Startup equity split: How to distribute equity the right way

When it comes to distributing startup equity, it is important to have a clear and consistent approach. One option is to divide all equity shares equally among stakeholders, but this may not always be the best solution. A dynamic equity model can be implemented, which calculates specific equity percentages based on factors such as competencies or financial investments.

The key stakeholders who typically receive startup equity include co-founders, employees, advisors, and investors. The distribution of equity among these stakeholders can vary from one business to another, and there is no one-size-fits-all approach.

For co-founders, it is advisable to have transparent discussions and documentation regarding equity distribution early on. The distribution among co-founders can be based on factors such as individual roles, responsibilities, and contributions.

Startup employees are a valuable asset and can be incentivized with equity in addition to their compensation package. The allocation of equity to employees is typically based on their role, seniority level, and salary.

Advisors play a critical role in guiding startups and may receive equity in exchange for their contributions. Clear terms and expectations should be set when distributing equity to advisors.

Investors, such as angel investors and venture capitalists, provide financial backing in exchange for equity. The terms of investment and equity share are usually pre-defined in investment agreements.

Overall, it is important to have open discussions and align the distribution of equity with the expectations and long-term goals of all stakeholders involved.

if you want to learn more about startup equity, its types and how to manage it when scaling, check out the full article 👇
https://www.upsilonit.com/blog/startup-equity-and-how-it-works

Cake Equity, like slicing pie, works best for LLCs or businesses where the input varies greatly and there's not much need for outside investment. E.g. determining the correct profitsharing/costsharing for a mom and pop shop.

Investors are not open to this kind of equity sharing. Equity sharing is always 'a slice in time' and fluid, and the best way to redistribute equity for an Inc. or scalable tech startup is to grant more shares.

For a previous endeavor, my cofounder was very interested in slicingpie. Our lawyer walked us through step by step all of the reasons not to do it, the number one being 'you don't want to do anything unusual that would give investors pause.'

This type of equitysharing is definitely unusual and would give investors pause.