

Ask HN: Best equity splitting practices? - nicklo

Say there are 3 founding members with equal stake in a company. Would it be split 33.3%, 33.3%, 33.3%?<p>Is it common practice to reserve a portion of equity for VC&#x27;s or early employees? And if so, how much? Or does everyone&#x27;s equity just get diluted with each of these things.<p>And on the topic of vesting equity - say someone leaves before their equity is fully vested, say only 50% of their 12% stake is vested - where does that equity get released to?
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jtfairbank
IANAL / Talk to a lawyer.

So you should leave equity for early VCs / employees, just realize that when
VCs invest at a certain percent that's for the outstanding shares.

Lets say you have 1,000 shares. You and your cofounders each get 300, and you
leave 100 for an early investor.

You get an investment for 10% of the company. That will calculate out to
91-ish shares, since it is based on the total outstanding shares (including
the investors). The remaining 9 shares are still available, but not factored
into voting, etc. You can use these shares for future investments without
having to issue more shares (which dilutes everyone), setup an employee option
pool, etc.

As for people leaving, make sure you have a 1 year cliff. If they leave before
vesting all their shares, then the company repurchases the shares from them at
the amount they paid for the shares. At that point, they are in the
unallocated pool. Your founders can purchase them from the company, you can
sell them to investors or give them to employees, whatever.

Make sure to file an 83(b) election for tax purposes (pay for the shares now
when they are cheap...).

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nicklo
Hey thanks! This was super useful.

