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2 minute read / May 2, 2014 /

Surprising Trends in Startup Founder Equity Stakes

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Earlier this week, I wrote about the increase in cash compensation and decline in equity grants to VPs of Engineering and Product in startups. I received a lot of comments about the analysis, and in particular hypotheses to explain the data. I dug a bit deeper into the data set to find an explanation.

Founding employees keep more equity today than ever through the Series A and Series B. On average, founders retain 30-33% more equity than 4 years ago through those first two rounds of institutional investment. For the statisticians out there, this change is statistically significant with greater than 99% confidence on an average yearly sample size about 200+ data points per year per role.

The chart above shows the trends in four graphs. The graphs are broken out by last Series of investment (A, B, C and D) and show the equity compensation trends of CEOs, VP of Engineering and VP of Product. The gray shadows around the lines represent the 95% confidence intervals.

In 2014, the median founding CEO equity stake after raising a Series A is 21% up from 15% in 2009. The trend is similar for Series B companies. On the whole, the founder stakes for founding VPEng and VPProduct have remained relatively stable. The much higher variances of equity stakes for these two positions make it difficult to draw a statistically significant conclusion about trends.

Let’s compare founder equity trends with non-founders, in the chart below.

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Non-founder equity grants have remained relatively constant over time, with a recent spike in post-Series A CEO compensation apparent in the last year.

If the capitalization table of a startup has 100%, and the compensation for founders is increasing and the compensation for non-founders is staying constant, whose share is contracting?

Venture capitalists.

Pitchbook’s Q4 Series A and B valuation data, copied below, shows a greater than 44% increase in median startup valuations during the same time period as the compensation study above. But Crunchbase data indicates that round sizes have remained relatively constant.

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So, on the whole, as valuations in startupland have increased, investors have held their check size relatively constant and consequently, founders are retaining more equity in their businesses.


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