Grant Your Equity Wisely
June 8, 2018 | By Kevin Vela
Which conversation would you rather have?
“So…that 10% equity we gave you last year – yeah, I’m gonna need half of that back,” or “Thanks so much for everything you’ve been doing for the company; here’s another 3% equity!”
As you can probably imagine, the first conversation usually doesn’t go well. But it’s entirely avoidable.
A common form of currency for startups is equity. Most startups are cash strapped but loaded with equity. As a result, it’s typical for a startup to grant equity in lieu of cash payments to advisors, contractors, and co-founders.
When you do this,
- Make sure you’re prepared in terms of how much to grant to each party
- Be mindful of the proper value of the equity
- Make sure the equity vests over time
And if you’re not sure how much equity to grant, start with less. It’s always easier to grant more equity; but it’s nearly impossible to take it back.
About the Author(s)
Kevin Vela
Kevin is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, M&A, fund representation, and gaming law.
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