Equity allocation of start-up enterprises
Once the scenery Unlimited "thousand Night" tourism has won the Zhongguancun Xingye 10 million investment, the market valuation reached 50 million. The founder of Feng Yu to reflect on the reasons for the failure of the millennium, "in fact, the crux of the problem or the structure of the shares is unreasonable." The issue of equity allocation is a problem that has to be faced by start-up enterprises. Moreover, in the beginning if not handled well, it is likely to be the future of entrepreneurial failure to bury the hidden dangers. Some people think that the average distribution, in fact, the most wrong way is equity 55 points, 55 points result is no allocation of power. In the beginning of the honeymoon period may not have disputes, is the so-called can be together, difficult to weal. To a certain stage, when there is disagreement, if there is no one has absolute control, may not be convinced who, the end result is to separate, entrepreneurial failure. Based on the company law of the 1/2 of the resolution rules and 2/3 of the special resolution rules, the relative ideal of equity distribution is holding more than 1/2 equity, ideally more than 2/3. This paper attempts to explain some specific operational problems in practice.
This article is divided into three parts.
One is the founder's equity.
Second, the employee's equity.
Third, the public equity.
Finally, we share the three famous venture companies ' equity allocation cases.
1. The founder's Equity
1.1 Determine the founder. The founder is the one who takes the risk. The simple way to judge a founder is to see if you don't get paid, if you can't pay your salary at the beginning, you're the founder.
1.2 How the founder's worth is determined.
1.2.1 Initial (100 shares per person). We give each founder 100 shares. Suppose that the joining company now has three partners so the first of their respective equity is 100/100/100.
1.2.2 Convenor (increase in equity by 5%). The convenor may be the CEO or not the CEO, but if he brings everyone together to start a business, he should get 5% more. Suppose A is the convenor. Now, the shareholding structure is 105/100/100.
1.2.3 Entrepreneurial ideas and implementation is very important (equity increase of 5%). If the founder offers the initial entrepreneurial idea and succeeds, his equity can be increased by 5% (if you are 105, then 110.25% after the 5% increase).
1.2.4 The first step is the hardest (equity increase of 5% to 25%). If a founder's concept has already been implemented, such as a patent application, a demo prototype, an earlier version of a product, or other things that might be good for attracting investment or loans, the founder's additional equity will range from 5% to 25%.
1.2.5 CEO, general manager should hold more shares (equity increase by 5%). The CEO, who is the biggest contributor to the company, should have a bigger stake. A good CEO of the company's market value of the role is greater than a good CTO, so the CEO positions should be a little more equity.
1.2.6 Full-time entrepreneurship is the most valuable (200% equity increase). Full-time founders are more valuable if some founders work full-time and some co-founder work part-time. Because full-time founders have more work to do, and the risk of a project failure is even greater.
1.2.7 Credibility is the most important asset (equity increase 50-500%). If the founder is the first to start a business, and some of his partners have been involved in the successful venture investment project, then the partner is more valuable than the founder of the investment. In some extreme cases, some founders will make investors feel very worthwhile to invest, these super partners basically eliminate the "start-up phase" of all the risks, so it is best to let them at this stage to get the most equity.
1.2.8 Cash investment in reference to investors. It is likely that a partner is spending a lot more money. Such investments should be given more equity, since the earliest investments are often the most risky, so more equity should be gained.
1.2.9 is finally calculated. Now, if the last three founders ' shares are for 200/150/250, then add their shares (that is, 600) as a total, and then calculate the percentage of each person's shareholding: 33%/25%/42%.
1.3 Exit mechanism of founder Equity
As a start-up, if the founder leaves the entrepreneurial team, it involves an exit mechanism for equity. If the exit mechanism is not set, allowing the withdrawing partner to take the equity away from the partners is fair to the partner, but it is the biggest unfairness to the other long-term partners and insecure to the other partners.
On the one hand, the withdrawing partner may withdraw all or part of the equity, on the other hand, the historical contribution of the partner must be recognized and the share price should be repurchase at a certain premium/or discount. For how to determine the specific exit price, involves two factors, one is the exit price base, one is the premium/or discount multiples. Consideration may be given to a certain premium repurchase at the purchase price of the partner's pay, or a certain premium for the partner to be able to participate in the distribution of the company's net assets or net profit in accordance with its shareholding, or in accordance with a certain discounted price of the company's latest round of financing valuation. Some exit prices are the principal invested at that time, plus a reasonable interest return. As to which exit price to choose, different companies will have differences.
1.4 Separation of equity and dividend rights
Dividend right and equity can be separated, voting rights can theoretically be separated. For larger partners, you can give a larger dividend right, but for the greater risk, should be given a larger stake. This can be done by referring to the last case.
1.5 Agreement on equity agreements
In order to protect the interests of other partners in the venture, it is advisable to agree on the terms of the shares in the agreement that some of the companies that have an equity partner appear in the course of their own business and violate the interests of the venture, such as leaking or carrying intellectual property.
can also make equity realization of the assessment criteria, do not meet the assessment criteria do not have equity.
2 Employee Equity
What is an employee? Who is the employee's standard of judgment is to see whether it is a person with employee mentality. In startups, some partners want to give their employees as partners and share incentives. One downside to this approach is that premature decentralization of equity is another negative effect, as people with an employee mindset want a stable cash income rather than a potential value-added stake in the future and therefore are not satisfied. So even a stake in an incentive should not be too big. The problem of employee management should not be solved solely by equity. In general, VC will require the employee Stock ownership plan before VC investment in the implementation, so that VC can reduce dilution. But can not think that this is a round of VC selfish, to know that B round VC will also require before they come in to carry out an employee stock ownership plan, when a round of VC and founder shareholders will be diluted together. How much should the employee's option ratio be left? Generally speaking, 5-15%.
3 stake in the public
From the concept to practice, "whether or not the public equity financing constitutes illegal fund-raising" is no longer the focus of legal perspective. Since it is a "public" chip, it means that the number of shareholders is very large. However, under the company law, there are no more than 50 shareholders of a limited liability corporation, and not more than 200 shareholders in a unlisted company. The legal restrictions on the number of shareholders in the company lead to the majority of shareholders can not directly appear in the business registration of the Register of shareholders. There are two general solutions to this problem:
3.1 commissioned shareholding, or on behalf of the stock. A real-name shareholder with several or even dozens of anonymous shareholders signed a shares agreement, on behalf of all the shareholders to hold a stake in the public companies. In this mode, the shareholders do not hold the shares themselves, but are held by a real-name shareholder, and in the business registration only the identity of the real-name shareholders. China's domestic law has already recognized the legitimate interest of protecting the real shareholder, even if there is no name for the shareholders in the list, so long as there is an agreement to prove that the real shareholder is the real investor, its rights are guaranteed.
3.2 Shareholding platform. For example, to set up a shareholding platform, 50 of shareholders as investors in the shareholding platform to put money into the shareholding platform, then the shareholding platform to put the money into the public companies, by the shareholding platform as the shareholders of the company. So the 50 shareholders in the public-raised companies are only one shareholder, that is, the shareholding platform. A shareholding platform can be either a limited liability company or a limited partnership. Both are of limited liability to the shareholders. Under the Partnership law, a limited partner is usually not involved in management and is administered by the general partner. In this way, the sponsors will be able to manage and control the shareholding platform in the identity of their general partners, thereby controlling the stakes of the shareholding platform in the public companies, and actually controlling the investment and shares of the shareholders.
Let's talk about options pools, which are some of the shares reserved for the future introduction of senior talent before financing, and are used to motivate employees (including founders themselves, executives, backbone, and ordinary employees) as the most common form of a start-up's equity incentive scheme (Equity Incentive plan). Countries such as Europe and the United States are considered to be one of the key factors driving the development of start-up enterprises. The practice in Silicon Valley is to reserve 10%-20% of the company's entire stake as an option pool, and larger options pools are more attractive to employees and VC. VC generally requires that the option pool before it entered the establishment, and required to reach a certain proportion after it entered. Since each round of financing will dilute the equity ratio of the options pool, the option pool is generally adjusted (enlarged) at each financing time to attract new talents.
Finally, a few famous companies to do a case. Apple, at the start stage, was 45% of jobs and Wozniak, Wayne 10%, Google, Peggy and Brin in one half, Facebook, Zuckerberg 65%, Saverin 30%, and Moscow Mainz 5%.
The Apple Computer was developed by Wozniak, but Jobs was just like Mr Watts's father, who was not only a marketing genius but also a leader with a strong passion for the company's future. While Watts is inherently introverted, accustomed to working alone and willing to work part-time for a new company, jobs and his friends and family are persuaded to agree full-time. As for Wayne, he owns 10% because the other two are completely new to running the company and need his experience. Because of his aversion to risk, Wayne soon withdrawal, claiming he had never regretted it.
Facebook was developed by Zuckerberg, and he is a strong-willed leader, so he occupies 65%, Saverin knows how to turn the product into money, and the Moscow dimension contributes significantly to the increase in users. However, the Facebook start-up phase of the equity arrangement has buried the future. Since Saverin is unwilling to suspend his studies like the rest of the second page, he has a 1/3 stake in the new company. As a result, when the Moscow dimension and the new but experienced Parker contributed more and more, they could only dilute Saverin shares to increase their holdings, while Saverin responded by freezing the company account. After a round of funding was completed, Saverin's shares fell to less than 10%, and he simply took his former partners to court. Saverin is so high because he can make money for the company, and the company has to spend every day. But Zuckerberg's idea is to "make the site more fun than it is to make money", and saverin thinking about how to meet advertisers ' demands to make more money. Saverin is right in the short term, but it's impossible to make a great company, and Zuckerberg knows that. The right way for Facebook should be to look for Angel Investments earlier, as Apple and Google have done. After the new company determines the direction of the product, it needs angel investment to help him stabilize the product and business model, and avoid the pressure of immediate profit to lead the company astray. Facebook's angel investor is Thiel, a friend of Parker's, who injected 500,000 of billions of dollars to get a 10% stake. After that, Facebook's development was smooth sailing, with a round of financing in less than a year-Akesai, which invested 12.7 million dollars and valued 100 million dollars. 7 years later in 2012, Facebook went public, when the company was 8 years old. Google from Angel to a round of time is almost a year. Kleiner and Sequoia Capital, a famous Silicon Valley venture company, injected $1.25 million trillion into Google, gaining 10% per cent respectively. In 2004 after 5, when the company was founded 6 years later, Google listed, nearly 2000 employees get a rights issue. Apple did not experience follow-on financing after investing in Markkula, after 4 years of listing, hundreds of employees became millionaires, at this time the company 5 years old.
The establishment of the entrepreneurial team in the process of the need to develop equity allocation plan. As companies grow larger, capital demand grows, and follow-on financing is unavoidable, and the introduction of seasoned operators must also give them stakes or options that dilute the Founders ' stakes. In fact, it is already one of Silicon Valley's classic topics how the founders are not kicked out of their own company by the board when they grow up. Steve Jobs was kicked out of Apple after 4.5, and none of the founders was willing to lose their company, and they had a way to do it, and that was to adopt a double shareholding structure (a separation of voting and dividend rights mentioned above).
Apple was a single ownership structure, shares the same rights, after Apple listed, Jobs's stake fell to 11%, the board also did not have his staunch ally (he thought Markkula would be), the outcome of the outrage after the end can be imagined. Google, while on the market, regained the Long-lost AB-stock model of U.S. capital markets, with the founders and executives of Peggy, Brin and Schmidt holding B stocks, each voting equal to the 10 shares of Class A.
In the 2012, Google added a vote-free C-share to new offerings. In this way, even if total equity continues to expand, even if the founders reduce their shares, they will not lose control of the company. By 2015, Peggy, Brin and Schmidt are expected to hold Google shares below 20% of total equity, but still have nearly 60% of the voting rights. Facebook also used the AB-stock model of voting rights 1:10 the year before it went public, so that Zuckerberg
Would have 28.2 of the voting rights. In addition, Mr. Zuckerberg signed a voting-agent agreement with major shareholders and, in certain circumstances, Zackerberger on behalf of those shareholders, which means he has 56.9% of the voting rights.
In China, the company law stipulates the same share rights, does not allow the direct implementation of the two or three-tier shareholding structure, but the company law allows the articles of association to the right to vote in a special agreement (limited liability company), allowing shareholders at the general meeting of shareholders to give their vote to other shareholders to exercise (
Finally, I would like to say that the issue of equity distribution is a game, is a bargaining between different roles, but also depends on the personality of different people, there is no standard answer.
(The above contents refer to some online resources and Shanghai Hui People Entrepreneurship Club December 6 activity content.) )