Approaching Equity

How to think about Equity. Thinking about how you divide it, who has it, what it’s worth and, of course, how you get it back.

For weeks, I’ve been trying to find some emotional, personal anecdote online that can better display how important equity is. The closest I can get is the Social Network or Facebook story.

Preface.

There’s a part of me, selfishly, and maybe out of touch for the new 2025-wave of entrepreneurship, capitalism and startups that would sway me away from presenting how I really feel about “keeping your equity,” but I’ll take the chance considering it is still relevant. In the United States, whether incorporated or not, you have equity. It’s up to you on how you divide it, who has it, what it’s worth and, of course, how you get it back.

Come to think of it: there are probably hundreds of stories of scary venture capitalists trying to kick Founders out of their own companies, employees feeling as if their contribution to the company wasn’t well compensated and co-founders overall being stiffed. This happens in most businesses. Equity is an important conversation in every business.

Brass tax: If any, any, business (including channels) gets sold. If you do not have equity, you will not receive money after that sale. If you have a lot of equity, you will make a lot of money from that sale.

Tons of resources love to approach equity as if it is a emotionless, calculated assumption. We’re co-founders of this, of course I have 50%. You do not. I’ve been editing this person’s videos for ten years. If they sell, they’ll give me part of this money. There’s no rule they have to.

The truth is that companies, products, ideas can, and are being, sold at a faster rate than ever before. Especially entering 2025. If this can be the one segment, even moreso than encouraging investment, that I can get across; I did my job.

This might be a chunky and an emotional section. There are tons of resources on how to delegate Founder-specific equity, but not many revolve around two different pools of equity to dive into: Holding Company and Subsidiary.

The Purpose of Equity

Equity isn’t just a reward; it’s a mechanism for alignment. By giving someone equity, you’re saying, Your success is my success. This works well for people whose contributions are tied to the long-term value of the business. The more they help grow that value, the more they gain.

But there’s a trap here. If you treat equity as just another form of compensation, you’ll lose its real power. Equity should go to people who think like owners. These are the people who don’t just do their jobs but worry about things like margins, strategy, and whether the business is spending too much on office snacks.

Equity is a way to incentivize executives and align their goals with the success of the business. Unlike salaries or bonuses, equity offers long-term rewards tied to the performance of the company or subsidiary.

First-Round Equity Norms

Keep in mind, after raising one round of equity, if we’re going after relatively normal VC standards. These are the pools of equity you’re going to allocate and the norms around them (yours don’t have to be exact):

Step 1: Define the Employee’s Involvement

Before you found this blog, the first big decision is what you’re giving equity in. As a creator, your world might include a holding company (your personal brand) and various subsidiaries.

Before splitting equity, clarify the structure of your operations and where the person in question sits relative to the whole company:

• Is this a subsidiary or the parent company? Equity in a holding company (e.g., your personal brand) carries more weight than equity in a single venture (e.g., a merchandise line).
• How autonomous is this business? If it operates independently, offering equity may make more sense.

Step 2: Deciding Between Equity and Profit Sharing

Point blank: Not all leadership roles require equity. In a lot of cases, profit-sharing arrangements (a percentage of revenue or profits) can align better with a particular employee, especially depending on what kind of subsidiary the individual is working on. Generally speaking:

Equity vs. Profit Sharing:

• Equity: Best for long-term leadership roles, especially in businesses where the leader's decisions significantly impact enterprise value.
• Profit Sharing: Better for roles where rewards are tied to short-term performance, or in businesses that prioritize cash flow over growth.

For example, a General Manager running secondary channel might receive 5% of the profits rather than equity, while a COO helping scale your holding company might receive actual equity. This decision is up to you and the Operator you work with.

Step 3: Determine How Much Equity to Offer

When you’re a Creator, deciding how much equity to offer an early employee is about balancing risk, contribution, and, of course, alignment. Equity isn’t just compensation—it’s a promise that ties their success to yours. Not every Creator company is the same, but for the sake of benchmarks. Here are some that can be taken from the norms of traditional startups.

• For someone running a subsidiary, like a CEO or general manager, you might offer 5–10% of that specific business.
• A second-in-command, like a COO, could get 1–5%, while specialists in key roles—like a CMO or CFO—typically land somewhere between 0.5–2%, depending on how essential their work is to scaling your vision.

Generally speaking, in the early days, equity offers are usually higher because the pie is smaller, the risk is greater, and cash might be tight. But as your holding company or subsidiary businesses grow, those percentages naturally shrink for two reasons:

1. The value of the equity itself increases, and there’s less need to overcompensate for risk.
2. You’re getting diluted. Here’s a good video on how that works. In essence, the higher the valuation of the company, the less the dollars you initially put in are worth.

The goal isn’t just to hand out ownership; it’s to create a structure where early employees are invested in the long-term success of the creator’s brand and its subsidiaries. Their equity should reflect their role in building something that couldn’t exist without them.

Aligning Equity with Risk and Contribution

Considerations:

• Early-Stage Ventures: If the business is pre-revenue or early-stage, equity allocations may lean higher because cash compensation is typically lower.
• Later-Stage Ventures: For established businesses with predictable cash flow, equity allocations should be smaller, supplemented by higher salaries and bonuses.

Generally, the more risk an executive is taking, the more equity they should receive. Similarly, the greater their contribution to the business’s success, the larger their share.

Step 4: Vesting: Protect Yourself and Incentivize Long-Term Commitment

Ahh, vesting. Every founder’s favorite trick. Vesting is a schedule that . Your employees are not like your investors because they’re not putting in money — they are putting in work.

A Real-World Example:

Working at my first startup, I was offered 3% on a 3-year Vesting Schedule, with a 1-year Cliff.

Let’s break down what that means:

• 3%
• Means 3% of the total company’s total equity.
• This was for a CMO role of a student-run company. This, based on traditional startup metrics, would be norm.
• You have been granted 3% ownership of the company, but you don’t own it outright immediately. Instead, you earn it over time.
• 3-Year-Vest.
• After the cliff, the remaining 2% equity (of your 3%) vests incrementally over the next two years.
• This is typically done on a monthly basis: 2% divided by 24 months = ~0.083% equity vests each month. Alternatively, if it’s quarterly vesting, then 0.25% equity would vest every three months.
• 1-Year Cliff
• You don’t earn any equity during the first year. If you leave before the 1-year mark, you walk away with nothing. However, if you stay for the full year, 1/3 of your 3% (or 1%) will vest all at once.

Best-Practices: Maintaining Founder Control

As a creator, your brand is the foundation of the business. Even when giving away equity, you should retain enough ownership to maintain control and ensure decision-making aligns with your vision.

Best Practices:

• Keep Majority. Never give away more than 49% of a subsidiary or holding company unless you’re raising significant capital and are comfortable with a minority position.
• Use non-voting shares for equity splits to retain decision-making authority while sharing economic benefits.

Offer Clear Communication and Transparency

Early-employees need to understand exactly what they’re getting when they receive equity. Ambiguity can lead to disputes later. Here are best practices on how to make sure this goes as smoothly as possibly.

Equity is a complex topic with significant financial and legal implications. Always consult professionals before finalizing equity agreements to avoid unintended consequences.

As always, if you have any particular questions, feel feel to reach out to em@pre-founder.com.

On this page

• Approaching Equity
• Preface.
• The Purpose of Equity
• First-Round Equity Norms
• Step 1: Define the Employee’s Involvement
• Step 2: Deciding Between Equity and Profit Sharing
• Equity vs. Profit Sharing:
• Step 3: Determine How Much Equity to Offer
• Aligning Equity with Risk and Contribution
• Step 4: Vesting: Protect Yourself and Incentivize Long-Term Commitment
• A Real-World Example:
• Best-Practices: Maintaining Founder Control
• Offer Clear Communication and Transparency