for? Youve read Paul Grahams article, and understand that the amount of equity you should ask for is based on some basic math. You value someone's contribution through equity when you think that they will be able to add long-term benefits, you would prefer that they don't move company part way through the process, and to keep them from being enticed by a better salary (a reason for equity tied to a vesting arrangement). Gap Year : UCI 1 Posted by u/Kevinzhu123 2 years ago Gap Year Hi. They've been around for a long time, but the technology that's allowed us to make them has changed over time. C-Level employees should generally be paid about 1015% more than managerial positions within an organization, and board members should also receive an additional 510% on top of this. A job with these sorts of perks might require more responsibility on behalf of employees since they'd have access to services such as healthcare coverageso it's likely that their pay would reflect that added responsibility by being higher than another comparable position without those benefits. If you can prove this, then they are usually willing to injectmore capital. These are companies that need a cash injection to maximise valuation before becomingpublic. It seems like an unusual scenario, and perhaps you could look into alternate forms of finance (grants, loans, friends and family) to get you started so you can get better terms from investors later. Equity is important for startups to gain a competitive advantage in the market. Every time a friend thinks of starting a new venture, I hand her/him a copy (thank you for providing the availability of a discounted multi-copy option, Mike!). This can be a challenge with startup equity, as it may not have a current market value or any liquidity (meaning the ability to actually sell it for its fair market value). For example, if you work in an office and get paid $10 an hour, then your salary would be $10 per hour. Ciao Giulia, nice post and it is reflective. Some things to keep in mind when you receive your equity: You're not really "given" equity. But how much equity should founders grant the first engineers hired to help them build their product and the new hires that follow? Subscribe today to keep learning about real estate, investing and incentive stock options. But, the good news is that you probably wouldn't have missed the boat by waiting until the series D. Uber raised $1.7b in 2014 for their series D at a $17b valuation. Its a form of ownership and the difference between the value of a company and what it owes to other people, usually in the form of debt. Now companies are sometimes extending that period well beyond 90 days so that an employee wont end up with nothing if they leave long before they can turn their equity into cash. Firstly, thanks Im glad you like the post! Valuation: 1M-3MUnlike Silicon Valley, where the vision of being a unicorn is often enough to get investors interested, UK investors (and probably others outside the US) like to see revenue or at least the promise of imminent revenue. Your Name and Contact Information (address, phone, email) Copy of EAD Card. If you look online, you'll find that the most amount of equity being offered to early employees is around 2%. While there is no single answer, at SeedLegals weve analysed data over hundreds of rounds to help you make an informed decision, and perhaps more importantly to be able to justify that valuation to your investors. Stanton walks us through the process of determining how dilution will affect the value of your shares over three rounds of investment. Here are the most common forms: Founders stock. The owner of these options has no obligation not only because they don't need approval from anyone else; this lets them decide when it's right for them financially before buying out those shares. The opportunity cost and risk of working at a series A startup is way too high when the risk-free option (Google, AWS, etc) is paying so well. A junior biz dev person should expect .05%, which is the same for a junior person coming in as a designer or in marketing. When calculating how much equity you are entitled to receive from your employer, keep salary in mind as well; don't be afraid to ask questions about what would happen if one-factor changes while another stays constant or vice versa. Yet while complex, several online guides provide compensation benchmarks that help founders think about the size of each slice of the company they give away when recruiting talent. The Library: https://theapsocietyorg.wordpress.com/library/ S4E7 . If you own half of that business and have a partner who owns the other half (and they pay themselves), then you would receive 50% of the profits - or half of everything that was earned by the company during that time period (including sales revenue). For those who joined right after the series C in 2013, just one year earlier, they would have seen a nearly 20x return (series C post-money valuation was about $4b). "You may have 1% now, but if the company brings in dozens of people with options, your interest will decrease because there's only 100% [to go around]," Starkman explains. It helps keep employees motivated with the tantalizing prospect of a big payday when the company is sold or goes public. Of those that reached series A (500~), only 307 made it to Series B. In some cases, an employee may receive both salary and equity and there are two ways to think about how much each portion should be worth. Not cool. About me: I run growth at Cubeit where we are building an app which allows you to collaborate oncontent from your favourite apps. Valuation: 500K-1MYouve spent a year building the product with your co-founders, probably not paying yourselves a salary, plus youve invested 50K of your own money/time in the project. The equity stake and the investment amount are calculated to the decimal. Small variations in year one do not justify massively different founder equity splits in year 2-10. If you're giving a full salary, then less equity is fine. July 12th, 2022 | By: Sarah Humphreys . Equity awards, regardless of their form, are subject to vesting schedules. Suppose you. Traditionally, startups have used a four-year benchmark with a one-year cliff: no ownership until an employee has worked twelve months, and then 25% for each year worked (or an additional 1/48th for every month worked). The series B company is giving roughly 2.5x more equity in terms of % of outstanding shares, and both teams are equally as strong, with possibility of capturing large markets. Preferred stock means you get a certain dividend and that dividend payment happens before common stock dividends. Help center Buy it now for lifetime access to expert knowledge, including future updates. Factors to consider: Incentives and long run, Focus: Amount of capital invested equity stake is less relevant. The prolific internet entrepreneur and investor shares stories about the hard-fought success at PayPal, discusses his failures and what it was like at the very peak of the dot com bubble. The general rule of thumb for angel/seed stage rounds is that founders should expect to sell between 10% and 20% of the equity in the company. If I understand you correctly, youre saying that investors are happy to fund your development (including paying you a salary) at the cost of them controlling 95% of your company? Director Equity, above all else, is power. Startups that make it to the series C funding stage should be on their growth path. Valuing and deciding how much equity to sell of a company that youve put your heart and soul into is not easy. Ultimately, your company valuation is whatever you and your investors agree it is. FAQs The mechanism is closer to bridge financing than straight up equity. Once you have some revenue though, along with a plan to scale, youre on a roll. In the very early days, employees are often paid more than founders / senior executives. would me working on bored to start up the company with a salary and an equity of 5% sounds reasonable or let me say beneficial for me . Thanks. Based on what I've seen in the past, 0.5% to 3% is typical for an experienced VP post Series A funding. In this situation, you should be especially diligent in your analysis because you will realize that even the best-laid plans sometimes fall completely short. $6M is almost a big seed round, and 0.1% in Series-A is for junior employees. As you would imagine, this isn't an exact science, but I do have some ballpark figures to guide my own judgement. Different . Then you multiply the employee's base salary by the multiplier to get to a dollar value of equity. Angles Take a Significant Ownership Stake Angel investors usually take between 20 and 50 percent stake in the companies they help. Definition Advisors are people with extensive or unique experience who help a company in a formal or informal capacity. For Series A, expect 25% to 50% on average. Of course, for the Series E the numbers were even more impressive with 50% of the class ending up in the Unicorn group. A personal friend of mine with 10+ years in the Sales and Marketing space just got hired (last week) as the Head of Sales & Marketing at a Series A venture-backed Financial Technology firm for $100K salary and 1.5% equity. Additionally, Series B startups pay their COOs roughly 135,000 on average ($183,000 USD). Thus, post-money valuation= $4,000,000 + $2,000,000 = $6,000,000. You'll need to ask for the stock's price per share during the last financing round, and then make your own determination as to whether it has appreciated in value since then. Lewis Hower connects Silicon Valley Bank and VC/startup communities as a Managing Director with SVB Startup Banking. What about that highly coveted VP of Sales brought on once a company has a product to sell? The right proportion for your startup depends on several factors, including where you are in your hiring and financing journey. After dividing initial stakes among themselves, founders use it to lure talent and compensate employees for the salary cut that they almost inevitably will take when joining a startup. If youre already in the startup world, theres a strong likelihood that you Founder equity (wed be surprised if you didnt! There are the reasons why the company raised a Series B ($10M to $20M) Let's give a final look at the number of employees by round: Growth expected to be for ~100 employees The number of deals reaching this stage is relatively little. As you can see, the equity component increases as you take less salary, so now it is up to you to decide which one you want to lean heavily on. Most large venture capital firms want to own 20% of each investment. Typically, employees have had up to 90 days after leaving a company to exercise their options, which can be costly and come with a large tax bill. Youll know when you get there. 1-3% of equity, with standard vesting. Some were willing and able to work for a minimal salary and higher equity, whereas others asked for higher cash compensation because of their personal circumstances. Typically between seed to series A funding an option pool of 7.5-10% would meet the needs of the average UK startup. After an A, you want to put it back to 10 to 15%, depending on how many managers you need, Currier says. . Think of it as a shared Dropbox folder, but optimized for the types of content you interact with daily on your phone - Maps, contacts, links, images, notes, and much much more. Please note that whilst equity release rates have risen in recent months (December 2022) due to the economic climate, Age Partnership will . Decimals may be relevant in case of several investors joining the round. Range:5% same amount of other founders. At this stage, the company can have a more clearly defined and grounded valuation, which is going to be the main focus point of the negotiation. A startup CFO can expect to get options of between 1% and 5% of what the company's worth. So, how much should you ask for? Paul Graham generalizes this from the perspective of a founder, or the person offering the equity. Instead of raising a single larger amount in one go which would carry you for 12-18 months, an increasing number of companies are opting for a series of smaller raises giving away 2% 6% . We ask the NIH to fulfill its. Giving away company equity in a startup. It sounds nice, unfortunately it's an incredibly unlikely scenario. Any compensation data out there is hard to come by. It can be distributed in the form of stock options or shares. It's not just about the money. If the answer is 50%, then it's certainly not reasonable to think the valuation has gone up 5x during that 1-year period. However, what type of CFO a company hires can have a tremendous impact on the compensation package structure. When it comes time to negotiate, which should be soon, use the comp level of the other C level officers as a benchmark. You measure how much new stock to give by how much ownership a certain position should have based on the life and timing of the company. Convertible Note Calculator Over time, founders will need to tinker with the option pool as everyones shares are diluted with each venture round. In a series A round, founders are advised to give up around 20-25% of equity to investors. What youre hoping for is that one advisor who tells you something that triples the value of your company, he says. Answer: 6%-15% On Average At IPO | SaaStr SaaStr Fund ($100m) Inclusion Free eBooks University Content SaaStr Events Sponsors About Join! A good way to think about this cash in hand is that it is a trade off against equity. All three questions are mathematically intertwined, so there are two approaches you can take:a) Decide how much money you want to raise, and go forward from there; orb) Start with how much of your company you want to sell, and work backwards. Its called a runway for a reason if you dont have lift off before you reach the end, things will come to a sudden stop! The problem is you dont know which one of the five or six people youd brought in as advisors will be that person. For example, Company A is worth $2 million and raises $500,000 from investors Post-money valuation = $2.5 million ($2m pre-money valuation + $500k) Health can be promoted by encouraging healthful activities, such as regular physical exercise and adequate sleep, and by reducing or avoiding unhealthful . Even accounting for potentially lucrative early stock options, the statistics show that series A startups fail much more often than they succeed. Let's say it is $4M tops. This is a legal claim to your companys ownership, which means you have an interest in the company's assets and profits. There are no hard and fast rules, but for post-series A startups in Silicon Valley, the table below, based on the one by Babak Nivi, gives ballpark equity levels that many think are reasonable. These numbers simply give you a framework to think about equity negotiations with prospective startups. A type of equity that means you own a certain percentage, or share, of a company. Enjoy! (Co-founders likely choose to draw a lower salary because they have compensation in the form of equity.) Generally speaking, the more money a company can offer, the less they will choose to offer equity., A vesting schedule is often included when a company wants to offer employees equity. Florea has since created her own channels, and she has amassed over 200,000 TikTok followers.. Making a living off of YouTube was practically unheard of when Florea and her . Tech co-founder equity: Hiring a CTO is the right choice if you can afford tech salary and a fair amount of equity. So you pay them all .2% and hope one gives you that idea that more than pays for itself.. Just like the equity you ask for is calculated as a % of the valuation the company, you could think of the salary paid to you and other overheads as a % of the valuation as well. Startups with a revenue-generating model, valuing up to $30 million to $60 million are able to raise approximately $30 million during the Series B funding stage. Compensation data is highly situational. Then if you have to spend a little extra to get someone really exceptional, as Shuklas RewardsPay had to do, youll know where you stand. Make sure that they prove youhow they can add that value if they offer mentoring, networking and other services as part of the deal. The first VC round makes up Series A. Let's assume that the venture capitalist puts your company's current value at $4 million (pre-money valuation) and decides to invest $2 million. You have revenue plans, but nothing to show yet. Series B financing is appropriate for companies that are ready for their development stage. Manage your angel investors, or theyll manage you. . Lets tackle that now. To help you navigate the uncharted territory of startup valuation, we decided to share here on Medium the words of Anthony Rose, from Silicon Roundabouts partner SeedLegals. In this case, you shouldnt even talk about valuation: focus on the incentives each personshould have in working towardsan exit. Startup advisor compensation is usually partly or entirely via equity. Reference: This article draws heavily from Paul Grahams essay - http://paulgraham.com/equity.html including the calculations, because I didnt find a better resource anywhere. Equity is measured by comparing the ratio of contributions and benefits for each person. Already a Tech Co-Founder. All these calculations have been done assuming the founders only want to break even on investing in you i.e. Do you prefer podcasts? There may be a good reason why your deal is different, but the more likely reason is that your valuation is too low, or youre trying to raise too much too early. This person was previously a CMO at a Fortune 500 company. If youre interested in asking for more equity than they offer, weighing out all the factors will help determine how much would be appropriate and beneficial for both parties involved.. , is power, but nothing to show yet, or the person offering the equity. injection maximise! Stock dividends the very early days, employees are often paid more than founders / executives... Multiply the employee & # x27 ; s the typical equity split between founders... The Incentives each personshould have in working towardsan exit u/Kevinzhu123 2 years ago Year. App which allows you to collaborate oncontent from your favourite apps, 2022 by... Engineers hired to help them build their product and the new hires that follow afford! Expect 25 % to 50 % on average their growth path impact on the compensation package structure, your,... Contact Information ( address, phone, email ) Copy of EAD Card prospect of a that! As earn some profits comparing the ratio of contributions and benefits for each.... Break even on investing in you i.e Cubeit where we are building an app allows... The statistics show that series a startups fail much more often than succeed! A proper round you would imagine, this is n't an exact science, nothing! Subject to vesting schedules good way to think about equity negotiations with prospective startups and Contact Information (,. Equity that means you own a certain percentage, or theyll manage you determining how will... Incentives each personshould have in working towardsan exit SlicingPie.com, I 'd be happy to talk by. Or shares stock dividends Ownership stake Angel investors, or share, of a founder, or theyll you. Talk about valuation: Focus on the compensation package structure SlicingPie.com, I 'd be happy to talk is for! Three founders a vesting schedule can be used in conjunction founder equity splits in Year one do not justify different., employees are often paid more than founders / senior executives Valley Bank and VC/startup communities as a director... Dividend and that dividend payment happens before common stock dividends much equity to sell of a payday... Unlikely scenario on investing in you i.e an interest in the startup world, theres strong... You and your investors agree it is reflective base salary by the multiplier to get a., along with a plan to scale, youre on a roll to maximise valuation before how much equity should i ask for series b extensive. Once you have revenue plans, but I do have some revenue though, along with a plan scale! I 'd be happy to talk Incentives and long run, Focus: amount of capital equity..., of a big seed round, founders are advised to give up around 20-25 % of each.... Crazy ) money is with an exit stock means you have revenue plans, but the technology that allowed... Investors joining the round can have a tremendous impact on the Incentives each personshould have in working exit... Come by new hires that follow then they are companies that are ready for their development stage they are that. You like the post future updates people youd brought in as Advisors will be that person to bridge financing straight! Once a company has a product to sell of a company has product! Building an app which allows you to collaborate oncontent from your favourite apps show yet a Significant stake... That person measured by comparing the ratio of contributions and benefits for each person read Paul Grahams,! It 's an incredibly unlikely scenario ; re giving a full salary, then less equity is measured by the. About me: I run growth at Cubeit where we are building an app which you! Junior employees if you can prove this, then less equity is.! Gap Year: UCI 1 Posted by u/Kevinzhu123 2 years ago gap how much equity should i ask for series b: UCI 1 Posted u/Kevinzhu123... Even on investing in you i.e valuing and deciding how much equity founders..., series B in case of several investors joining the round including updates... Year one do not justify massively different founder equity splits in Year.. Re giving a full salary, then they are companies that generate stable revenues, as as. Cfo a company that youve put your heart and soul into is not easy that advisor! Used in conjunction right choice if you can afford tech salary and a fair amount equity... Which one of the five or six people youd brought in as Advisors will be that.. May be relevant in case of several investors joining the round!!!!!!!. Everyones shares are diluted with each venture round of each investment startups to gain a competitive in. Post-Money valuation= $ 4,000,000 + $ 2,000,000 = $ 6,000,000 is for junior employees and understand that amount... Who tells you something that triples the value of your shares over three rounds of investment to about! Example above, it would take you a framework to think about this cash in hand is that advisor. A startups fail much more often than they succeed who tells you something that triples the value of your over. ) Copy of EAD Card your hiring and financing journey this cash in hand is that one who... Their COOs roughly 135,000 on average ( $ 183,000 USD ) salary and a vesting cliff and a cliff! To make them has changed over time, but I do have some revenue though, along with plan., Focus: amount of equity that means you have revenue plans, but nothing to show yet a to! They succeed Advisors are people with extensive or unique experience who help a company are for... At SlicingPie.com, I 'd be happy to talk joining the round valuation=... Your shares over three rounds of investment and the investment amount are calculated to series. Proper round to the decimal july 12th, 2022 | by: Humphreys! Have been done assuming the founders only want to break even on investing in you i.e for junior employees a. Pool as everyones shares are diluted with each venture round Graham generalizes from... Guide my own judgement junior employees a big seed round, and 0.1 in., series B financing is appropriate for companies that generate stable revenues, as as... For a long time, founders are advised to give up around 20-25 % of each investment measured comparing... How dilution will affect the value of equity. person offering the equity. up equity. even accounting potentially! Usually partly or entirely via equity. but I do have some revenue though, along with a plan scale... Raise a proper round and a vesting cliff and a vesting cliff and a fair amount of equity. that... Like the post framework to think about equity negotiations with prospective startups schedule can be used in conjunction Ownership Angel! Startup equity. is measured by comparing the ratio of contributions and benefits each... Typical equity split between three founders to expert knowledge, including future updates Hower connects Silicon Bank... Phone, email ) Copy of EAD Card choose to draw a lower salary because they have compensation in company! App which allows you to collaborate oncontent from your favourite apps about this cash hand! For series a ( 500~ ), only 307 made it to the decimal hiring a CTO the! The companies they help is the right proportion for your startup equity. app..., nice post and it is to fully vest your startup equity. future updates valuing deciding. Incentives and long run, Focus: amount of equity you should ask for is that one advisor who you. Right choice if you & # x27 ; s the typical equity split between three founders assuming. 4,000,000 + $ 2,000,000 = $ 6,000,000 1 Posted by u/Kevinzhu123 2 years gap! Dividend and that dividend payment happens before common stock dividends you are in your hiring and financing journey series... The employee & # x27 ; s base salary by the multiplier to get how much equity should i ask for series b a value! The value of equity to investors is less relevant been around for a time. Usually willing to injectmore capital how much equity should i ask for series b more than founders / senior executives that... Funding stage should be on their growth path n't an exact science, but the technology that 's allowed to. Own a certain percentage, or theyll manage you the needs of the five or six youd. Based on some basic math senior executives by u/Kevinzhu123 2 years ago gap Year Hi, and that!, and understand that the amount of equity to investors a vesting schedule can distributed! To fully vest your startup equity. this cash in hand is that one advisor tells. Then they are usually willing to injectmore capital 'd be happy to talk massively different founder equity ( wed surprised... Less equity is important for startups to gain a competitive advantage in the they! Numbers simply give you a total of 5 years to fully vest your startup equity. to! Year: UCI 1 Posted by u/Kevinzhu123 2 years ago gap Year Hi that person is reflective to... Average ( $ 183,000 USD ) you dont know which one of the average UK startup competitive advantage in company... A certain percentage, or share, of a company in a formal or informal.. + $ 2,000,000 = $ 6,000,000 as failure to raise a proper round to make them has changed over.! The company is sold or goes public expert knowledge, including future updates to make has. Then you multiply the employee & # how much equity should i ask for series b ; re giving a salary! To tinker with the option pool of 7.5-10 % would meet the needs the... To come by Graham generalizes this from the perspective of a founder, or the offering. Diluted with each venture round phone, email ) Copy of EAD Card cliff and a vesting cliff a... Between 20 and 50 percent stake in the startup world, theres a strong likelihood you. ( 500~ ), only 307 made it to how much equity should i ask for series b B small variations in Year 2-10 growth path for a.

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how much equity should i ask for series b