How to share equity in Web 3 startups and the creator economy landscape is an unavoidable challenge you have to face.
The longevity of a co-founder’s or employee’s motivation level is heavily influenced by the way in which equity is split, ultimately affecting the performance of startups and their overall chance of success.
Typical startup equity distribution is around 10-20% for the team during funding rounds. In most startups, for example:
- CEOs receive 5-10% of equity
- COOs receive 2-5% of equity
- Vice Presidents receive 1-2% of equity
- Independent Board Members receive 1% of equity
Sharing equity is great because it rewards founders and contributors with something to look forward to. They know that if the project succeeds they’ll be sitting on a goldmine, giving them the drive and ambition to put more into their role.
But how to divide equity fairly and sensibly? Let’s consider a few different approaches to this sensitive topic.
3 approaches to equity distribution in startups within the content creator economy
Equity distribution in startups usually involve these methods:
Using past experience to determine how much founders get.
One founder may have the indispensable experience needed for the project to operate, so their expertise becomes buying power in how much equity they deserve.
The time founders spend on the startup.
It’s logical for the founder that puts the most time in to receive more equity than others.
Initial investments made by the founders.
If a project requires costly tools or frameworks and a founder has purchased them, that founder may have a claim to more startup shares.
These three factors affect startup founder equity. Yet founders may still distribute it equally among themselves because share equality can promote a sense of fairness and reduce confrontation.
Web3 projects divide equity differently
The initial founder of a traditional company owns 100% of the equity and has central control over how equity is distributed. Web3 projects rely on smart contract code to split the equity that can’t be manipulated.
The decentralized nature of distributed ledger technology gives Web3 startups a transparent approach to the splitting of equity. People can identify the addresses that own a supply, referenced in a Web3 project’s whitepaper. Unlike traditional companies, the equity of a Web3 startup is literally the cryptocurrency behind the project.
Web3 projects are decentralized, there aren’t any CEOs or hierarchies that make certain individuals more important than others. Therefore, blockchain business ideas and projects are likely to have multiple co-founders.
Applied blockchain projects dividing equity among co-founders
DEIP token, for example, is a Web3 project that shares 15% of equity among its four co-founders and 4% among advisors and angel investors. The rest of that equity is shared among other investors, the community, and the team for ecosystem development purposes.
Projects like DEIP share equity appropriately. Many blockchain projects have founders that control more than 30% of the equity, which isn’t good as it gives them too much control over their market.
Split equity right for Web3 startup success
Making the right choices will enhance the collective efforts during the project’s journey. Keeping the range of co-founder equity between 10-20% and deciding the equity percentages based on factors that really matter is a good rule of thumb.