Are you a founder? Do you know how much of your startup you own? What are the ways founders divide up equity? How much ownership do investors usually take? In this seminar we will explore these topics, including tips on bootstrapping, fundraising, and the like, all from the point of view of an evidence-based entrepreneur.

1. The path of the righteous man is beset on all
sides by the inequities of the selfish and the
tyranny of evil men.
Blessed is he, who in the name of charity and good will,
shepherds the weak through the valley of darkness, for he
is truly his brother's keeper and the finder of lost children.
And I will strike down upon thee with great vengeance and
furious anger those who would attempt to poison and
destroy my brothers.
And you will know my name is the Lord when I lay my
vengeance upon thee.
Jules Winnfield, Pulp Fiction

2. Who owns your Startup?
Keith McGreggor, Ph.D.
Director of VentureLab
the inequity of equity

4. #
1 early stage incubator
#
1 engineering/science incubator
#
2 overall

6. Who owns your Startup?

7. equity
inequity

8. equity

9. eq•ui•ty
1. the quality of being fair and impartial.
2. the value of the shares issues by a company.
3. the value after the deduction of any liabilities
the equity of treatment
she owns 62% of the startup’s equity
equity = assets - liabilities

10. eq•ui•ty
1. the quality of being fair and impartial.
2.the value of the shares issues by a company.
3. the value after the deduction of any liabilities
the equity of treatment
she owns 62% of the startup’s equity
equity = assets - liabilities

11. 100%
your startup

12. 20%
20% 60%
your startup
?%
?%
?%

13. overall observation
equity should be viewed as
proportional
to the risk taken

14. guiding principle
fairness, and the perception
of fairness, matters more than
owning a large slice

15. observation
people are added to the
company in waves or layers
founders, first employees, etc.

16. observation
each wave is larger than the last
later waves take less risk

17. technique
allocate shares such that
each wave gets the same amount
and that the total of all waves
is equal to the founders shares

18. technique
suppose there will be 5 waves
founders 5,000
wave 1 1,000
wave 2 1,000
wave 3 1,000
wave 4 1,000
wave 5 1,000

19. 50% 50%
founders: 5,000 shares
Two founders @ 2,500 shares each
time 0

20. 4%4%
4%
4%
42%
42%
1st wave : 1,000 shares
Four employees @ 250 shares each
time year one

21. 2nd wave : 1,000 shares
20 new hires @ 50 shares each
time year two

22. each wave gets same
number of shares
72%
16%
12%

23. wave 4
wave 3
wave 2
wave 1
Founder B
Founder A
idea : founders maintain
control throughout

24. important
typical schedule 4-5 years:
25% after 1st year
then 2% each month
always VEST shares
(yes, founders too!)

25. important
shares should be allocated
but not immediately distributed

26. FAQ
what if I need a salary? IOU
more shares for my idea? nope
what if I’m not full-time? not founder
what if I bring equipment,
patents, etc.? IOU
Never trade away your equity

27. why?
Because we don’t know
what the shares are worth

28. inequity

29. investors
Friends, Family, & Fools
Angels
Venture Capitalists

30. investors
Friends, Family, & Fools
Angels
Venture Capitalists
goals
Help out
Help / Make $
Make $

31. investors
Friends, Family, & Fools
Angels
Venture Capitalists
stock
Common
…
Preferred
Founders & Employees Common

32. 50% 50%
founders: 5,000 shares
Two founders @ 2,500 shares each
time 0

33. 50% 50%
what’s it worth?

34. post-money valuation
50% 50%
+ $$$
pre-money
valuation

35. 50% 50%
+$$$ +$$$
rounds of funding

36. a different “class” than common
additional rights
preferred stock

37. liquidation
dividends
voting
participation
…
preferred stock rights
max(investment,ownership)
regular priority payments
vote on company matters
payback + common
…

38. example
50% 50%
+ $$$

39. post-money $3M
+ $1M
pre-money
$2M
50% 50%

40. 33%
33%
33%
ownership after A round
founders
investor
rights

41. post-money $12M
+ $4M
pre-money
$8M
33%
33%
33%

42. 33%
22%
22%
22%
ownership after B round
founders
investor A
rights
investor B
rights

43. 30%
30%
30%
10%
A + option pool!
founders investor
rights
option pool

44. 10%
33%
19%
19%
19%
B + option pool
founders
investor A
rights
investor B
rights
option
pool

45. Founders have to reverse vest
Typically for 3 years!
oh, by the way…

46. Each round of investors is
participating preferred.
They get paid back AND stock.
!
Round A is 2x participating (more risk).
Round B is 1x participating.
oh, by the way…

47. 10%
33%
19%
19%
19%
what’s it worth?
founders
investor A
rights
investor B
rights
option
pool

48. 10%
33%
19%
19%
19%
example purchase
= $30M

49. 10%
33%
19%
19%
19%
founders = ?
= $30M

50. 10%
33%
19%
19%
19%
Round B preferred
= $30M
1x($4M) + 33% common

51. 10%
33%
19%
19%
19%
Round A preferred
= $30M
2x($1M) + 19% common

52. 10%
33%
19%
19%
19%
= $24M
each founder
19% of $24M = $4.6M
$30M
- $4M
- $2M

53. 10%
33%
19%
19%
19%
founder = 19% $14M = $2.7M
= $14M
what if …
$20M
- $4M
- $2M

54. 33%
33%
33%
true story

55. 29%
14%
29%
29%
angel
angel invests $100K
founders
valuation $714K

56. 36%
9% 18%
18%
18%
angel
founders
VC A
VC A invests $8M, 2x
valuation $22M
angel now worth $1.98M

57. VC B invests $13M, 1x
14%
7%
21%
29%
14%
14%
angel
VC A
VC B
founders
valuation $44M
angel now worth $3.8M

58. sold to company X for $30M
14%
7%
21%
29%
14%
14%
angel
VC A
VC B
founders
angel now worth $2.1M …?

59. 14%
7%
21%
29%
14%
14%
all common stock $0
angel
true story
$30M
- $13M
- $16M
- $1M *
1x
2x
VC A
VC B
founders
angel worth $0

60. Each investor costs founders
money & control.
moral
“The path of the righteous man
is beset on all sides by the
inequities of the selfish and the
tyranny of evil men.”

61. venturelab.gatech.edu
@venturelab / @keithmcgreggor
keith@venturelab.gatech.edu
75 Fifth St NW, Suite 415, Atlanta GA 30308