Guide to equity allocation for startups

At the beginning of the establishment of start-up companies, how to distribute equity reasonably is an important problem that entrepreneurs must face. Equity allocation is not only related to the interests of the founding team, but also has an impact on the future development and financing activities of the company. This article will provide you with some suggestions and methods of equity allocation to help you lay a good foundation at the beginning of your business.

I. evaluate the contributions of team members

In the equity allocation, the first thing to consider is the contribution of the team members. This includes, but is not limited to, capital investment, technology, market resources and contacts. Through a comprehensive evaluation of each member, equity can be distributed more fairly and disputes can be avoided in the future.

Second, reserve equity for employees and consultants

ForBigbaccaratIn order to attract talents and consultants, startups need to reserve some equity as incentives. It is generally recommended to reserve 10 to 20 per cent equity for employee equity incentive schemes (ESOP) and consultant equity. The specific reservation ratio should be adjusted according to the company size, development stage and industry characteristics.

III. Setting up an equity incentive plan

Equity incentive plan is an effective means to stimulate the enthusiasm and loyalty of employees. Usually, equity incentive plans include options, stock subscription rights and restricted stocks. When formulating the plan, it is necessary to clarify the staff's exercise conditions, exercise price, lock-up period and other factors to ensure the fairness and enforceability of the incentive plan.

Fourth, pay attention to the dilution of equity

With the development of the company, financing and the addition of new shareholders, the shares of the original shareholders may be diluted. In the equity allocation, we need to take this situation into account in advance, and agree on the treatment of equity dilution in the contract. At the same time, we can also set up an anti-dilution clause to protect the interests of the original shareholders.

Fifth, formulate a reasonable phased unlocking plan for equity.

In order to prevent shareholders from leaving in the short term, startups can make staged unlocking plans. Typically, the equity unlock period is 4 years, of which 1 year is the cliff period. During the unlocking period, employees need to achieve certain performance targets and working years before they can gradually acquire equity. This arrangement will help to retain key talents and provide guarantee for the long-term development of the company.

Recommended proportion of equity allocation elements founder 50-70% core team members 20-30% employee equity incentive plan (ESOP) 10-20% consultant equity 1-5%

Through the above analysis, we can see that reasonable equity allocation is very important to the success of startups. Entrepreneurs should fully understand the principles and methods of equity allocation to ensure that the company can lay a solid foundation at the beginning of the business.