Grant Your Equity Wisely
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.