Equity in Startups

TL;DR

This paper examines how equity is allocated among stakeholders in startups, especially in Silicon Valley, based on analysis of over 400 startups, to inform best practices in equity distribution.

Contribution

It provides a detailed analysis of equity allocation patterns in startups preparing for IPO, highlighting best practices and common trends.

Findings

Equity distribution varies significantly among stakeholders.

Founders typically retain a substantial share of equity.

Equity allocation practices differ across industries and company sizes.

Abstract

Startups have become in less than 50 years a major component of innovation and economic growth. An important feature of the startup phenomenon has been the wealth created through equity in startups to all stakeholders. These include the startup founders, the investors, and also the employees through the stock-option mechanism and universities through licenses of intellectual property. In the employee group, the allocation to important managers like the chief executive, vice-presidents and other officers, and independent board members is also analyzed. This report analyzes how equity was allocated in more than 400 startups, most of which had filed for an initial public offering. The author has the ambition of informing a general audience about best practice in equity split, in particular in Silicon Valley, the central place for startup innovation.