REVENUE SHARE AND EQUITY SPLIT: WHAT ARE THE GROUND RULES?

You’re considering joining a startup. You just got an offer extended by the company, and you’re seriously thinking about it. The stakes are that you would join them as a head of marketing, and you would have a board seat. Though, you have absolutely no clue how much equity to ask for. What gives?

Let’s start from the start. If a startup approached you, and you are considering joining and are being asked for an equity share percentage, make sure you’ve done your due diligence on them. This means ask them for any or all of the following:

1. Cap table: Who is holding shares in the company as of now? Any angel investors or VCs you need to be aware of?
2. Board seats: Do they all have a board seat? How much say do they have in the startup? Are they limited partners or full-time engaged executives? 
3. Market cap: What industry is the startup in and which are the giants in there? What is it that you need to consider? 
4. Financials: How much money are they spending on what? Do they already have an accountant? Are their operations up and running? This will tell you enough about how serious they are about their structure and organization
5. Partner agreement: Are you fully vested from the get-go or do you have to wait a while when you join in before? How many shares do you get? What are the conditions for you selling them? Make sure you have explored the “door out” options before you open a door in
6. Employees: How many employees are there currently? Which team are they from? What is the running operational cost for them and what do their contracts look like? This will give you information on how much they care about their people
7. Equity split: Finally, ask them about who owns how much equity, and if everything has already been given away, it should tell you about how aggressive they are in finding partners and getting the startup ready to go
8. (optional) When will be the next raise?: When are they looking to start raising more capital? What are their plans for making revenue and eventually profit? What is their runtime? This gives you some clues to their reising schedule. 

After you’ve gone through all these questions with them, and the answers are clear to both sides, you can commit to some sort of an equity split. How much you ask for entirely depends on how early on they are. Here are a few general rules of thumb:

• The earlier on a startup is, the more risk is involved, so the higher equity you can ask 
• A large equity percentage is anywhere between 10% to 15% - this is what you would expect as a partner to the founders. A founder might have anywhere between 20 to 30% pre-revenue
• Depending on how many people there already are on board, the percentage split may vary
• If the company is already making revenue, and you are coming in at that stage, you can expect to be quoted less than the amounts above, because the risk is lower
• Larger companies have more partners and give away fewer shares because most of the ownership of the company has already been given away
• For large, profitable companies, 5% is a large share 

Hopefully, this data can point you in the right direction when it comes to your equity split. If you have any more questions, contact us!