Before: Founders put together a biz plan and raised a decent seed round and then started hiring the first few employees.
Now: Some person gets an idea, pitches it to another person, and they start building it, then they pitch it to a third person. They don't pay themselves salaries, live off their savings and their credit cards. An 'incubator' may give them some cash to pay for things like AWS instances and filing incorporation papers. They may be up to 5 or 6 people before they have a 'minimum viable product' (MVP) and are willing to pitch it to VCs for a real series A.
The author points out that all of the first 3, 4, 5, or 6 people who were working to get the company to the MVP point, they are founders. Not just the 'idea guy' or the 'wizard' that they snagged to help implement the idea. Everyone who came on board before series A has made it possible to get to that point is a founder.
And yet there are companies that treat person 2 - n as 'employees' and give them way less equity. Because of that people don't want to be employee 2-n, and thus hiring them is 'hard'.
I've noticed this as well, and have been puzzling around with the following thoughts.
Lets say you create a company and decide that prior to series A, 80% of the company will be owned by the founders and 20% to outside investors. You start with 10 shares, 2 for an angel, 8 for the founder.
Now you add a founder, you double the share pool and now you give 8 to the new founder and 2 to the angel (distribution is 4 + 8 + 8). Now you add another engineer/founder and you now add 80 shares to the pot and distribute them 27 + 27 + 26 for the founders and 20 for the angel. Add a new angel and you double the shares to 200 where each angel get (20 + 20) and founders get (54 + 53 + 53) shares.
The idea being to keep the ownership percentage of the company 20% angels, 80% workers.
Now you go for series A - my thought is you pick three ratios, investors/founders/employees. That may end up being 49/31/30. Allow your angel to either contribute their shares to the series A (cash out) or to participate. But at the end of the day the representation is 49,31,30. Same deal when you add more investors, add to the size of their pool so that works, add to the other pools to keep it balanced.
I am undecided if it would make managing the equity table easier or harder.
Just to nitpick a bit -- your final three numbers add to 110, not 100. Perhaps you meant 49/31/20? I point it out only because 49/31/30 seemed too good to be true.
Before: Founders put together a biz plan and raised a decent seed round and then started hiring the first few employees.
Now: Some person gets an idea, pitches it to another person, and they start building it, then they pitch it to a third person. They don't pay themselves salaries, live off their savings and their credit cards. An 'incubator' may give them some cash to pay for things like AWS instances and filing incorporation papers. They may be up to 5 or 6 people before they have a 'minimum viable product' (MVP) and are willing to pitch it to VCs for a real series A.
The author points out that all of the first 3, 4, 5, or 6 people who were working to get the company to the MVP point, they are founders. Not just the 'idea guy' or the 'wizard' that they snagged to help implement the idea. Everyone who came on board before series A has made it possible to get to that point is a founder.
And yet there are companies that treat person 2 - n as 'employees' and give them way less equity. Because of that people don't want to be employee 2-n, and thus hiring them is 'hard'.
I've noticed this as well, and have been puzzling around with the following thoughts.
Lets say you create a company and decide that prior to series A, 80% of the company will be owned by the founders and 20% to outside investors. You start with 10 shares, 2 for an angel, 8 for the founder.
Now you add a founder, you double the share pool and now you give 8 to the new founder and 2 to the angel (distribution is 4 + 8 + 8). Now you add another engineer/founder and you now add 80 shares to the pot and distribute them 27 + 27 + 26 for the founders and 20 for the angel. Add a new angel and you double the shares to 200 where each angel get (20 + 20) and founders get (54 + 53 + 53) shares.
The idea being to keep the ownership percentage of the company 20% angels, 80% workers.
Now you go for series A - my thought is you pick three ratios, investors/founders/employees. That may end up being 49/31/30. Allow your angel to either contribute their shares to the series A (cash out) or to participate. But at the end of the day the representation is 49,31,30. Same deal when you add more investors, add to the size of their pool so that works, add to the other pools to keep it balanced.
I am undecided if it would make managing the equity table easier or harder.