Startup Equity Calculator: How to Divide Up Startup Equity
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Startup Equity Calculator: How to Divide Up Startup Equity

Simple framework and robust calculator to help you and your cofounders to find a fair equity split.
4.5 (114 ratings)
Instead of using a simple lifetime average, Udemy calculates a course's star rating by considering a number of different factors such as the number of ratings, the age of ratings, and the likelihood of fraudulent ratings.
5,004 students enrolled
Created by Symon He
Last updated 5/2017
English
Current price: $10 Original price: $195 Discount: 95% off
1 day left at this price!
30-Day Money-Back Guarantee
Includes:
  • 3.5 hours on-demand video
  • 2 Articles
  • 10 Supplemental Resources
  • Full lifetime access
  • Access on mobile and TV
  • Certificate of Completion
What Will I Learn?
  • Understand the key factors in initial equity consideration
  • How to use milestones and actual contributions to calculate a founder's equity
  • Understand the two different frameworks for splitting the equity
  • Learn which framework is better suited for your situation
  • Use my carefully designed calculators to arrive at fair splits
View Curriculum
Requirements
  • Microsoft Excel 2003+
  • Good grasp of percentages will help!
Description

So, you have a great business idea.

You grab your two best friends, get all excited, and then start a company together.

In your haste to get started, you and your two cofounders decided to divide the equity evenly in thirds--it seemed the obvious and fair choice then.

Two months later, just as you're starting to get some traction, one of the "friends" changes his mind and drops out entirely. But for the work that he did, he believes he should still keep his 1/3 share of the company.

The two of you left are now essentially doing all the work, but for only 2/3 of the company. Still worth pursuing? Maybe. But you definitely won't be happy.

With 'deadweight' cofounders with significant equity stakes, you'll be lucky if you could attract any new team members or investors.

Don't make this dumb mistake. My course and my calculator will allow you and your cofounders to have a collaborative and transparent conversation how much of the company each person should get.

_____________________________________________

Look, starting a new venture is hard enough, but having to figure out what is fair for each cofounder shouldn't be the hardest thing.

By taking this course and using my easy to use startup equity calculator (UPDATED May 2017 to handle up to 7 cofounder slots--more than what 99.99% of you will need), you'll learn some ways on how to avoid this unfortunate, yet preventable situation. And you and your team might even have fun with the pie slicing exercise!

Through the course, you'll learn what you should into your equity pie considerations and how to use a systematic approach for calculating each founders fair share, collaboratively and openly.

While this course isn't intended to provide you with the THE "correct solution", it will give you and your team a great starting point.

And it'll make easy an often awkward conversation about who should get how much and why.

Deciding and agreeing on how to divide the initial equity pie is no trivial task, but this tool will definitely help get the conversation going on the right path by forcing you and your cofounders to decide on what are the key milestones for your venture and how each of you are going to be making your contributions.

What if your starting a more traditional business?

Whether you're going for a high growth type of startup or a more traditional startup with known benchmarks for revenue and cash flow, I've got you covered.

I'll explain to you which of the TWO frameworks and tools you should use depending on the type of venture you're starting up.

Take a look at the preview lectures to check out the calculators in action and you'll see how they can help you and your cofounders with having a smart and equity conversation about splitting the pie.

Good luck and happy slicing!


Who is the target audience?
  • new business owners
  • startup founders
  • co-founders
  • entrepreneurs
Students Who Viewed This Course Also Viewed
Curriculum For This Course
Expand All 41 Lectures Collapse All 41 Lectures 03:28:25
+
Too Long Didn't Watch!
1 Lecture 08:29

This is the TLDW (Too Long Didn't Watch) Summary Lecture.  

Preview 08:29
+
Why a Founder's Pie Calculator?
7 Lectures 13:55

What this course WILL and WILL NOT do for you.

What This Course Will (& Will Not) Do For You
01:01

Whatever you do, DON'T divide by N. It's almost certainly going to be the wrong approach for you and your team.

Don't Divide by N
01:43

Course objectives

Course Objectives
00:48

Where are you from? What kind of startup are you working on or will be working?

Why Are You Here?
00:47

The calculator in this course is inspired by an article by Frank Demmler, which you can find here:

https://www.andrew.cmu.edu/user/fd0n/35%20Founders'%20Pie%20Calculator.htm

For the model in this course, I've made some additions that allow it to take on more use cases.

Preview 03:38

Introduction to the Waterfall Framework

Preview 04:21

Tech, venture funding, IPO, apps, etc...? Go with the Founder's Pie Calculator.

Traditional brick & mortar startup? Go with the Waterfall Framework.

Which Should You Use?
01:37
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Framework #1: Founders Pie Calculator Considerations
11 Lectures 54:49

Overview of the section.

Considerations Overview
00:43

Should the idea be worth something? How much? Find out.

The Value of an Idea
03:25

How to treat cash contributions.

Cash
02:51

Discussion on skills for the founders pie calculator.

Skills
02:10

A list of common contributions teams may want to consider as part of their equity pie slicing exercise.

Other Things That COULD Be of Value
01:07

Milestones and how they're used in the founders pie calculator.

Milestones
01:38

Discussion on vesting--don't use the calculator for that.

Don't Use This for Vesting
02:40

Old version handles up to 5 cofounder slots.

New version can handle up to 7 cofounder slots, which you could use for things like setting aside employee pool, accounting for late co-founders/early key hirers, etc...

UPDATED: Founders Pie Calculators TWO VERSIONS
00:04

A quick walk through of the founder's pie calculator and how to use it.

Founders Pie Calculator Model - How to Use It
16:13

A walk through of the founder's pie calculator with a tech startup example involving 3 founders.

Preview 14:48

A walk through of the founder's pie calculator with a tech startup example where we use two of the "cofounder" slots to track angel investors and a 1st hire instead.

Preview 09:10
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Framework #2: Waterfall Model
5 Lectures 40:45

If distributions of cash flows are expected and there's a need to reward sweat equity, then the waterfall is a great fit.

Why Use The Waterfall Framework?
01:23

Download the waterfall framework file, with all of the formulas. You will be using this for the rest of this section.

Waterfall Framework Model - DOWNLOAD
00:03

Discussion on what is the waterfall and its components.

Preview 11:52

Walk through of the waterfall model and how to use it.

Preview 12:05

Restaurant example using waterfall framework.

Preview 15:22
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EXTRA MATERIALS: Measures of Return to Understand the Waterfall
10 Lectures 40:08

The lectures in this section were originally geared towards real estate but the concepts apply to any business with cash flows out and cash flows in (i.e. traditional business startups).

Measures of Return Quick Caveat
02:20

Quick overview of the topics to be covered in this section.

Measures of Return Overview
00:58

If you aren't comfortable with discounted cash flow, it'll be difficult to fully utilize the waterfall model.

Discounted Cash Flow
05:45

Discount Rate
02:50

The Net Present Value determines value of all future incoming and outgoing cash flows in today's dollars.

In this lecture you will learn about NPV and what this measure says about your project.

**Model Included

Net Present Value
07:43

The Internal Rate of Return measures and compares the efficiency of your investment taking into account the timing of the cash flows.
Internal Rate of Return
02:42

Demo with Excel to show IRR calculations and comparisons. 

Internal Rate of Return Demo
04:33

The Cash Multiple measures and compares the magnitude of your investment without taking time into consideration.

Cash Multiple
02:06

Which measure do you use?

Which to Use?
06:12

Demo showing use of IRR & Cash Multiple.

Which to Use Demo
04:59
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EXTRA MATERIALS: Additional Waterfall Example & Explanation
7 Lectures 50:17

Watch this before you jump into the rest of the section.

Waterfall Optional Section Intro
01:10

Using the same scenario (a real estate investment) to evaluate and compare the results of 4 different waterfall scenarios.


DOWNLOAD the file here to follow along for the rest of this section.

Waterfall Example Overview
08:31

Using the same example to compare the various waterfall structures, we explore what the returns for each party would look like in a no waterfall scenario.

Waterfall Example - No Waterfall
04:30

Using the same example to compare the various waterfall structures, we explore what the returns for each party would look like in a 2 tier waterfall scenario.
Waterfall Example - 2 Tiers
12:00

Using the same example to compare the various waterfall structures, we explore what the returns for each party would look like in a 3 tier waterfall scenario.

Waterfall Example - 3 Tiers
09:31

Using the same example to compare the various waterfall structures, we explore what the returns for each party would look like in a 4 tier waterfall scenario that uses a catchup.

Waterfall Example - 4 Tiers (catch up)
08:05

Comparing the four waterfall scenarios shows that depending on what your role is and what your expectation for the overall venture return will be, the ideal waterfall could be different.

Waterfall Comparison
06:30
About the Instructor
Symon He
4.5 Average rating
1,685 Reviews
26,833 Students
9 Courses
Stanford MBA | Real Estate and Startup Consultant

Hey, thanks for checking out my course.  

I am a real estate and startup business consultant based out of Los Angeles CA.

I currently help startup founders and small business entrepreneurs build financial models and projections for their businesses and private real estate investors with their acquisitions analysis and deal structuring.  Please message me directly for consulting requests.

Previously, I was Head of Marketing Analytics at the Panda Restaurant Group after first serving as a senior financial analyst leading real estate and new store underwriting efforts. 

Prior to that, I worked on over $400M in commercial real estate investments at a private equity real estate fund.  Before that, I worked as a manager of a global M&A unit for a Fortune 80 company. 

I am also a cofounder of LearnAirbnb, a consultancy and research group specializing in the home-sharing economy.  

I graduated Magna Cum Laude in Computer Engineering and Economics from UC Irvine and hold an MBA from Stanford University.