Startups are usually classified under sailboats or speedboats. Speedboats are the first movers. They have more clarity on where they are heading, and what they want to achieve. They also require a lot of fuel(funds) and are most difficult to sustain, but once they get there, and end up at the first place, there is no looking back. Airbnb, Facebook, and Uber are some of the classic examples that fall under this category.
Most startups fall under the sailboat category, the ones who are flowing in a general direction and function at the mercy of winds. Which means that they follow the general trends and keep their options open. They usually learn from the speedboat companies and look into the market needs and customer demands more than anything else.
Since speedboats involve greater risks, sailboat type companies are common, but whatever may be the case, both need capital and its good if one is able to evaluate which category their company falls into. Equity decisions for both the types are very crucial and these points will come in handy
Equity is Gold
How much equity you should be giving up is always a difficult decision. If you give up too much of equity, you may put your ownership at stake while if you don’t give away any, you might not be able to grow too fast. You must arrive at a middle path, not giving away your equity and keeping it all to yourself will prove your shortsightedness. In order to achieve something bigger and grow faster, you will have to part away with some equity. Only if you want to keep your business very small and grow organically, you may choose to keep all the equity with yourself.
Remember, Company Value is Variable
Given a choice what would you prefer, owing 100% equity of a company that is worth nothing, or having 10% equity in a startup that might be earning $2 million? Whether speedboat or sailboat, both types of companies experience dilution, but when it comes to equity, be sure you have enough slices of the pie to go around.
Evaluate Employee Worth On Capabilities and Not Equity
Not all employees want a share in the company, even if you feel otherwise. Some employees prefer a secure and stable lifestyle and avoid risks at all costs, even if it has a chance of making them rich, while others could be more willing to take risks and love a share in the company. Evaluate carefully, those who expect a big salary rather than a big or small percentage in company could be great workers too. Their choices for risk-taking doesn’t decide their worth in the company. So keep people who bring value to your work, not just those who want a share in the company.
Take Equity Decisions at Right Time
Decide carefully, when it comes to dividing the equity. Regardless of whether your company is a speedboat or a sailboat, you should make equity decisions before the company is worth a lot, and think about the decision as if it already is. This would help you tackle the situation beforehand. While taking this decision prior is important, be thoughtful of not throwing away and dividing percentages just because you don’t see the worth now. Sometimes even dividing a mere 2% could mean big chunks of money going away in times to come. So whatever be the case, make your choices carefully and think who are you dividing these percentages amongst.