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.

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

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

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