Equity

Equity in a company refers to the ownership stake an individual holds in that company. This is often represented by shares or stock in the business. Equity gives founders, employees, and investors a direct financial interest in the company's success. The more equity someone holds, the greater their share of future profits or proceeds in the event of a sale.

How does equity work in a startup?

In a startup, equity is often used to attract talent or investors, especially when cash is limited and high salaries can't be offered. Founders may grant shares or stock options to employees to incentivize them to contribute to the company's success. Investors, in turn, receive equity in exchange for their funding.

Concrete example

For example, imagine a developer joins an early-stage startup. Instead of being paid entirely in salary, they also receive 2% equity in the company. If the startup is eventually sold for 10 million euros, the developer's share would be 200,000 euros. This motivates the team to grow the company's value.

Why is equity important?

Equity aligns the interests of founders, employees, and investors by encouraging everyone to work toward the company's success. It's a powerful tool for attracting and retaining talent in a startup, especially when financial resources are limited in the beginning.

Want to learn more about equity for your startup?

If you have questions about how to distribute equity in your startup or about best practices, feel free to contact us via the contact form on our website. We would be happy to help you structure your company's equity.