Founder's Pocket Guide

“How do we split up the equity ownership of our startup?” This guide provides a framework and process to help startup founders answer this common question. Equity ownership affects the culture and sense of wellbeing of a startup. Founders typically sacrifice a great deal of other life opportunities to work on a startup effort. In exchange for that sacrifice, a founder wants to feel the ownership equation with any co-founders is fair. In detail, this Founder’s Pocket Guide walks entrepreneurs though the following elements: Take The Founder Test to make sure everybody deserves founder status Review the case for splitting your founder equity into equal parts Use the Equity Split Scorecard as a fair method to allocate more equity to highly skilled cofounders Solve common equity problems using founder vesting structures Answer common equity split questions like IP and founder-investors Note that this guide does not go into how to use equity to attract employees or using equity to pay service providers, advisors, development companies, or other contractors. This guide focuses solely on the best practices of deciding the equity ownership split between the founders of a startup venture.

The goal of this guide is to help you understand the key moving parts of a startup cap table, review typical cap table inputs, and demystify terminology and jargon associated with cap table discussions. Along the way, this highly visual guide provides easy-to-follow examples for the most common calculations related to cap table building. Expanding on these key skills every startup founder should know, this Founder’s Pocket Guide helps you learn how to: Build your basic cap table step by step, including founder’s shares, option pools, angel investor rounds, and VC rounds. Decipher cap table specific lingo, such as fully-diluted shares outstanding, preferred shares vs. common shares, Series A, Series B, and so on. Establish a stock option pool in your cap table and understand the option pool effect on founder dilution. Understand the simple math behind cap table formulas and calculations, including calculating fully diluted shares outstanding, investor equity ownership percentages, and share price.

This guide is designed to be an introduction and quick reference to early-stage startup valuation topics. For many early-stage entrepreneurs assigning a pre-money valuation to your startup is one of the more daunting tasks encountered during the fundraising quest. This guide reviews all of the key topics around early-stage startup valuation and provides step-by-step examples for several valuation methods. In more detail, this Founder's Pocket Guide helps startup founders learn: - What a startup valuation is and when you need to start worrying about it. - Key terms and definitions associated with valuation, such as pre-money, post-money, and dilution. - How investors view the valuation task, and what their expectations are for early-stage companies. - How the valuation fits with your target raise amount and resulting founder equity ownership. - How to do the simple math for calculating valuation percentages. - How to estimate your company valuation using several accepted methods. - What accounting valuation methods are and why they are not well suited for early-stage startups.

This highly visual guide offers startup founders and employees a "nuts and bolts" view of how stock options and other forms of equity compensation work in early-stage startups. Throughout this guide numerous mini-infographics illustrate the key concepts founders need to know and show the relationships between stock option grants, vesting timelines, exercise timing, and associated tax implications. In detail, this Founder's Pocket Guide walks entrepreneurs though the following elements: Startup Equity Compensation Basics: Sharing Equity with Your Team The first section of this guide is structured to help founders build a base of understanding about the numerous definitions and terminology related to startup equity compensation and stock options. Topics covered include: A brief refresher on startup equity in preparation for delving into the details of stock options and other forms of equity compensation.A quick review of how startup equity ownership is shared between the various stakeholder of a startup including the founders, investors, and employees.The fundamental mechanics of how startup stock options work, including option grants, exercising, vesting, and selling of stock shares.A detailed review of equity compensation terminology and definitions, such as vesting, strike price, fair market value, and spread.An explanation of each of the most common types of equity compensation including Restricted Stock, Incentive Stock Options, Non-Qualified Stock Options, and Restricted Stock Units. Equity Compensation Types in Detail The next section of this guide reviews each of the most common types of equity compensation, including detailed components such as tax implications, vesting and exercise parameters, and other IRS rules governing the ownership of each equity type. The following equity compensation types are covered: Restricted Stock (RS)Incentive Stock Options (ISOs)Early Exercise Incentive Stock Options (EE-ISOs)Nonstatutory Stock Options (NSOs)Early Exercise Nonstatutory Stock Options (EE-NSOs)Restricted Stock Units (RSU) Establishing Your Startup's Equity Plan In the final part of this guide we dig deeper into the key areas founders need to consider when developing an equity plan for their startup, with specific focus on the following issues: When to implement a formal equity incentive planWhat factors to consider when deciding how large the equity compensation pool should beHow to decide employee equity award amounts at the different stages of a startup's lifecycleWhat general steps to take to establish a equity compensation plan for your startupWhat key information that must be communicated to employees about equity compensation awardsWhich step-by-step calculations are needed to truly understand equity ownership percentages and valueHow IRS and SEC rules impact private company equity compensation

The goal of this guide is to help you understand the key moving parts of a startup cap table, review typical cap table inputs, and demystify terminology and jargon associated with cap table discussions. Along the way, this highly visual guide provides easy-to-follow examples for the most common calculations related to cap table building. Expanding on these key skills every startup founder should know, this Founder’s Pocket Guide helps you learn how to: Build your basic cap table step by step, including founder’s shares, option pools, angel investor rounds, and VC rounds. Decipher cap table specific lingo, such as fully-diluted shares outstanding, preferred shares vs. common shares, Series A, Series B, and so on. Establish a stock option pool in your cap table and understand the option pool effect on founder dilution. Understand the simple math behind cap table formulas and calculations, including calculating fully diluted shares outstanding, investor equity ownership percentages, and share price.

This guide is designed to be an introduction and quick reference to early-stage startup valuation topics. For many early-stage entrepreneurs assigning a pre-money valuation to your startup is one of the more daunting tasks encountered during the fundraising quest. This guide reviews all of the key topics around early-stage startup valuation and provides step-by-step examples for several valuation methods. In more detail, this Founder's Pocket Guide helps startup founders learn: - What a startup valuation is and when you need to start worrying about it. - Key terms and definitions associated with valuation, such as pre-money, post-money, and dilution. - How investors view the valuation task, and what their expectations are for early-stage companies. - How the valuation fits with your target raise amount and resulting founder equity ownership. - How to do the simple math for calculating valuation percentages. - How to estimate your company valuation using several accepted methods. - What accounting valuation methods are and why they are not well suited for early-stage startups.

“How do we split up the equity ownership of our startup?” This guide provides a framework and process to help startup founders answer this common question. Equity ownership affects the culture and sense of wellbeing of a startup. Founders typically sacrifice a great deal of other life opportunities to work on a startup effort. In exchange for that sacrifice, a founder wants to feel the ownership equation with any co-founders is fair. In detail, this Founder’s Pocket Guide walks entrepreneurs though the following elements: Take The Founder Test to make sure everybody deserves founder status Review the case for splitting your founder equity into equal parts Use the Equity Split Scorecard as a fair method to allocate more equity to highly skilled cofounders Solve common equity problems using founder vesting structures Answer common equity split questions like IP and founder-investors Note that this guide does not go into how to use equity to attract employees or using equity to pay service providers, advisors, development companies, or other contractors. This guide focuses solely on the best practices of deciding the equity ownership split between the founders of a startup venture.