When a startup is initially formed, it will usually authorize 10,000,000 shares of common stock. The initial allocation of this equity will be broken down into three groups: Founders will be allocated 8,000,000.
Regardless of your launch capital, 10 million authorized shares is generally the sweet spot for a new startup. But just because 10 million shares have been authorized doesn’t mean that all or even most of them should be immediately allocated or issued to founders, or dumped in the employee stock option pool.
How much equity should a founder CEO get?
Typically stock allocated to a CEO, COO or other C-level executives ranges from 2%-10%. Stock allocated to other employees tends to range from 0.2% to 1%.
A common question we get asked is do founders need to pay for their stock in a company that they founded? And the answer is pretty simple – it’s yes. Founders must pay for their own stock under corporate statutes like the Delaware General Corporation Law, Section 152.
While there is no consensus answer, there is a reasonable range for the ideal number of stocks to hold in a portfolio: for investors in the United States, the number is about 20 to 30 stocks.
In stocks, a round lot is considered 100 shares or a larger number that can be evenly divided by 100. In bonds, a round lot is usually $100,000 worth. A round lot is sometimes referred to as a normal trading unit, and may be contrasted with an odd lot.
So, the answer is that available stock CAN run out. In lightly traded companies, you might not find anyone who wants to sell. I’ve had that happen on the other end, where I put in a market sell order and could not sell all of my shares.
Definition: ‘Stock’ represents the holder’s part-ownership in one or several companies. Meanwhile, ‘share’ refers to a single unit of ownership in a company. For example, if X has invested in stocks, it could mean that X has a portfolio of shares across different companies.
How much equity should I give my co founder?
Investors claim 20-30% of startup shares, while founders should have over 60% in total. You may also leave some available pool (5%), but don’t forget to allocate 10% to employees. Based on the most outstanding skills of co-founders, define your roles clearly within the company and assign job titles.
How much equity should I give up?
Founders typically give up 20-40% of their company’s equity in a seed or series A financing. But this number could be much higher (or lower) depending on a number of factors that we will discuss shortly.