Jeff Church explains how founders can share equity with employees and investors without losing control. He warns against over-dilution and recommends using options and vesting schedules, citing examples of founders who owned almost nothing at exit.
I also learned you want to share the upside with people, but be really careful of the dilution. It's really— I know two people that started businesses and ended up selling them each for over $100 million and they each ended up with only 5% of the company. Now you might say, and you're right, 5% of $100 million is a lot of money and it is, but there is no reason they shouldn't have had 30% or 40% of those companies. And what tends to happen is if I'm starting a company and I want to have Johnny come work with me because I know he's got some skill set, it's really easy to say, hey, Johnny, come work with me and I'll give you 10% of the company. And Johnny says, okay, I'll come work with you, 10% of the company. Well, you kind of forget about that. Well, Johnny doesn't forget about that, right? Whereas you could say to Johnny, hey, Johnny, come work with me, I'll let you share in the upside with me, I'll give you some options, it will be great, you know, we'll work it that way. And Johnny will be thrilled generally. To come and work in that. So I really strongly believe in sharing the upside with those that perform and people that are with you, but I also don't believe in just giving it away. And it's really easy, particularly in startups, to be very easy about giving it away. I know people that have given it away actually and then those people didn't even stay with the company. So they left, but they still were vested in the equity that they had.
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