For our Insights and Opinions section this afternoon, we have an article from angel investor Dave Berkus, who is past chairman of the Tech Coast Angels, which talks about the structure of equity in an early stage business.
Equity is the currency of early stage businesses. The truth of this statement may be obvious, but the execution of a good incentive program using equity is often mismanaged, damaging the corporate capitalization structure and even affecting the outcome of subsequent investment into the company. First, a brand new enterprise is often formed from the efforts of several “partners”, each with an expertise valued by the others. Equity is divided between the founders and the business begun. Although this insight does not address this point of ignition, we should note in passing that things always change over time, and formerly strong founder-contributors can become a drag upon a business or loose interest if the enterprise is not quickly successful. To protect against... (More...)
Read about equity structure from Dave in our Insights and Opinions section.