Wed, Jun 05, 2013

The Give and Take of Equity

A lawyer at a very influential Silicon Valley law firm made an interesting comment in a discussion we had yesterday: He mentioned how he sees more and more startup co-founders and early employees leave their respective companies fairly early on as their equity in the company is just not big enough to justify staying, living on ramen and working long hours and weekends.

What happens here is that founders allocate 80–90% of the shares for themselves and then hand out single-digit percentage equity stakes to their early employees/co-founders.

Not quite as motivating to work yourself into the ground when you own 1% of the company where your “founder” has 40%, is it? And this is before your share gets watered down by external capital.

This is another shade of the topic we discussed yesterday. You really have to treat your team as the messiah.

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