Full Definition
Equity represents ownership in a company, typically in the form of shares of stock. Equity holders are entitled to a proportional share of the company's value and, depending on the type of equity, may have voting rights and dividend entitlements.
Types of Startup Equity
- Common Stock: Typically held by founders and employees; has voting rights but lower priority in liquidation
- Preferred Stock: Held by investors; includes special rights like liquidation preferences and anti-dilution protection
- Stock Options: The right to purchase shares at a predetermined price (strike price)
- Restricted Stock Units (RSUs): Shares granted subject to vesting conditions
Equity Distribution
In a typical startup, equity is distributed among founders (50-70% initially), investors (20-40% over multiple rounds), and employees via an option pool (10-20%).
Typical Startup Equity Distribution
Real-World Example
A co-founder receives 30% equity in the company, represented by 3 million shares of common stock.
Frequently Asked Questions
What is equity in a startup?
What is the difference between common stock and preferred stock?
How much equity should I give employees?
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Related Terms
A spreadsheet showing the equity ownership, dilution, and value of shares in a company.
The reduction in existing shareholders' ownership percentage when new shares are issued.
A class of shares with special rights and preferences over common stock, typically held by investors.
Basic ownership shares in a company, typically held by founders and employees with standard voting rights.
The process by which an employee or founder earns their equity over time based on continued service.
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