The crux of equity management can be distilled into a single question: How do I attract new stakeholders while keeping existing ones happy?
It may seem deceptively simple but the reality is, you must stay abreast of regulatory requirements, be familiar with cap tables, and ensure your stakeholders are compensated fairly, among other things.
Good equity management separates average startups from excellent ones. With effective equity management, startup leaders will find it easier to attract top talent and investors, boost internal productivity, and lay the foundations that can support the startup’s growth for years to come.
To grasp the fundamentals of equity management along with what you should and should not do, read on.
What is equity management?
Equity management is one of the most crucial processes a startup must nail down. At its core, equity management is all about planning, balancing, and dividing up ownership of your startup amongst three main groups: founders, investors, and employees:
- Equity management helps determine ownership stakes and ensures that founders are fairly rewarded for their efforts.
- Equity is often given in exchange for their funding and expertise.
- Equity-based compensation packages are powerful motivators used to incentivize and retain employees and attract top talent.
Without good equity management, maintaining a healthy capital structure is impossible.
Why good equity management matters
Allocating equity is easy. Managing it properly, however, is not. Though equity management may seem straightforward in definition, bad equity management has been the root cause of failure for countless startups. Here’s what equity management can do for you:
Different types of equity accounts
Good equity management requires you to be familiar with the various types of equity accounts. Some of the most common types include:
3 Common equity management mistakes to avoid
As good equity management can spell the difference between success and failure for your startup, it’s critical to get things right as the potential costs of mistakes are high. Some of the most common mistakes startups make include:
Best equity management practices
Equity management can feel daunting, especially for inexperienced founders and startups. However, keeping in mind the following best practices can make your experience much smoother.
Consequences of poor equity management
While effective equity management can be rewarding, getting it wrong can lead to serious consequences. Even small mistakes can have long-lasting consequences that can negatively impact your startup for years as they may lead to:
Founder vs employee equity
Founder and employee equity form the main pillars of equity management, which is why it is important to understand their differences and similarities. Here’s a breakdown:
Manage your equity with a platform like LTSE equity
A solid equity management platform can be your best companion if used properly. It can cut out unnecessary headaches, promote transparency over ownership, and optimize time-consuming processes such as tracking stock option issuances.
Accordingly, if you’re looking for a solid equity management platform for your startup, why not consider LTSE Equity? We’ve helped thousands of startups from pre-seed through to series A, B, C, and beyond achieve their goals and missions.
We also provide one of the most intuitive user interfaces in the market, along with high-priority support and founder-friendly pricing. To get a feel for what we can offer, try out our free public demo today.