Overview
Equity allocation in startup financing is a critical aspect that determines how ownership is distributed among founders, investors, and employees. Understanding equity, valuation, and dilution is essential for anyone involved in a startup. A well-structured cap table helps manage these complexities ...
Key Terms
Example: If you own 10 shares in a company with 100 total shares, you have 10% equity.
Example: A startup valued at $1 million means investors believe it is worth that amount.
Example: If a company issues 100 new shares, existing shareholders' ownership percentage decreases.
Example: A cap table lists all shareholders and their respective ownership percentages.
Example: If a startup is valued at $2 million before a $500,000 investment, its pre-money valuation is $2 million.
Example: If a startup has a pre-money valuation of $2 million and receives $500,000, its post-money valuation is $2.5 million.