How much stock do founders get?

Answered by Jeremy Urbaniak

Determining how much stock founders should get in a startup is a crucial decision that can have significant implications for the future of the company. It is important for founders to strike a balance between retaining enough equity to maintain control and attract talent, while also providing enough equity to investors to secure funding and support growth.

In general, founders should aim to keep at least 50% equity in their startup for as long as possible. This ensures that they have majority ownership and control over the company’s direction and decision-making. Holding onto a significant portion of equity allows founders to have a strong voice in shaping the company’s future and protects their interests.

On the other hand, investors typically expect a return on their investment and will require a certain percentage of equity in exchange for their funding. The exact amount can vary depending on the stage of the startup, the amount of funding required, and the negotiation skills of the founders. Generally, investors may seek between 20% and 30% equity, depending on the circumstances.

It is worth noting that the percentage of equity founders retain can vary depending on the specific circumstances of the startup. For example, if founders require significant capital to launch or scale their business, they may need to give up a larger portion of equity to secure the funding they need. Conversely, if founders have a strong track record, unique expertise, or a highly innovative idea, they may have more leverage to negotiate for a higher percentage of equity.

In addition to founder and investor equity, it is common for startups to allocate a portion of equity for employee stock options. This is typically around 10% to 20% and is used to attract and retain talented employees. Offering stock options can be a valuable incentive for employees, aligning their interests with the company’s success and fostering a sense of ownership.

Furthermore, it can be prudent to set aside a reserve pool of equity, usually around 5%, for future needs. This reserve can be used for strategic partnerships, acquisitions, or additional rounds of funding. It provides flexibility for the company’s growth and ensures that founders have the ability to make important decisions without diluting their ownership too much.

The amount of stock founders should get in a startup depends on various factors including their goals, the level of funding required, and the negotiating power they possess. While there is no one-size-fits-all answer, founders should aim to retain at least 50% equity for as long as possible, with investors typically receiving between 20% and 30%. Additionally, allocating a portion for employee stock options and reserving equity for future needs can be prudent strategies.