Equity
/ˈɛkwɪti/
Equity represents ownership in a company, measured as a percentage or number of shares that determines your stake in the business and its future value.
Equity represents ownership in a company, measured as a percentage or number of shares that determines your stake in the business and its future value.
Equity is your slice of the company pie.
If you own 50% equity in your startup, you own half of everything - half the assets, half the decision-making power, and half of any profits or sale proceeds.
It's the fundamental way ownership gets divided and tracked in a limited company.
Equity is the overall ownership concept, whilst shares are the units that measure it.
Think of equity as the whole cake and shares as the individual slices.
If your company has 100 shares and you own 25, you hold 25% equity in the business.
When investors fund your company, they typically want equity in return rather than just a loan.
This means you're selling a portion of ownership - and future profits - in exchange for cash now.
The percentage of equity you give away directly affects how much of the company you'll own after the investment.
Your equity percentage usually decreases as you raise money, because you're creating new shares for investors (called dilution).
If you start with 100% equity and sell 20% to an investor, you now own 80%.
Each funding round typically dilutes existing shareholders further, unless you negotiate protective terms.
Founder equity splits should reflect each person's contribution, commitment, and value to the business.
Common approaches include equal splits, or weighted distributions based on factors like who had the original idea, who's working full-time, and what skills each founder brings.
Many founders use vesting schedules to ensure everyone earns their equity over time.
Yes, through several mechanisms. Vesting schedules mean you might forfeit unvested equity if you leave early.
Investors might negotiate terms that reduce your stake if the company underperforms.
In extreme cases, if the company fails and has debts, equity becomes worthless as creditors get paid first.
