Do startups ever pre-allocate blocks of equity for investors? I understand it's common to carve out N shares for employee options.
Say pre-raise look like this...
- 30% for founders
- 20% for employees
- 50% for future investors
Then when raising initial funds, you sell 20% the total pie (40% of the investor block) of the company to investors, making the share split look like this...
- 30% for founders
- 20% for employees
- 20% for current investors
- 30% for future investors
When an exit occurs, any unallocated shares get split up among the existing shareholders using whatever formula is used to calculate how the money is distributed.
I did something like this with our company, but it doesn't really do anything other than make round share counts. All that matters is the proportions between shareholders, not the number of unissued shares.
Given what you know, would you do it again? My main thinking is that it's simply easier to reason about, especially when discussing the value of shares with non-investors.
I wouldn't preallocate for investors. It's too unpredictable. Employees, sure.
Is it that you want to be able to say to your team members, "you have X% in the worst case" ? I don't think it's practical to make such a statement if you're going down a fundraising path. At best you might be able give a near term worst case, based on the next round or two (e.g. apply the high side of Sam's seed/A dilution ranges). It's all guesswork though, and even with a preallocation you might need to exceed it.
Say pre-raise look like this...
- 30% for founders
- 20% for employees
- 50% for future investors
Then when raising initial funds, you sell 20% the total pie (40% of the investor block) of the company to investors, making the share split look like this...
- 30% for founders
- 20% for employees
- 20% for current investors
- 30% for future investors
When an exit occurs, any unallocated shares get split up among the existing shareholders using whatever formula is used to calculate how the money is distributed.