Managing Startup Equity: A guide by WE.VESTR

Giving up equity in your startup company is a big decision. There are many factors to consider before signing on the dotted line, and it's important to make sure that you understand all of the implications of such an agreement. In this blog post, we'll explore some of the key things to keep in mind when it comes to start-up equity. We'll discuss the pros and cons of this type of investment, when the right time to give up equity is, and what investors are looking for in a deal. We'll also provide some tips on how to negotiate the best terms for your agreement. Finally, we'll offer some advice on what to do if you're not ready to give up equity in your startup, and why some startups choose to forgo this type of investment altogether.

What is startup equity?

Startup equity is a type of investment in which investors provide funding for your company in exchange for a percentage of the ownership stake. This can be a great way to secure the funding you need to get your business off the ground, as it allows you to keep control of your company and avoid giving up debt. However, there are also some risks associated with this type of investment, so it's important to weigh the pros and cons before making a decision.

Some of the key things to keep in mind when it comes to startup equity include:

• The amount of equity you give up as co-founders will dilute your ownership stake in the company.
• You may have to give up voting rights or control over major decisions at an early stage in order to attract investors.
• Investors or venture capital funds will expect to see a return on their investment, so you'll need to have a solid plan for growing your company.

If you're considering giving up equity in your startup, it's important to weigh all of the pros and cons before making a decision. This type of investment can be a great way to secure the funding you need to get your business off the ground, but there are also some risks involved. In the next paragraphs, we will be looking at the most common questions regarding equity in a startup.

The pros and cons of giving up equity in your startup

Giving up equity in early-stage startups is a big decision. There are many factors to consider before signing on the dotted line, and it's important to make sure that you understand all of the implications of such an agreement. In this blog post, we'll explore some of the key things to keep in mind when it comes to startup equity. We'll discuss the pros and cons of this type of investment, when the right time to give up equity is, and what investors are looking for in a deal. We'll also provide some tips on how to negotiate the best terms for your agreement.

There are both pros and cons to giving up equity in your startup company. On the plus side, attracting investment through equity can be a great way to secure the investments you need to get your business off the ground. These types of funds can help you bring your product or service to market faster, and it can give you the resources you need to scale your business more quickly. Additionally, giving up a percentage of equity allows you to keep control of your company, as opposed to taking on debt or selling a portion of your business to another party.

On the downside, giving up equity means that you will own less of your company and will have less control over its direction. Additionally, investors will likely want a say in how you run your business, which can be frustrating if you're used to having complete autonomy. And of course, if your company is successful, you'll end up giving up a larger percentage of the profits than you would have if you had not taken on equity investors.

When is the right time to give up equity in your company?

There is no easy answer to this question, as it depends on a number of factors. Some startups opt to give up equity early on, in order to secure the funding they need to get their business off the ground. Others choose to wait until they have a proven track record and are looking for capital to help them scale their business. Ultimately, the decision of when to give up equity should be based on your specific circumstances and goals.

If you're considering giving a percentage of ownership in your company, it's important to have a solid plan for how you will use the investment. Investors will want to see that you have a clear vision for your business and that you're using their money in a way that will generate a return. It's also important to have a good understanding of your company's valuation. This will help you negotiate the best terms for your deal and ensure that you're not giving up more equity than you should. If you are looking at giving equity to employees, you should be able to present a clear plan on the equity compensation, with things included like the vesting schedule and strike price.

What do investors look for when considering an equity deal?

Investors are looking for a number of things when they consider an equity deal. They want to see that your company has potential for growth, and they'll want to know how their investment will help you achieve your goals. They'll also want to see a clear exit strategy so that they know how they can cash out of their investment down the line. Additionally, investors will want to see that you have a solid team in place and that your team members have the experience and expertise necessary to grow your business. In return, you can attract top talent with your raised funds and keep them aligned with the mission of the company by offering them employee equity or other sorts of compensation.

The Do's and Don'ts of giving away equity in your company

Now that we've discussed some of the key things to keep in mind when it comes to giving up equity or stock options as a (co)founder, let's take a look at a few dos and don'ts.

Do:

1. Make sure you understand all of the implications of an equity deal before signing on the dotted line.

2. Have a clear plan for how you will use the investment and be able to articulate this to potential investors.

3. Bargain for key protections, such as board seats or veto rights, which will help you retain some control over your company.

4. Understand your company's value and what you're willing to give up before entering into negotiations.

Don't:

1. Give up equity in your company without understanding all of the implications.

2. Take on investors without a clear plan for how you will use their money and grow your business.

3. Give away too much equity or agree to terms that are unfavorable to you and your company.

4. Be afraid to walk away from a deal if the terms aren't right - remember that there are other potential investors out there that will pay fair market value

What to do if you're not ready to give up equity in your startup

If you're not ready to give up equity in your startup, there are a few other options for raising capital. You can consider debt financing, such as taking out a loan or line of credit. Or, you could look into government grants or venture philanthropy. Additionally, you could bootstrap your business, which means self-funding your growth with personal savings or revenue from operations. Whatever route you decide to take, be sure to have a well-thought-out plan for how you will use the funding and how it will help you achieve your long-term goals.

Why do some startups choose to forgo equity altogether?

There are a few reasons why some startups choose not to give up equity. First, they may want to retain full control over their company and not have to answer to investors. Second, they may believe that they can grow their business without outside capital. And finally, they may not want to dilute their ownership stake in the company. While there are benefits to not giving up equity, it's important to understand all of the implications before making this decision. You'll need to be sure that you can self-fund your growth and that you have a clear plan for how you'll achieve your goals without taking on investment.

The Bottom Line

Giving up equity in your startup is a big decision with many implications. There are a few key things to keep in mind when considering such a deal, including the pros and cons of equity, the right time to give up equity, what investors are looking for, and how to negotiate the best terms. If you're not ready to give up equity, there are other options for raising capital, such as debt financing or bootstrapping your business. Ultimately, it's important to understand all of the implications before making any decisions and to have a clear plan for how you'll use the investment. If you are looking for more guidance on the topic of equity management, consider booking a demo with the WE.VESTR team. In just 15 minutes, we talk you through all the features of our platform and we offer a free solution for up to 25 shareholders on the platform!