Equity

Employee equity reserve pool

Meetul Shah

December 12th, 2013

We are staring a new c corp and wanted to know recommendation for a reserve pool for the employees and BOD to avoid dilution in the beginning

Any feedback would be appreciated

Thanks,
-Meetul.

Lydia Loizides Founder and CEO @GGGrit

December 12th, 2013

15 million total 10 m issued Reserve 5-10% depending on your needs and growth When in doubt, Fred is the man http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html Lydia

Scott Milburn Entrepreneurial Senior Executive and Attorney

December 12th, 2013

A typical equity spilt post Series A is 40% founders, 40% investors, and 20% employees (which includes founder/employees). So, when starting out, if you did 2/3 founders (e.g. 4M out of 10M) and 1/3 employee (2M/10M) equity pool, you would be reserving the balance for investors and achieve that split.

Mike Moyer

December 12th, 2013

Hi Meetul, I recommend zero reserve. A reserve is an attempt to protect one group of people from another group of people. This will guarantee that your equity split is not fair and you will be setting a bad tone for your company. The much, *much *better way to address your equity problem is to use a dynamic equity split which will *guarantee *that every person who contributes to the company will get exactly the equity they deserve. No more and no less. A dynamic equity split allocates shares based

Mike Moyer

December 12th, 2013

My answer above appears to have been cut off. Here is the complete answer:

Hi Meetul,

I recommend zero reserve. A reserve is an attempt to protect one group of people from another group of people. This will guarantee that your equity split is not fair and you will be setting a bad tone for your company. The much, much better way to address your equity problem is to use a dynamic equity split which will guarantee that every person who contributes to the company will get exactly the equity they deserve. No more and no less. A dynamic equity split allocates shares based on the relative value of actual contributions to the company. 

A reserve pool does just the opposite. It is an attempt to predict what someone *might* contribute sometime in the future and then protect other people from by giving them equity in a fixed amount regardless of their actual performance. It is a horrible mess that will ultimately have to be dismantled and rebuilt through painful renegotiation or legal action. 

For a free guide on dynamic splits and why they are fair go here: http://www.slicingpie.com/get-them-gators-beta-version/

I've written a guide on how to implement a dynamic split. The book is called Slicing Pie and I will give you a copy if you email me atmike@slicingpie.com. As much as I like selling the book, I prefer helping people prevent horrible equity mistakes!

-Mike