Entrepreneur

How to give away equity & stay alive

Over the past three weeks, I bumped into three different entrepreneurs who put their equity into a fortress 100,000 feet underground with 16 guards and an atomic bomb.

If you read the previous sentence and thought that’s a reasonable precaution to save the company’s identity and keep control, I’m glad you’re reading this post.

Just a quick reality check: You can keep all the company’s equity to yourself, but you’ll have zero progress and revenues. Learn how to give. This lesson can affect not only your startup journey but also your relationships with other people and many other aspects of your life.

The most important lesson I learned from the startup journey is to share –- ideas, feelings, and equity.

You are one, two, or even five founders who thought of a great idea and are willing to execute to win. The most fundamental core engine of every startup is the team. I don’t need to preach that, I’m sure you’ve heard it from other people.

The idea will be changed many times anyway, but the team is the key ingredient of converting any idea into a real product. When you’re at the beginning of your startup journey, your most important resource is great human beings.

Do you really want someone great to join your company only because of a huge salary and benefits? No!

Actually, you probably don’t have the money anyway; you want her to join the company because she is connected to you and your vision and is eager to build that vision. So my first point is that great human beings are worth the equity. They’re the best investment you can make.

Second, you have great tools to help control the equity you’re giving; one example is vesting. You’ve got a great guy who is willing to join your startup for five percent equity, and vesting allows you to divide that five percent over a period of time (for example, three years). As long as he is part of the company, he’ll get 0.13 percent of the company’s equity each month.

Is your paranoia level still high? Of course there are many legal tools you can use to mitigate your risk; in the near future I’ll have a more detailed post about legal tools in the startup world.

Third, equity is great tool that can help you construct the company’s advisory board effectively and bring the expertise you don’t have within your team. Members of the advisory board often invest in the company and pull the right strings to help generate business leads.

Bottom line: You can use equity to attract the missing puzzle pieces of expertise to your company, get industry experts on board to help you grow your business, and most importantly, get the right people attached to and involved with your startup. It doesn’t matter how many times I repeat that mantra; you’ll have to go through the startup journey yourself to learn the lesson of sharing.

Yaron Tal has been working on turning ideas into marketable products for more 12 years. Currently, Tal is CTO of security company 6scan and blogs at Startup Internals, where this post originally appeared.

Image credit: Mincemeat/Shutterstock


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