Mark Suster runs a blog as an entrepreneur-turned-VC and has provided this necessary, essential, and no-holds-barred outline of how the math of dividing up equity stakes in a venture actually works.
Mr. Suster provides extensive details and additional links, but in summary, entrepreneurs MUST take the time to learn about all the ways equity and options can be divided and triggered. You cannot afford to be uneducated if you are signing your rights away. If you don't understand the VC's term sheet, ask. If they won't explain, get an attorney who has done this before to go to the negotiations with you.
The rule of thumb about selling your company is as follows: you will sell one company at a time, maybe one in your lifetime, maybe ten. The people investing or buying your company do this every day. They buy and invest in companies professionally. They will bring an A-Team of accountants and attorneys to make sure they get the best deal because that's how they make money. Don't be intimidated, just step up your game.
Mr. Suster provides extensive details and additional links, but in summary, entrepreneurs MUST take the time to learn about all the ways equity and options can be divided and triggered. You cannot afford to be uneducated if you are signing your rights away. If you don't understand the VC's term sheet, ask. If they won't explain, get an attorney who has done this before to go to the negotiations with you.
The rule of thumb about selling your company is as follows: you will sell one company at a time, maybe one in your lifetime, maybe ten. The people investing or buying your company do this every day. They buy and invest in companies professionally. They will bring an A-Team of accountants and attorneys to make sure they get the best deal because that's how they make money. Don't be intimidated, just step up your game.
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