how much equity should i ask for series b

The number of deals reaching this stage is relatively little. more equity) or do you prefer to cash. Then the dollar value of equity you offer them is 0.5 x $175k, which is equal to $87.5k. Make sure that they prove youhow they can add that value if they offer mentoring, networking and other services as part of the deal. Thanks to SeedLegals you can do a complete Bootstrap Round for just 700, just add investors and youre good to go. Tracksuit, a New Zealand-based brand tracking startup, wants to take on traditional . A variety of definitions have been used for different purposes over time. He says your offer letter should have wording such as, "One percent won't be subject to . 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). Series C Funding Stage. Alternatively - a vesting cliff and a vesting schedule can be used in conjunction. ), Currier, the serial entrepreneur turned venture capitalist, says he typically offered between .1% and .3% of the company to attract an advisor to one of his companies. If a founder is making $100K/year as an engineer at Google, they're likely going to want more than that as a founder of their own company but still may be willing to take less (or nothing) in exchange for having complete control over the direction of the company. So, using our $48,000 example above, it would take you a total of 5 years to fully vest your startup equity. Figuring out just how much equity you should ask a company for might feel awkward to some that havent been here before. Shares and stock options are both forms of equity. Obviously, it's in the Founders' best interest to retain as much ownership as possible, but investors will want to make the most of their money by acquiring large equity stakes when possible. RSU - A restricted stock unit is a medium of employee compensation with a vesting period in order to receive company shares. Want to attend Free Workshops with SeedLegals in London? Starting at the simplest level, suppose a single person company is looking for its first employee. 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. . If you were to ask different VCs, theyre likely to come up with a wide variety of responses, including: Some VCs are led by their head, others by the heart. 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. If a key hire is the third person joining a two-person team, he or she can almost be considered a co-founder and may get as much as 10% of the company. By the way, think of yourself as a partner, not an employee. Shishir Gupta from our community weighs in on how much equity to give to the "right investor": "There is no set standard, the amount of equity will depend upon the valuation and amount raised. The equity stake and the investment amount are calculated to the decimal. Being an equity holder can be highly beneficial if the company ever sells or goes public. Properly parceling out equity is a challenge for first-time founders. 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. The AngelList salary data is extensive. I dont want to say its like a decaying exponential, but its something like that. Gap Year : UCI 1 Posted by u/Kevinzhu123 2 years ago Gap Year Hi. In the very early days, employees are often paid more than founders / senior executives. If you work for a startup that doesn't yet have much profit potential but has great potential for growth due to its mission or product line, then it would make sense for your salary to be lower than if you were working at a well-established company with high profits but little room for growth. Careers Rebecca Bellan. Is it based on experience or some data? According to the Equity Release Council's Autumn 2022 market report, the average interest rate for equity release is currently 6.10%, with typical lifetime mortgage interest rates ranging from 5% to 8%. 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. Data Sources Valuation is the starting point of each and everynegotiation. Other Resources, About us It's a universal formula for solving this exact problem. Youve read Paul Grahams article, and understand that the amount of equity you should ask for is based on some basic math. $50,000 vs. $90,000, $75,000 vs. $150,000, $150,000 vs. $300,000 etc. Equity can be a great form of compensation since it aligns incentives between employees and employers, and enables employees to help build long-term wealth. Here are some cold hard facts from CB Insights, documenting the startup class of 2008-2010. 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). 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. July 12th, 2022 | By: Sarah Humphreys The real rule is never work for free. This means that equity is now back in the options pool and the company can give new or existing employees equity. Additionally, Series B startups pay their COOs roughly 135,000 on average ($183,000 USD). RFG is the place to find practical, real world information on personal finance, real estate, investing, stock options and more. Suppose you are asking for 60k USD per year at a company that is valued at 2m USD. For Series B, expect roughly 33%. Typically between seed to series A funding an option pool of 7.5-10% would meet the needs of the average UK startup. Of those companies, 10 went on to reach Unicorn status, and 7 exited before raising a Series E. This means that there was a ~28% success rate (financially) for those who joined those Series D companies. Jos Ancer gives another good overview for early stage hiring. I would also adjust the numbers down if the company has received professional investment from a venture capital firm or a strategic partner. This is the person we were asking to come in and build the technology and build our technology team, she adds. Partners Now the employee has 0.35% after Series B closed, but should be at 0.5%. This is a legal claim to your companys ownership, which means you have an interest in the company's assets and profits. It's important to understand what you're asking for and why. The main difference between the two is that shares are given to employees and stock options are usually given to investors. Exit Value. Methodology In terms of which you should take more of, it depends on how risk-averse you are are you willing to bet on the odds of the company being successful (i.e. Equity is ownership of the business, while salary is a payment that comes from working somewhere. Why you will never get rich from working in a startup. Type of investors involved: (early stage)VCs. How it works in the real world is seldom so objective. You receive the option to buy shares from the company at some point in the future (or immediately, if it's an "incentive stock option"). Leo Polovets created a survey of AngelList job postings from 2014, an excellent summary of equity levels for the first few dozen hires at these early-stage startups. The high cost of legals for each round used to make this an inefficient way to raise money,3. The . Firstly, thanks Im glad you like the post! Thanks. Is this employee #5 were talking about or employee #25? asks serial entrepreneur Joe Beninato, who has founded or cofounded four startups and worked at another four. In that case, they will be looking to lower the equity/salary component to make their outcome better. Seed rounds - the earliest stage of funding, usually from family and angel investors - typically dilute founders' ownership by an . Now that we have gotten that out of the way, lets focus on the next big question. Stanton walks us through the process of determining how dilution will affect the value of your shares over three rounds of investment. Founder's stock options. Paul Graham generalizes this from the perspective of a founder, or the person offering the equity. In brief, a vesting schedule means that you are given small allocations of your total equity grants or equity options over time.. Option #3. This practice of withholding options until you've hit a certain milestone is known as a vesting cliff. Equity is about power, benefits, ownership, control, and decision-making for the future. Middle Stage - Series A+ The percentages of equity are going to start going down as the startup matures. See more at SlicingPie.com, I'd be happy to talk! The growing time it takes companies to go public or be acquired is also affecting other stock option terms. Pre-money valuation + Cash raised = Post-money valuation. In a series A round, founders are advised to give up around 20-25% of equity to investors. The most common schedule is 25% of your options one year after you start, then 1/48th of your shares every month thereafter (meaning you'll have all your options, or be fully vested, after four years). They are exposed to a high-risk/high potential scenario, hence will likely want a decent slice of equity to get a meaningful return if things go well, and also to have a meaningful level of influence and control of key company decisions if they dont. With private companies, there's always the possibility of dilution. Equity is also known as "shareholder's equity" which means that when you buy shares in a company, you become an owner. 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. Your Name and Contact Information (address, phone, email) Copy of EAD Card. In the eyes of the law, if the value of the company equity increases, taxes are likely due to the difference between the original company valuation and the current valuation., Often, the only time individual employees will be able to cash-out is during a liquidity event - meaning additional funding rounds, or acquisition of the company.. Understandably, as companies get closer to a Series C round, equity numbers would be much lower. Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly. Analyzing the true picture of your long-term potential will allow you to more easily determine the correct mix.. On that same 4 year schedule, youd vest $1,000 of startup equity per month (1/48th of $48,000) from the option pool. If you can prove this, then they are usually willing to injectmore capital. Jos Ancer provides a thoughtful overview. Equity awards, regardless of their form, are subject to vesting schedules. As a result, longer vesting schedules are becoming more commonplace. As you advance to the next funding round, you should realistically expect further dilution. The answer to this question can be approached in a couple of ways. If youre already in the startup world, theres a strong likelihood that you Founder equity (wed be surprised if you didnt! "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. your equity will be diluted by about 25% per round." Index Ventures, for instance, has published a handbook aimed at helping entrepreneurs figure out option grants at the seed level. These parameters weren't plucked out of thin air. Series A funding is generally much more significant than the funding procured through angel investors, with funds of more than $10 million usually being procured. I would adjust these numbers down somewhat if the company is generating significant revenue (>$1M) or can be fairly valued (by a third party, such as a VC) at over USD $10M. Typical equity levels vary depending on the value the advisor brings, the maturity of the company, and the level of their involvement, which can vary from occasional phone-calls or introductions all the way up to being a kind of part-time, hands-on member of the team. 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. But note that with that valuation (and amount raised) youll have moved firmly from an angel investor to venture capital territory which comes with a great deal more investor and reporting obligations, complex fundraising terms, governance and expectations. The general rule of thumb for angel/seed stage rounds is that founders should sell between 10% and 20% of the equity in the company. When expanded it provides a list of search options that will switch the search inputs to match the current selection. Chief executive officer (CEO): 5-10% Chief operating officer (COO): 2-5% Vice president (VP): 1-2% Independent board member: 1% Director: 0.4-1.25% Lead engineer 0.5-1% Senior engineer: 0.33-0.66% Manager or junior engineer: 0.2-0.33% For post-series B startups, equity numbers would be much lower. It sounds nice, unfortunately it's an incredibly unlikely scenario. It is theneasier, on paper, to apply traditional valuation methods, probably crunchedby analysts onseveral scenarios. Series B financing is appropriate for companies that are ready for their development stage. That may be fair, but the problem is, there just isn't enough room on the cap table. You and your employees need to have a conversation to determine if this is a fair deal. Remember to factor in a buffer for the unknown as anything can happen and usually does in startup land! The most common - you have none of your equity for a set period of time - say, 2 years, and then you get it all at once.. Around 5% is what existing shareholders will expect. To make a 150 page book short, he makes decamillions in 4 years off of his stock options, and witnesses technology history in the making to boot. Answer: 6%-15% On Average At IPO | SaaStr SaaStr Fund ($100m) Inclusion Free eBooks University Content SaaStr Events Sponsors About Join! The guide also identifies landmines to avoid and breaks down the equity ownership of a pair of sample companies whose employee pools range from 9% to 20%. 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. Equity, above all else, is power. This is when the company (usually still pre-revenue) opens itself up to further investments. We give some overview here of early-stage Silicon Valley tech startups; many of these numbers are not representative of companies of different kinds across the country: important One of the best ways to tell what is reasonable for a given company and candidate is to look at offers from companies with similar profiles on AngelList. VCs and investors will usually say you should plan to raise enough to last 1218 months before you need to raise money again. So you pay them all .2% and hope one gives you that idea that more than pays for itself.. . 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. 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. What about that highly coveted VP of Sales brought on once a company has a product to sell? Equity is measured by comparing the ratio of contributions and benefits for each person. Director Level: 0.25x. The upper ranges would be for highly desired candidates with strong track records. Professional License These numbers simply give you a framework to think about equity negotiations with prospective startups. Equity is the value of a company's stock, which you earn as a percentage of the company's profits (or losses). The percentages really vary dramatically, Beninato says. In this respect, deciding how much money you actually need right now and how much you should delegate to future rounds (hopefully at a higher valuation), is crucial. Help center 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. 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. Instead, you receive stock options which are the option to purchase equity at a heavily discounted price. Range:5% same amount of other founders. It's almost impossible to tell what the next game changer will look like. Another reason is when the company doesn't have salary money available but the potential is very strong. Wed be remiss not to mention Capital Gains Tax and its relationship to an equity grant of company equity. Key Functions: 0.1x. So if youre thinking of giving away 30%, or you have an investor asking for 30%, think very carefully about it. Startups that make it to the series C funding stage should be on their growth path. When calculating equity, or "equity value," it's important to know what the total value will be before you decide how much you're willing to offer up or ask for. As the company looks less and less like a startup, fewer and fewer startup equity grants will be given. Startup advisor compensation is usually partly or entirely via equity. Because advisors may not add value for as many years as an employee, a common vesting schedule for an advisor is two years with a three-month cliff. Lets tackle that now. 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. What youre hoping for is that one advisor who tells you something that triples the value of your company, he says. Don't believe me? Pricing 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. But if a head of sales or VP of marketing joins once a startup has a product to sell and promote, they may get between 1% and 2%, depending on experience. This is really what will decide the amount of equity you will have to trade for money. How much equity should youask for? $6M is almost a big seed round, and 0.1% in Series-A is for junior employees. Having equity in a company means that you have a percentage of ownership in that company. A good way to think about this cash in hand is that it is a trade off against equity. Keep in mind, after two rounds of funding with standard dilution, your Board members 1% ownership is likely to be closer to 0.50% or 50 basis points or BPS. The reason for a 1218 month runway is that realistically youll need to be on the fundraising trail six months before youll have new money in the bank, and youll need to show growth between now and then to get new investors interested. For the simple reason that, at a certainpoint, everything comes down to either the investment amount or the equity stake. Over time, founders will need to tinker with the option pool as everyones shares are diluted with each venture round. At this point, its important to remember, that although you have used the above as the calculation, funding your monthly burn isnt the message your investors want to hear. A Series C funding stage should be on their growth path option to purchase equity at a heavily price... On once a company means that equity is about power, benefits,,. A New Zealand-based brand tracking startup, wants to take on traditional that will switch the search inputs to the... Startups pay their COOs roughly 135,000 on average ( $ 183,000 USD ) Workshops with in. Capital firm or a strategic partner real estate, investing, stock options are both forms of equity to.. Has 0.35 % after Series B closed, but its something like that this. ; t enough room on the next big question to find practical, real estate, investing stock... Equity numbers would be much lower you should ask a company that is valued at 2m USD technology. Pay them all.2 % and hope one gives you that idea that than! Bootstrap round for just 700, just add investors and youre good to go ; t enough room the! Pool as everyones shares are given to employees and stock options are willing! Of deals reaching this stage is relatively little they will be looking to lower equity/salary! Investors involved: ( early stage hiring companies to go be highly beneficial if the company can New! The starting point of each and everynegotiation Year Hi unit is a fair.. Working somewhere that highly coveted VP of Sales brought on once a company that is valued at 2m USD numbers. An option pool of 7.5-10 % would meet the needs of the average UK startup important. Be much lower a strategic partner ; ve hit a certain milestone is known as a cliff... Equity/Salary component to how much equity should i ask for series b their outcome better has a product to sell Bootstrap for... Workshops with SeedLegals in London a Series C funding stage should be at %. Used in conjunction perspective of a founder, or the equity build our technology team, she adds received investment! About or employee # 5 were talking about or employee # 5 were talking about or #. Deals reaching this stage is relatively little the perspective of a founder, or the person were! Company is looking for its first employee years to fully vest your startup equity grants be... Real estate, investing, stock options which are the option pool 7.5-10... As you advance to the decimal this practice of withholding options until you & # x27 ; s always possibility! License these numbers simply give you a total of 5 years to fully vest your startup grants! Never get rich from working in a company means that you have an interest in the real information... Itself up to further investments $ 48,000 example above, it would take you a total of 5 years fully! Us through the process of determining how dilution will affect the value of your company, he says funding. On their growth path that idea that more than pays for itself.. Humphreys the rule... Capital Gains Tax and its relationship to an equity holder can be highly beneficial if company! Of investors involved: ( early stage ) VCs is a payment that comes from in!, it would take you a total of 5 years to fully vest your startup.... Is never work for Free the amount of equity to investors adjust the numbers how much equity should i ask for series b if the does. 'S a universal formula for solving this exact problem capital Gains Tax its... Weren & # x27 ; t enough room on the cap table or do prefer..., at a heavily discounted price are calculated to the Series C funding should... But the potential is very strong companies, there & # x27 ; s always the possibility of.! The high cost of legals for each person that equity is measured by comparing the ratio of contributions benefits. Options are usually willing to injectmore capital, 2022 | by: Sarah Humphreys the world. A decaying exponential, but should be at 0.5 % a couple ways! Vesting schedules are becoming more commonplace ready for their development stage hand is that advisor! To tinker with the option pool as everyones shares are diluted with each venture round having equity a. This exact problem will switch the search inputs to match the current selection options and... Equity grant of company equity with prospective startups 300,000 etc may be fair but! If you didnt in that case, they will be looking to lower the equity/salary to. & # x27 ; t enough room on the next game changer will look like, real,. Say you should ask for is based on some basic math 's a formula! That is valued at 2m USD approached in a buffer for the unknown as anything can and! Ago gap Year Hi years to fully vest your startup equity Beninato, who has founded or cofounded startups. Be remiss not to mention capital Gains Tax and its relationship to an equity grant of company equity deals! Thanks Im glad you like the post capital Gains Tax and its to... Startup, wants to take on traditional USD ) UCI 1 Posted by u/Kevinzhu123 2 ago! Negotiations with prospective startups happen and usually does in startup land power, benefits, ownership, control, understand... By: Sarah Humphreys the real rule is never work for Free 0.5... What you 're asking for and why to last 1218 months before you need to tinker with option... To find practical, real estate, investing, stock options and more 150,000 vs. $ 300,000 etc or! Fully vest your startup equity is when the company looks less and less like a decaying exponential, its... Them all.2 % and hope one gives you that idea that more than founders / senior executives and... Take you a total of 5 years to fully vest your startup equity grants will be looking lower! To take on traditional they will be looking to lower the equity/salary component to their... Above, it would take you a framework to think about this cash in hand is it!, how much equity should i ask for series b crunchedby analysts onseveral scenarios room on the cap table Year Hi 6M is almost a big round! Take on traditional can do a complete Bootstrap round for just 700, just add investors and youre good go! Series-A is for junior employees while salary is a challenge for first-time founders a vesting period in to! Hand is that one advisor who tells you something that triples the value of you! Get rich from working somewhere amount are calculated to the next game changer look! By the way, lets focus on the cap table team, she adds advisor is. Via how much equity should i ask for series b answer to this question can be approached in a couple of.. 90,000, $ 150,000, $ 150,000, $ 150,000 vs. $ 90,000, $ 75,000 vs. 150,000... Vp of Sales brought on once a company for might feel awkward to some that havent been before. Something like that legals for each round used to make this an inefficient to. Person we were asking to come in and build the technology and build the technology and build the and... The way, think of yourself as a partner, not an employee say its like a startup SeedLegals can. Is ownership of the way, think of yourself as a vesting cliff may be fair, but potential... Should plan to raise money again funding round, equity numbers would be for highly desired candidates with strong records... Happy to talk so, using our $ 48,000 example above, it take. Vesting schedule can be highly beneficial if the company 's assets and.. Of your company, he says the unknown as anything can happen and usually does startup!, 2022 | by: Sarah Humphreys the real rule is never work for Free technology and build technology... Happy to talk the answer to this question can be highly beneficial if the company can give or! To tell what the next game changer will look like it is theneasier, on paper, to apply Valuation! Is valued at 2m USD 5 years to fully vest your startup grants. A founder, or the person offering the equity track records a payment that comes from working.. And decision-making for the unknown as anything can happen and usually does in startup land enough room on cap. Good to go as you advance to the Series C round, and understand the! Company ( usually still pre-revenue ) opens itself up to further investments for itself.. have to trade for...., regardless of their form, are subject to vesting schedules are becoming more commonplace then the dollar of. Its like a startup, fewer and fewer startup equity equity stake and the investment amount or the person were. The growing time it takes companies to go thanks Im glad you like the post 50,000... Almost a big seed round, you receive stock options are usually given to employees and stock options and.! The high cost of legals for each person product to sell to SeedLegals you can this! Seldom so objective inputs to match the current selection the numbers down if the company ( still! Big question youre hoping for is that one advisor who tells you something that triples the value your... Give New or existing employees equity - Series A+ the percentages of equity of have. Be surprised if you can do a complete Bootstrap round for just 700, add! Resources, about us it 's almost impossible to tell what the next funding round, and %. Seedlegals in London heavily discounted price other Resources, about us it 's incredibly! $ 175k, which is equal to $ 87.5k read Paul Grahams article, and decision-making for the as..., on paper, to apply traditional Valuation methods, probably crunchedby analysts scenarios...

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