Tag Archives: Equity

Equity in Startups

This is the third short report I publish this summer about startups. After Startups at EPFL and Stanford and Startups, here is (I hope) an interesting analysis about how equity was allocated in 400 startups, entitled Equity in Startups (in pdf). Here is the description of the report on its back page: Startups have become in less than 50 years a major component of innovation and economic growth. An important feature of the startup phenomenon has been the wealth created through equity in startups to all stakeholders. These include the startup founders, the investors, and also the employees through the stock-option mechanism and universities through licenses of intellectual property. In the employee group, the allocation to important managers like the chief executive, vice-presidents and other officers, and independent board members is also analyzed. This report analyzes how equity was allocated in more than 400 startups, most of which had filed for an initial public offering. The author has the ambition of informing a general audience about best practice in equity split, in particular in Silicon Valley, the central place for startup innovation.

I will let you (hopefully) discover this rather short report which could have been much longer if I had decided to analyze the data in detail. I will just right here my main results. A simple look at data shows that at IPO (or exit) founders keep around 10% of their company whereas investors own 50% and employees 20%. The remaining 20% goes to the general public at IPO . Of course, this is a little too simplistic. For examples founders keep more in Software and Internet startups and less in Biotech and Medtech. There could be a lot more to add but I let the reader focus on what possibly interests her.
Additional interesting points are:
– The average age of founders is 38 but higher in Biotech and Medtech and lower in Software and Internet.
– It takes on average 8 years to go public after raising a total of $138M, including a first round of $8M in VC money.
– On average, companies have about $110M in sales and are slightly profitable, with 500 employees at IPO time. But again there are differences between Software and Internet startups which have more sales and employees and positive income and Biotech and Medtech startups which have much lower revenue and headcount and negative profit.
– The CEO owns about 3% of the startup at exit. This is 4x less the founding group and depending when she (although it is too often a “he”) joined it would mean up to 20% close to foundation (assuming the founders would keep 80% and allocate the delta to the CEO)
CEOs are non-founders in about 36% of the cases, more in biotech (42%) and Medtech (35%) than Internet (31%) and Software (25%), more in Boston (48%) than Silicon Valley (43%) .
– The Vice-Presidents and Chief Officers own about 1% and the Chief Financial around 0.6%.
– Finally, an independent director gets about 0.3% of the equity at IPO. If we consider again that the founders are diluted by a factor 8x from their initial 100% to about 12%, it means a director should have about 2-3% if he joins at inception.
– In the past universities owned about 10% of a startup at creation in exchange for an exclusive license on IP. More recently, this has been more 5% non-diluted until significant funding (Series A round).

The Paris Innovation Review about Start-ups

Once again the Paris Innovation Review (formerly ParisTech Review) publishes a series of excellent articles, this time dedicated to start-ups. These are:
– Companies like others? A sociological survey of French startup. http://parisinnovationreview.com/2017/03/21/sociological-survey-french-startups/
– Startups Employees Perks & Incentives – 1 – Wages. http://parisinnovationreview.com/2017/03/23/startups-employees-perks-incentives-1-wages/
– Startups Employees Perks & Incentives – 2 – Equity. http://parisinnovationreview.com/2017/03/23/startups-employees-perks-incentives-2-equity/

The article about the sociology of start-ups shows (in fact confirms) interesting things. I will let you read and jump directly to some of their concluding points: “Some of these results can provide pause for thought for public policies aimed at fostering startup creations. The survival of these businesses seems relatively unpredictable, both for the people involved (entrepreneurs, employees, support bodies) and for analysts who observe them from the outside. We have interpreted this unpredictability as the result of two causes. The first is the selection operated by the support agencies, a selection that has largely guided ours, since a claim of technical innovation, which was our main criterion for inclusion in our survey, is generally associated with subsequent monitoring and aid by these agencies. One might think that a number of projects considered very unrealistic could have been excluded by these services, which in fact limits the variety of the companies we studied. The second, more fundamental cause is the very variety of factors that make or break businesses: outlets that emerge and disappear along with the flow of global economic changes, strategies of major industrial groups and initiatives by competitors, internal conflicts, resources which become abundant or scarce depending on the context, financial problems which are difficult to anticipate, etc. This may encourage governments and public agencies to foster a much greater number of projects and not merely be satisfied with those that they consider to be the most promising. Watering a whole field is often more efficient than dumping all the available water on but a few square meters… Securing solid support by authorities, companies that are deemed innovative are doing better than the others if one considers their survival rate. Perhaps it would not be absurd to offer an equivalent support to businesses in other economic circles.”

The incentive topic is one I have covered at length as you may see with my Slideshare link below. On the salary side, I fully agree with their claim: Be as objective as possible: this ensures fairness and acknowledges a basic truth: people talk. On the equity side, know the rules of vesting and cliffs, and build a granting mechanism based on experience of employees and layers of early and late comers, i.e. the same number of stock options could be granted per year (so more shares to early employees as there are more employees per year when the company grows. If it does not, stock options are probably worthless…)

Data about equity, founders, venture capital from 401+ start-ups

I regularly compile data about start-ups and in particular about how equity is allocated to founders, employees (through stock options), independant board members and investors (through preferred shares). I have now more than 400 such cases (see below the full list). What is interesting is to look at some statistics by geography, by field and by period of foundation. here they are:

There would be a lot to say, but I prefer you build your own opinion…

Equity Structure in 401+ Start-ups by Herve Lebret on Scribd

What is the equity structure of Uber and Airbnb?

What is the equity structure of Uber and Airbnb? Unfortunately, this is a question only the shareholders in the two start-ups can know. I have nearly no clue. But over the week-end I had a quick look at how much these unicorns have raised and how this impacted the founders. If you read this blog from time to time, you probably know I do this exercise regularly. I have a databasis of more than 350 examples, and I will update it soon with 401 companies, including these two ones. Here is the result of my “quick and dirty” analysis.

Airbnb cap. table – A speculative exercise with very little information available

Uber cap. table – A speculative exercise with very little information available

A few additional remarks:
– the three founders of Airbnb were 27, 27 and 25-year old at the date of foundation. Whereas for Uber, they were 32 and 34;
– as you may see, I do not have any information about other common shareholders, neither about stock option plans. More information will be released when/if the companies file to go public…
– the amounts raised are just amazing but the founders relatively undiluted;
– finally, Uber did a stock split so the huge price per share would be divided by around 40 whereas the real number of shares is multiplied by the same amount.

Comments welcome!

PS: for some unknown reason, I had some trouble with Slideshare. So here is my updated document on Scribd…

Equity Structure in 401+ Start-ups by Herve Lebret on Scribd

The Rise and Fall of BlackBerry

Very interesting article in the very good ParisTech Review: The Rise and Fall of BlackBerry. The article shows how disruption is more and more threatening not only for established companies but also fast growing start-ups.

Blackberry was founded in 1984 as Research in Motion by two young engineering students from the University of Waterloo – Mike Lazaridis – and the University of Windsor – Douglas Fregin. They were about 23 years-old. Eight years later, an experienced business man, James Balsillie, would join, invest some of his money ($250k) and become Co-CEO with Lazaridis. RIM funded a lot of its initial activity with partners (Ontario New Ventures – $15k; General Motors – $600k, Ericsson, – $300k, University of Waterloo – $100k, Ontario local development – $300k) so that it raised investor money in 1995 only, including Intel in 1997. The company went public on the Toronto Stock Exchange in October 1997 and then on Nasdaq in 1999.


As the authors notice, “though BlackBerry has less than 1% of the smartphone market share today, it once had more than 50%. […] In this era of disruption, the mother of disruption stories is the BlackBerry story. A company that introduced the BlackBerry in 1998 became a $20 billion company from nothing in less than a decade. Then four or five years later, it was back down to a $3 billion company, gasping for breath. It’s not only a disruption story; it is a story of the speed of the technology race today.”

They explain how Lazaridis was a visionary when mobile phones had to be simple devices and how he failed a few years later: “The pivotal moment is January 2007 when Steve Jobs walks onto the stage in San Francisco and holds up that shiny glass object that we all [now] know and love so much, and says, “This is an iPhone.” […] The really compelling part of the BlackBerry story is how they reacted that day. Over in Mountain View, California, you had the folks at Google under a secret project. One was for a new keyboard phone and the other was for a touch screen phone that was going to be run on Android. The minute they watched that live, streaming on the internet, they realized that their project keyboard was dead, and they immediately shifted everything to the touch screen phone…. Mike Lazaridis looked at this announcement, looked at what Steve Jobs was offering, and said, “This is an impossibility.” Again, the conservative engineer brought up on conservation said, “The networks won’t be able to carry this. It’s an impossibility. It’s illogical that anyone would even propose this.” He was right for the first two years. Remember all the dropped calls, all the frustrations, all the lawsuits against Apple and the carriers. It didn’t work…. But then it did, and RIM got it wrong. Two years is a lifetime at a technology rate, and by the time they realized what a serious threat it was, they were at that point followers.”

Blackberry was (still is) the success story of the University of Waterloo and Wikipedia mentions how much Lazaridis has given back to his alma mater: in 2000, Lazaridis founded the Perimeter Institute for Theoretical Physics. He has donated more than $170 million to the institute. In 2002, Lazaridis founded the Institute for Quantum Computing (IQC) at the University of Waterloo. He, with wife Ophelia, has donated more than $100 million to IQC since 2002. This looks very similar to what Logitech and Daniel Borel are to EPFL (where I work). You should read the full article and I conclude here with my usual cap. table…

Blackberry CapTable

Startup Land : the Zendesk adventure from Denmark to Silicon Valley to IPO

Many of my friends and colleagues tell me that video and movies are nowadays better than books for documenting real life. I still feel there is in books a depth I do not find anywhere else. A question of generations, probably. HBO’s Silicon Valley may be a funny and close-to-reality account of what high-tech entrepreneurship is but Startup Land is a great example of why I still prefer books. I did not find everything I was looking for – and I will give one example below – but I could feel the authenticity and even the emotion from Mikkel Svane’s account of what building a start-up and a product means. So let me share with you a few lessons from Startup Land.


The motivation to start

“We felt that we needed to make a change before it was too late. We all know that people grow more risk-averse over time. As we start to have houses and mortgages, and kids and cars, and schools and institutions, we start to settle. We invest a lot of time in relationships with friends and neighbors, and making big moves becomes harder. We become less and less willing to just flush everything down the drain and start all over.” [Page 1]

No recipe

“Along the way, I’ll share the unconventional advice you learn only in the trenches. I am allergic to pat business advice that aims to give some formula for success. I’ve learned there is no formula for success; the world moves too fast for any formula to last, and people are far too creative—always iterating and finding a better way.” [Page 6]

About failure

In Silicon Valley there’s a lot of talk about failure—there’s almost a celebration of failure. People recite mantras about “failing fast,” and successful people are always ready to tell you what they learned from their failures, claiming they wouldn’t be where they are today without their previous spectacular mess-ups. To me, having experienced the disappointment that comes with failure, all this cheer is a little odd. The truth is, in my experience, failure is a terrible thing. Not being able to pay your bills is a terrible thing. Letting people go and disappointing them and their families is a terrible thing. Not delivering on your promises to customers who believed in you is a terrible thing. Sure, you learn from these ordeals, but there is nothing positive about the failure that led you there. I learned there is an important distinction between promoting a culture that doesn’t make people afraid of making and admitting mistakes, and having a culture that says failure is great. Failure is not something to be proud of. But failure is something you can recover from. [Pages 15-16]

There are other nice thoughts about “boring is beautiful” [page 23], “working from home” [page 34], “money isn’t only in your bank account, it’s also in your head” [page 35], and an “unconventional (possibly illegal) hiring checklist” [page 127]

I will quote Svane about investors [page 61]: “I learned an important lesson in this experience – one that influenced all of the investor decision we’ve made since then. There is a vast spectrum of investors. Professional investors are extremely aware of the fact that they will be successful only if everyone else is successful. Great investors have unique relationships with founders, and they are dedicated to growing the company the right way. Mediocre and bad investors work around founders, and the company end in disaster. The problem is, early on many startups have few options, and they have to deal with amateur investors who are shortsighted and concerned with optimizing their own position.” [and page 93]: “Good investors understand that the founding team often is what carries the spirit of a company and makes it what it is.”

And about growth [page 74]: “Even after the seed round with Christoph Janz, we were still looking for investors. If you’ve never been in a startup this may seem odd, but when you’re a startup founder you’re basically always fund-raising. Building a company costs money, and the faster you grow, the more cash it requires. Of course, that’s not the case for all startups – there are definitely examples of companies that have come a long way on their own positive cash flow – but the general rule is that if you optimize for profitability, you sacrifice growth. And for a startup, it’s all about growth.”

In May 2014, Zendesk went public and the team was so extatic, many pictures were tweeted! The company raised $100M at $8 per share. They had a secondary offering at $22.75 raising more than $160M for the company. In 2014, Zendesk revenue was $127M!… and its loss $67M.


There was one piece of information I never found neither in Startup Land nor in the IPO filings: Zendesk has three founders, Mikkel Svane, CEO and author of the book. Alexander Aghassipour, Chief Product Officer and Morten Primdahl, CTO. I am a fan of cap. tables (as you may know or can see here in Equity split in 305 high-tech start-ups with founders, employees and investors shares) and in particular studying how founders share equity at company foundation. But there is no information about Primdahl ‘s stock. I only have one explanation: On page 37, Svane writes: “the thing about money is, it’s happening in your head. Everyone processes it differently. Aghassipour adnSvane could live with no salary in the early days of Zendesk, but Primdahl could not. It’s possibly he had a salary against less stock. I would love to learn from Savne if I am right or wrong!

Click on picture to enlarge

Biocartis, the (could have been) Swiss success story

Biocartis might have been a Swiss success story but most of the company is now based in Belgium. Probably not a decision of investors (as people think when company move) but from management! One of the founders is from Belgium and an impressive serial entrepreneur: Rudi Pauwels. Here is what you could read in the IPO document:


Still the numbers are interesting. The company has raised more than €200M before its €100M IPO this week. Despite such huge amounts the founders have kept about 5% of the company. Its IPO prospectus is available on the company web site. It has signed deals with Philips, Hitachi, Biomérieux, Abbott, Janssen and Johnson & Johnson and counts Swiss-based Debiopharm among its mains shareholders. Here is my usual cap. table:

(click on image to enlarge)

Another billion dollar start-up founded by young people? Except they are out of Etsy

Etsy is the most recent IPO filing to date. It’s a well-known ecommerce start-up, based in New-York, seed funded by Caterina Fake, Stewart Butterfield, Joshua Schachter & Union Square Ventures (Albert Wenger and Fred Wilson), further funded by Accel Partners, Index Ventures and Tiger Global, with a total of at least $100M raised before the IPO.

The three founders (Robert Kalin, Chris Maguire, Haim Schoppik) graduated from NYU around 2005 just before founding their start-up, then in their early to mid-twenties. But there is no info on them in the S-1 document. Kalin was CEO until July 2008 (came back between Dec. 2009 and July 2011). many employees and co-founders Maguire (Software development) & Schoppikleft in August 2008.

Founders: Robert Kalin, Chris Maguire, Haim Schoppik

and here is the usual cap. table. Interesting to check what the value at IPO will be…
Click on image to enlarge

Celebrating a (too rare) Swiss IPO: Molecular Partners

I could have said: Celebrating a (too rare) European IPO. Molecular Partners is a spin-off from the University of Zurich, founded by Professeur Andreas Plückthun, Christian Zahnd, Michael Stumpp, Patrik Forrer, Kaspar Binz and Martin Kawe in 2004. It was funded by private investors: a first round of CHF18.5M in 2007 and a second round of CHF38M in 2009. Molecular has also signed a number of agreements with pharmaceutical companies, which explains the high income for a biotech start-up. The University of Zurich is also a shareholder thanks to a license agreement signed in 2004, through which it also receives royalties.

click image to enlarge

I think it is interesting to illustrate the evolution of its ownership trhough the financing rounds, including the IPO that has brought about a hundred million to Molecular.

click image to enlarge

I also like to mention the age of the founders. The IPO document provides data and I “guesses” the others from the academic career (based on a age of 18 at university entrance…) It gives an average of 33 with a range of 20 years between the extremes. I know that money is a taboo; Europeans do not like to disclose their wealth, which remains highly theoretical, because one does not sell shares in a biotech as easyly as a Facebook employee… But it seems to me important to celebrate the success of founders and their investors … Congratulations to all!


Zalando files to go public

Zalando, one of the very visible European start-up should become a public company on October 1st in Germany. It’s not so much the numbers which I found of interest, but how difficult it was to get them. As usual, Europe is showing less transparency. Finding the prospectus was not easy, and I am not sure I could have found it without claiming I live in Berlin. And still, I have no clue how much the company has raised, at which price and when. This is not in the prospectus – I just have all capital increases dates and shares number, it does not help much.

Rubin Ritter, David Schneider and Robert Gentz

I could still build my usual cap. table and here is what it gives. Revenues are impressive, as well as losses. Founders have been diluted, btu given the capital increases and losses it is not so surprising…