Models to help you setup your startup in the right way. With an equity structure that benefits all, vesting to ensure no one runs off with equity and advisor incentives to bring in the senior experts you need.

1. Equity Structure
for Startups
Ahmad Bakhiet & Alex Shoer
ahmad@sellplex.com & alex@seeder.cc
Universidad Adolfo Ibanez
Mayo 2014

2. Hello!
Ahmad, from United Kingdom
Founder & CEO of Sellplex.com
MSc Technology Entrepreneurship
BSc Computer Science
My twitter: @ahmadbakhiet
Alex, from U.S. but lived in China for last
three years. Founder & CEO of
Seeder.cc. BBA in Finance from the
University of Georgia
My twitter: @alexshoer

4. Quick Poll
?

5. What Can go Wrong?

6. What Can go Wrong?
- Avis bought Zipcar for $491 million in January 2013.
- But in fact, both founders left the company more than 10
years ago, as power struggles and disputes prevented
both from seeing their shared vision through.
- Now 56, Danielson hasn’t spoken to Chase in more than
a decade.

7. What Can go Wrong?
- Facebook is one of the biggest and most sucessful
internet companies. Valued at over $100Bn.
- Eduardo Saverin famously sued Mark Zuckerberg to win
official co-founder status.
- Situation was seen by millions of people in the movie
Social Network.
- Voting rights.

8. What Can go Wrong?
- In September 2011, Google bought Zagat for $125
million
- It was Google's tenth-largest acquisition ever.
- Led by Marissa Mayer, then VP of Maps & Location.
- For one lucky person, she made several million for six
months of work.

9. TEAM: Every Start Must Have...
Visionary – The person who come up with the idea. The type of person that
identifies the problem that the team will solve and the high level look at how
to do it.
Wizzard – This is the operations side of the startup, the person who works
the magic and makes the impossible actually happen.
Wiseman – They’re your investor or Advisor. They bring money and
experience into the mix.
Willing Slave – One of the most crutial roles is the person who can actually
build the product. Outsource this at your peril.
Deal Maker – This is the guy who can sell the idea. They get investors
onboard, find customers and sells to clients.

10. Who is likely to own shares in your company?
Founders
(Early)
Employees
Investors Advisors

11. Overview of equity structures
Key Terms:
Stock Classes: Common and Preferred
Dilution
Vesting
Stock vs Options
Founder's / Restricted Stock

13. Typical Startup Progression
Idea stage
Co-Founder Stage
Registering the Company
The Family and Friends Round:
Incubators, accelerators, grants and “excubators”
Angels
VC Funds

14. Funding Stats

15. Typical Startup Progression

16. Overview of equity structures
Three main models for different situations
1) Simple Equity
2) Weighted/Variable Equity
3) Dynamic Equity

17. Overview of equity structures
Simple Equity

18. Overview of equity structures
Weighted Equity

19. Dynamic Equity - How it works
- Reduces negotiation
- Increases transparency
- Eliminates feelings of
unfairness
- Creates direct incentives
- Opens up your equity as a
payment tool
Dynamic Equity - How it works

20. Dynamic Equity - How it works
1) Have a trustworthy leader: the leader will control
100% of the equity while the model is being used
2) The right time to issue the equity is when the
company shows real, concrete evidence of value.
3) Assign a relative value to the various inputs
provided by each participant
4) Calculate shares by dividing an individual’s
contribution by the total contribution

21. Overview of equity structures
Dynamic Equity - Seeder Example
Our dynamic equity model rewards each person based on their individual
contribution around four factors:
1) the value of each member’s time
2) the amount of time spent
3) The critical nature of the persons role
4) revenue generation that is a direct result of their introductions. So this
means that any revenue generated by your work will count towards your
equity as well.

22. Early Setup
After you decide on your equity model:
- Founder agreement (roles/responsibilities)
- Liquidation or buyout agreement
- Dynamic Equity

23. Overview of equity structures

24. Standard Employee Equity

25. Employees
Stocks
● Option Pool
o (usually 10% of issued shares)
● Vesting and Cliffs
o (4 year and 1 year)
Salaries
● Case Study: Buffer Inc.

26. Buffer Salary Calculation = job type
X seniority X experience + location
job type = base
● happiness hero = $45,000
● content crafter = $50,000
● engineer = $60,000
● designer = $60,000
● Operations officer base = $70,000
● Executive officer base = $75,000
seniority = base multiplier
● Senior + 5% base and 3k/$m revenue
● Lead +7% base and 4k/$m revenue
● VP + 10% and 6k/$m revenue
● C-level +20% and 8k/$m revenue
● COO +20% and 10k/$m revenue
● CEO + 20% and 12k/$m revenue
experience = multiplier
● Master: 1.3X
● Advanced: 1.2X
● Intermediate: 1.1X
● Junior: 1X
location = additional
● A: +$22K (e.g. San Francisco, Hong
Kong, Sydney, London, Paris, New York)
● B: +$12K (e.g. Nashville, Birmingham,
Vienna, Austin, Vegas, Tel Aviv)
● C: +$6K (e.g. Talinn, Warsaw, Bucharest,
Santiago)
● D: +$0K (e.g. Manila, Delhi, Hanoi)
equity / salary choice
● you get a choice of more
equity or more salary, if
you choose salary, you get
+$10K

27. Advisors: Founder Advisor Template
FAST Agreement:
● Incentivizes advisors appropriately
● Holds them accountable
● Terms protects both sides of agreement
Structure
- Vesting Period: monthly over a 2 year period with a 3-month cliff period.
- Assigns IP and confidentiality appropriately
- Ensures advisors don’t come after you for more than agreed upon

28. Advisors: Founder Advisor Template
Advisor
Performance Level
Stage
Idea Stage Startup Stage Growth Stage
Standard ____ ____ (0.25%) ____ ____ (0.20%) ____ ____ (0.15%)
Strategic ____ ____ (0.50%) ____ ____ (0.40%) ____ ____ (0.30%)
Expert ____ ____ (1.00%) ____ ____ (0.80%) ____ ____ (0.60%)
Advisor Compensation

29. Investors - understand dilution

30. Investors - understand dilution
Negotiating. Understand valuation, dilution and difference Pre and post money.

31. Investors - What to avoid
● Look for in an investor that has industry experience
and a strong network (smart money)
● Interview investors like employees
● Make friends & family a worst case scenario
● Avoid investors who want too much control
● Double check terms such as liquidation preference,
delivery of cash, admin fees, and strict protective
provisions

32. Helpful Links
1. http://foundrs.com/
2. http://www.payne.org/index.php/Startup_Equity_For_Employees
3. http://www.slicingpie.com/
4. http://www.businessinsider.com/15-roles-every-startup-needs-filled-2009-3
5. http://rogernorton.net/blog/2011/the-5-roles-you-need-in-a-startup/
6. http://fundersandfounders.com/how-funding-works-splitting-equity/

33. Preguntas?

34. Contáctenos
Ahmad Bakhiet & Alex Shoer
ahmad@sellplex.com & alex@seeder.cc
Universidad Adolfo Ibanez
Abril 2014

35. Appendix 1 - Advisors: Why they are important?
1. Sounding board for the CEO
2. Opening doors to key customers
3. Assisting with financing
4. Providing credibility by association
5. Recruiting key people
6. Cheerleader
7. Building the initial infrastructure
8. Arbitrator (Peacemaker)
9. Assisting with strategic contracts
10. Backup

36. Stage Characteristics
Idea Team: The team consists of only part-time founder(s).
Customers: The company is in discussions with potential customers to determine demand in the market. The pricing/revenue
structure has been developed, but needs market validation.
Revenue: The company has no revenue.
Investors: At least one group consisting of the founder(s), their friends or family has invested.
Product: The specifications for a minimum viable product including wireframes and system designs are complete
Startup Team: The team consists of full-time founder(s) and is in the process of hiring initial employees as needed.
Customers: The company has received letters of intent or customer commitments and the market need has been validated.
Revenue: The company may be collecting revenue.
Investors: Investment may have been raised via friends/family or professional investors (angel, venture capital, etc.).
Product: The launch of the minimum viable product is imminent.
Growth Team: The team consists of full time founder(s) and is in the process of hiring employees as needed.
Customers: The company has achieved significant traction and user-based growth.
Revenue: The company is collecting revenue.
Investors: Prior investment may have been raised and the founders are prepared to pitch to professional investors if additional capital
is needed.
Product: The product has been launched and is periodically refined based on customer feedback.
Appendix 2 - Advisors: Founder Advisor Template