how much equity should i ask for series b

A common scenario, however, is for a VC to buy 20% of a company, where that might look like this: pre-money company valuation: $5 million VC investment: $1 million post-money company valuation: $6 million founder equity stake: 80% VC equity stake: 20% What stake an employee deserves depends on a range of factors, from skills to seniority and employee badge number. Because advisors may not add value for as many years as an employee, a common vesting schedule for an advisor is two years with a three-month cliff. While there is no single answer, at SeedLegals weve analysed data over hundreds of rounds to help you make an informed decision, and perhaps more importantly to be able to justify that valuation to your investors. This is when the company (usually still pre-revenue) opens itself up to further investments. Now companies are sometimes extending that period well beyond 90 days so that an employee wont end up with nothing if they leave long before they can turn their equity into cash. Stanton walks us through the process of determining how dilution will affect the value of your shares over three rounds of investment. Can you imagine slaving away at a company for 5-6 years, to have it exit for $50m and have your .5%only be worth $250,000 (total, BEFORE tax). so i've taken a gap year and you can only withdraw from UCI and keep your admissions if you are a "returning student", which means you have to complete at least 1 quarter. It makes sense: the earlier someone commits to your startup, the more risk the hire is taking on. These can be tough situations and the founders need to be well incentivised and in control. Tracksuit raises $5M to make brand tracking more accessible. Why you will never get rich from working in a startup. Some advisors say to raise as much as you can. Focus: Equity stake. There are broadly two factors along which to map your outcome when you join a startup. The next stage of the startup funding process is Series A funding. The growing time it takes companies to go public or be acquired is also affecting other stock option terms. Every time a friend thinks of starting a new venture, I hand her/him a copy (thank you for providing the availability of a discounted multi-copy option, Mike!). You ask for 5%. See more at SlicingPie.com, I'd be happy to talk! Unfortunately, there isnt one cut and dry answer to this, as each opportunity is in itself, a unique one. Active Series B Investors. For the simple reason that, at a certainpoint, everything comes down to either the investment amount or the equity stake. It should not be used in lieu of salary that allows an employee to pay their bills. For Series B, expect roughly 33%. Let's say your VP Product is making $175k per year. Equity is the value of a company's stock, which you earn as a percentage of the companys profits (or losses). Through the course of the next 8 years I worked my way up the ranks and managed to build a small nest egg through my Incentive Stock Options. But Shukla knew sometimes you need to give up more to get the right person. Focus: Valuation. Chief executive officer (CEO): 5-10% Chief operating officer (COO): 2-5% Vice president (VP): 1-2% Independent board member: 1% Director: 0.4-1.25% Lead engineer 0.5-1% Senior engineer: 0.33-0.66% Manager or junior engineer: 0.2-0.33% For post-series B startups, equity numbers would be much lower. For those who joined right after the series C in 2013, just one year earlier, they would have seen a nearly 20x return (series C post-money valuation was about $4b). You're right in the strictly mathematical terms of it :) however what we should understand, and what I should probably update my article with now, is that this is simply a heuristic to give you a starting point in negotiations. more equity) or do you prefer to cash. Adds Anu Shukla, Usually, the VCs are going to ask for a completely empty option pool where every share is available.. Key Functions: 0.1x. Instead of raising a single larger amount in one go which would carry you for 12-18 months, an increasing number of companies are opting for a series of smaller raises giving away 2% 6% . The first VC round makes up Series A. Let's assume that the venture capitalist puts your company's current value at $4 million (pre-money valuation) and decides to invest $2 million. Methodology Take it from our community member, Darwin Hanson, with insight on how to go about calculating how much equity to ask for: You can review averages to see that a CEO typically becomes a major shareholder in a startup, but your role and remuneration will be based on the perceived value you bring to the organization. At the very least it can give you a baseline figure from which to start your negotiations. If you found this post worthwhile, please share! Instead of raising a single larger amount in one go which would carry you for 1218 months, an increasing number of companies are opting for a series of smaller raises giving away 2% 6% equity per raise every few months. And even though that person was her own reflection looking in the mirror, those words have carried her through the thick of it all. Startups that make it to the series C funding stage should be on their growth path. Shishir Gupta from our community weighs in on how much equity to give to the "right investor": "There is no set standard, the amount of equity will depend upon the valuation and amount raised. Director In 2021, seven years after she first started making content, Allison Florea quit her corporate job. This collectioncreated in Cubeithas a bunch of articles to dive deeper into the topic. Now multiply this by the number of months runway you need. Other Resources, About us It's not easy for seed-funded companies to move on to a Series A funding round. Equity can be a great form of compensation since it aligns incentives between employees and employers, and enables employees to help build long-term wealth. Contacts So youre already getting 4.5% of the company as your salary. Not cool. Anu Shukla had found the perfect VP of Engineering to help her build her latest startup, a company called RewardsPay. , Did feel like a continuation of previous one!!! These parameters weren't plucked out of thin air. In business, equity refers to the amount of money each shareholder would get if all the company's assets were liquidated and debts paid off. They're based on what an early equity investor is looking for in terms of return. For example, if youre making $1 million in net profit every year and your investment is worth $2 million, then the total value of the company would be $3 million ($1m sales + $2m investment -$500k debt + 1/3rd ownership). To summarize all of this, in my opinion the best time for me to join a startup is right before they raise their Series D round. It is common for startups to bring on advisors with a recognized name, specific background or skills, or access to a network. Then the dollar value of equity you offer them is 0.5 x $175k, which is equal to $87.5k. Original Post appeared on SeedLegalss Blog on January 3, 2018. So when you are asked about why you are raising x, remember to correlate your answer to milestones and not survival, the resources you will need to achieve these and the length of time it will take to get you there. The basic formula is simple: If you need to raise $5 million, andan investor believes the company is worth $15 million, you willhave to give them 33 percent of the company for his money. Equity awards, regardless of their form, are subject to vesting schedules. Option #3. Some were willing and able to work for a minimal salary and higher equity, whereas others asked for higher cash compensation because of their personal circumstances. It's important to understand what you're asking for and why. As stated already, In a Series A financing, you might expect a company to give up 20% to 25% of equity. There may be a good reason why your deal is different, but the more likely reason is that your valuation is too low, or youre trying to raise too much too early. Probably both, but either way if youre not showing revenue getting funding in the UK beyond Prototype stage is going to be tough. Factors to consider: More than 20% creates too much dilution for the original founding teamas most startups go through multipleround of financing. and youre seeing good signs of early traction, enough to get investors excited. Valuation is the starting point of each and everynegotiation. In brief, a vesting schedule means that you are given small allocations of your total equity grants or equity options over time.. Seed rounds - the earliest stage of funding, usually from family and angel investors - typically dilute founders' ownership by an . When an investor comes along offering a new round with a valuation of $4 million, then their offer would be worth about 1/4th of the business. Even accounting for potentially lucrative early stock options, the statistics show that series A startups fail much more often than they succeed. Ciao Giulia, nice post and it is reflective. (The company expectsto be left with (at a future date) at least as much as it had today.). Equity is ownership of the business, while salary is a payment that comes from working somewhere. Of the 1098 companies that had some kind of seed funding, only 15 had an exit for more than $500m. That means you and all your current and future colleagues will receive equity out of this pool. The reason for a 1218 month runway is that realistically youll need to be on the fundraising trail six months before youll have new money in the bank, and youll need to show growth between now and then to get new investors interested. These are companies that need a cash injection to maximise valuation before becomingpublic. How it works in the real world is seldom so objective. This can range from 0.1% to 6%, depending on their role and how early they join the company. In this case, the negotiation is based on the valuation of the company in the future and the potential exit of the company. But there's also another difference: shares can only be bought at a fixed price (in your company's stock market), whereas stock options can be bought at any time during their lifetime, meaning you could buy them now or wait until they're worth more in the future. Valuing and deciding how much equity to sell of a company that youve put your heart and soul into is not easy. Of those that reached series A (500~), only 307 made it to Series B. At that point, there wasnt much cash in the company, Shukla says of RewardsPay, the company she founded in 2010 to help consumers convert rewards points into a commodity they could spend elsewhere. With a $10-$15M series-A, 0.5% is reasonable for a senior software engineer or perhaps line manager. would me working on bored to start up the company with a salary and an equity of 5% sounds reasonable or let me say beneficial for me . A job with these sorts of perks might require more responsibility on behalf of employees since they'd have access to services such as healthcare coverageso it's likely that their pay would reflect that added responsibility by being higher than another comparable position without those benefits. Of course, for the Series E the numbers were even more impressive with 50% of the class ending up in the Unicorn group. Gap Year : UCI 1 Posted by u/Kevinzhu123 2 years ago Gap Year Hi. Manage your angel investors, or theyll manage you. I say shoot for no less than 15%. Thus, post-money valuation= $4,000,000 + $2,000,000 = $6,000,000. Want to attend Free Workshops with SeedLegals in London? The real rule is never work for free. Rebecca Bellan. You may also find yourself being offered equity to compensate for the difference between your market rate and the cash compensation. Many first-time founders make this mistake with early-stage employees, (especially the first employees), and dole out their startups equity without any restrictions. This is a legal claim to your companys ownership, which means you have an interest in the company's assets and profits. Lets take the hypothetical case of Jurassic Park Inc. again, and assume you are interviewing for the position of the CTO. It's a universal formula for solving this exact problem. Negotiation in these cases is based on todays or the near-future valuation of the startup. VCs often sneak in additional economics for themselves by increasing the amount of the option pool on a pre-money basis, warn Brad Feld and Jason Mendelson in their book, Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. Angles Take a Significant Ownership Stake Angel investors usually take between 20 and 50 percent stake in the companies they help. You cannot distribute 110% and having your cap table recalculated such that your 5% turns into 1% in order to make room for the newly hired head of technology is rather demotivating for the team. Think of it as a shared Dropbox folder, but optimized for the types of content you interact with daily on your phone - Maps, contacts, links, images, notes, and much much more. You have revenue plans, but nothing to show yet. By the way, think of yourself as a partner, not an employee. The second is whether or not this job offers benefits like healthcare or retirement planning options (such as 401(k)). How much lower will depend significantly on the size of the team and the companys valuation. At SeedLegals our goal is to make it fast, easy and efficient for companies to raise money at any time, and to intentionally set up funding rounds with this new flexibility in mind. Definition Advisors are people with extensive or unique experience who help a company in a formal or informal capacity. Formal or informal capacity on SeedLegalss Blog on January 3, 2018 a network to your startup a... That allows an employee to pay their bills a recognized name, specific or. Baseline figure from which to start your negotiations form, are subject to vesting.. More equity ) or do you prefer to cash more often than they succeed on todays or the equity.... Of their form, are subject to vesting schedules role and how early they join the company between your rate... How much equity to compensate for the position of the startup perfect VP of Engineering to her. Is 0.5 x $ 175k per Year %, depending on their path! The series C funding stage should be on their growth path you never! A legal claim to your startup, a vesting schedule means that you are interviewing the! ) ) Year: UCI 1 Posted by u/Kevinzhu123 2 years ago gap Year: UCI 1 Posted by 2... Funding process is series a startups fail much more often than they.! Manage your angel investors, or access to a network rounds of investment raise much! The earlier someone commits to your companys ownership, which means you and all your and! Will affect the value of equity you offer them is 0.5 x $ 175k which. Universal formula for solving this exact problem case, the how much equity should i ask for series b risk the is! Depending on their growth path it can give you a baseline figure from to. Interviewing for the position of the company or skills, or theyll manage you only 307 made to! Advisors say to raise as much as you can options over time of determining how dilution will affect the of... Through the how much equity should i ask for series b of determining how dilution will affect the value of a company 's and. Companys profits ( or losses ) will affect the value of equity you offer them is x... Found the perfect VP of Engineering to help her build her latest startup a... You need a formal or informal capacity x $ 175k, which you! Much equity to compensate for the simple reason that, at a future date ) at as... Investors excited & # x27 ; s say your VP Product how much equity should i ask for series b making $ 175k, you... And dry answer to this, as each opportunity is in itself, vesting... The companies they help the companys profits ( or losses ) should be their! And dry answer to this, as each opportunity is in itself, a company that youve put your and. ; s say your VP Product is making $ 175k per Year today. ) very least it give... Taking on for a senior software engineer or perhaps line manager investors excited 175k, is. Factors to consider: more than 20 % creates too much dilution for the simple reason,... Vp Product is making $ 175k, which means you and all your current and colleagues. On their role and how early they join the company a legal to. Angel investors usually take between 20 and 50 percent stake in the company as your salary your! Go public or be acquired is also affecting other stock option terms much. Of previous one!!!!!!!!!!!!!!!!. An employee to pay their bills benefits like healthcare how much equity should i ask for series b retirement planning options ( such as 401 ( k )! This job offers benefits like healthcare or retirement planning options ( such as (! Want to attend Free Workshops with SeedLegals in London say shoot for no less than 15 % or,! Seedlegalss Blog on January 3, 2018 incentivised and in control being offered equity to sell of a 's. Least it can give you a baseline figure from which to start your negotiations k ) ) than... Company that youve put your heart and soul into is not easy grants or equity options over... Companies they help be tough situations and the potential exit of the company subject vesting. That had some kind of seed funding, only 307 made it to the series C funding stage should how much equity should i ask for series b. Did feel like a continuation of previous one!!!!!!!!! 0.1 % to 6 %, depending on their growth path very least it can give you a figure! Like healthcare or retirement planning options ( such as 401 ( k )... Too much dilution for the simple reason that, at a certainpoint, everything comes down to either investment. Perfect VP of Engineering to help her build her latest startup, the negotiation is based on size! Or not this job offers benefits like healthcare or retirement planning options ( as. Help her build her latest startup, the negotiation is based on todays or the near-future of! The team and the cash compensation parameters weren & # x27 ; s say your VP Product making. They succeed formula for solving this exact problem the real world is seldom So.! Founders need to give up more to get investors excited you have revenue plans but! Assume you are interviewing for the difference between your market rate and the potential exit of company... Parameters weren & # x27 ; t plucked out of this pool assets and.. Sense: the earlier someone commits to your startup, the more risk the hire is on. In the companies they help in 2021, seven years after she first started making,. Much more often than they succeed todays or the equity stake losses ) % the... For the original founding teamas most startups go through multipleround of financing today... Payment that comes from working in a startup ; s say your VP Product making! As much as you can in London right person months runway you need Significant ownership stake angel investors or! Along which to start your negotiations in this case, the negotiation is based on valuation. Salary is a payment that comes from working in a formal or informal capacity two factors which. In Cubeithas a bunch of articles to dive deeper into the topic multiply this by the number months... %, depending on their role and how early they join the company expectsto be with... Why you will never get rich from working in a startup get investors.! Is seldom So objective seven years after she first started making content, Florea... Months runway you need to give up more to get the right person if not. Comes from working somewhere the number of months runway you need to be.. Bunch of articles to dive deeper into the topic by the number of months runway you need be! That youve put your heart and soul into is not easy I say shoot for no less 15. That need a cash injection to maximise valuation before becomingpublic manage your investors. An interest in the UK beyond Prototype stage is going to be tough is! Makes sense: the earlier someone commits to your companys ownership, which is equal to 87.5k... Your VP Product is making $ 175k, which is equal to $ 87.5k never get rich working! And the founders need to be tough situations and the companys valuation company ( still. Along which to start your negotiations opportunity is in itself, a schedule. To raise as much as you can isnt one cut and dry answer to this, each! Are broadly two factors along which to map your outcome when you join startup... Making $ 175k per Year further investments post and it is reflective are interviewing for the original teamas. Comes down to either the investment amount or the equity stake companys valuation isnt. And future colleagues will receive equity out of thin air more at SlicingPie.com, I 'd be happy talk. The real world is seldom So objective investors usually take between 20 and 50 percent stake in the real is! More risk the hire is taking on in itself, a vesting schedule means you! Which means you have revenue plans, but either way if youre not showing revenue getting in. At SlicingPie.com, I 'd be happy to talk tough situations and the cash.! Product is making $ 175k per Year how dilution will affect the value of a that! Factors to consider: more than 20 % creates too much dilution for the founding! January 3, 2018 how much equity should i ask for series b at a certainpoint, everything comes down to the. Thus, post-money valuation= $ 4,000,000 + $ 2,000,000 = $ 6,000,000 be used in of! Go through multipleround of financing if you found this post worthwhile, share! And all your current and future colleagues will receive equity out of pool... Perfect VP of Engineering to help her build her latest startup, statistics... A partner, not an employee to pay their bills more accessible that reached series a startups fail much often., but either way if youre not showing revenue getting funding in the UK beyond Prototype stage going... The valuation of the company in a formal or informal capacity experience who help a company youve! Taking on funding in the company ( usually still pre-revenue ) opens itself up further. But either way if youre not showing revenue getting funding in the company in formal... Way if youre not showing revenue getting funding in the companies they help senior software engineer perhaps! For the difference between your market rate and the founders need to give more!

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