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Equity Benchmarks

Equity Benchmarks

Equity Benchmarks

Insert Presentation here.

This should come straight after Approaching Equity.

Traditional Startup Equity Norms

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1. Founder Equity (50–70%)

The most important rule about founder equity is this: keep control. At the beginning, you’ll own 100% of your holding company, but that won’t last long. As you bring on investors, employees, and partners, your ownership will shrink. The goal is to dilute just enough to grow the pie without losing the ability to decide what kind of pie it is.

  • Starting Point: 70–100% for the founder at inception.
  • Post-Seed Round: 50–70% after raising an initial round.
  • Post-Series A: 30–50%, depending on how much capital you raise and how much control you’re willing to give up.

Control isn’t just about numbers. Voting rights matter too. Retain super-voting shares or other mechanisms to ensure that you can keep steering the ship.

2. Investor Equity (10–30%)

Investors are buying into your vision, not just your numbers. The less risk you present, the less equity they’ll demand. Early-stage creators and founders often give up more because they don’t yet have proof of concept. Later, as your success compounds, you can negotiate better terms.

  • Starting Point: 0%, you just made the company and you own all of it.
  • Pre-Seed/Seed Round: 10–20% total for all investors combined.
  • Series A: 20–30%, often with stronger protections like liquidation preferences.
  • Later Rounds: Each subsequent round might dilute you by 10–15%, but at this stage, your valuation should be high enough to offset the impact.

Remember, not all equity is created equal. Preferred shares often come with extra terms like veto rights or liquidation preferences. Negotiate carefully to ensure you’re not giving up more control than you think.

3. Employee Stock Option Pool (ESOP) (10%)

Your team needs to be invested—literally. An Employee Stock Option Pool (ESOP) aligns their incentives with yours. The earlier they join, the more risk they’re taking, and the more equity they deserve.

  • Standard Allocation: 10–15% of the company set aside for employees.
  • Early Employees: Senior team members (e.g., COO, GM of a subsidiary) might receive 1–5% each. Non-executives often receive less than 1%.
  • Vesting Schedule: Four years with a one-year cliff is standard. This ensures people don’t leave after a few months with a big chunk of equity.

The ESOP isn’t static. As you raise more funding and grow your team, you’ll need to refresh the pool. Plan for this dilution in your cap table.

4. Reserved Equity for Future Subsidiaries or Spin-Offs (5–15%)

If you’re running a holding company with multiple businesses, subsidiaries need their own equity structure. This helps attract leadership talent without diluting the core business.

  • Holding Company Ownership: Retain 70–90% ownership of each subsidiary.
  • General Manager Equity: 5–10% of the subsidiary, tied to performance.
  • Reserved Equity: 5–15% for future hires or partnerships.

This setup ensures that the subsidiary operates independently while the holding company maintains control.

5. Strategic Advisors and Partnerships (1–5%)

Advisors and strategic partners can be game-changers, but they don’t need much equity to feel invested. Equity here is more about the signal than the payout.

  • Advisors: 0.25–1% per advisor, typically vesting over two years.
  • Strategic Partners: Up to 5% if they’re critical to your growth (e.g., helping you secure distribution or funding).

Equity given here should always be tied to measurable contributions. A title alone isn’t worth a slice of your company.

BONUS: Miscellaneous Equity Allocations

This one might be the controversial section. As a Founder, sometimes you can get trigger happy.

Community Equity & Creator Network Reserve

If your business involves a network of creators or a community, equity can align their incentives with yours. This is a relatively new area, but some patterns are emerging.

  • Community Pools: 5–10% allocated for network members or top contributors.
  • Licensing Deals: Equity reserved for creators whose IP significantly drives a subsidiary’s value (e.g., a collaborative merch line).

This equity should always be tied to performance metrics to avoid giving it away too broadly.

Example Breakdown: Post-Seed Stage Creator Holdco

Here’s an example of how equity might look after a seed investment:

Category
Equity Allocation
Creator/Founder
60%
Investors
20%
ESOP
10%
Reserved for Subsidiaries
7%
Advisors/Partners
3%

As always, if you have any particular questions, feel feel to reach out to em@pre-founder.com.