Startup Equity Cheatsheet Who Gets What Ownership

Startup equity cheatsheet - who gets what kind of ownership in a startup.

Many contributors to a startup have the opportunity to become owners of that company. Typically this happens through the granting of equity.

Let's talk about who gets what kind of equity and how they vest those options over time.

𝗙𝗼𝘂𝗻𝗱𝗲𝗿𝘀 It's you and your cofounder(s), full of energy and building a big dream.

• Each founder receives common shares most of the time (often restricted stock, RSAs). No

• The typical vesting schedule for founders is 4 years with a 1 year cliff, identical to the employees they will hire later on...wait. Why do founders have vesting schedules?

These are perhaps the most important vesting schedules in the whole equity pie. You do 𝗻𝗼𝘁 want to go through a founder break up in a year and have your former cofounder walk away with 40% of the business! That will make it much harder to receive funding in the future.

~update~ It says ISOs under Founder in the graphic but it should say RSA - apologies!

𝗔𝗱𝘃𝗶𝘀𝗼𝗿𝘀

• Usually receive Non-qualified stock options (NSOs)

• Typical vesting schedule is 2 years with a 6 month cliff

• Sometimes advisors are compensated on a performance basis rather than a time-based vesting schedule. This is totally fine, but be specific about those contract terms!

𝗜𝗻𝗱𝗲𝗽𝗲𝗻𝗱𝗲𝗻𝘁 𝗕𝗼𝗮𝗿𝗱 𝗠𝗲𝗺𝗯𝗲𝗿𝘀

• Non-qualified stock options

• 4 year vest, 1 year cliff

• Vest every quarter as opposed to monthly

𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗲𝘀

• Incentive stock options (ISOs) are most common, but late-stage startups will issue RSUs as well.

• 4 year vest, 1 year cliff

• Once vested, the employee will typically have to exercise (see: buy) those options in order to complete the ownership process

Personally, I think this space is ripe for a little innovation. Why is the 4 year, 1 year cliff schedule the right one? Many startup employees will leave before those 4 years are complete.

So many dials to experiment with. You could back-load the option schedule. You could extend the post-termination exercise period. You could layer in merit equity increases.

But don't skip the vesting schedule part.

#cartadata #equity #vesting #stockoptions #startups #founders