Tue, Feb 12, 2013
Let me spell this out loud and clear: Be extremely greedy about your equity. Equity are your bargaining chips in the grande game of entrepreneurship.
Five percent for the $5,000 check from your aunt or the two percent for the advisor you met at a conference might not sound like a lot now, but always keep in mind: You only have 100 of these chips to dole out and if you’re successful you will be in this game for a while.
At the very least make sure that you give out equity with a vesting table — making people earn their equity over time. It’s only fair and right.
Let me illustrate the point with a personal story: A few years ago a startup asked me to advise them. They kindly offered me 2.5% equity. Straight up, no vesting. I helped them quite a bit in the early days but as time went on they, for whatever reason, stopped asking me. Today, after a few financing rounds, my equity stake is diluted to slightly less than 1%. That is — I own 1/100th of this company for doing nothing. I am not sure if that is a desirable outcome for the company.
Think long and hard about your equity, who you want to have a stake in your company, how they earn it and how much of your company they should own. There are no sadder stories than those of entrepreneurs who lose control over their company as they gave out too much equity too early in the game and/or to the wrong people.