Risk/reward v ownership
Entrepreneurs are often as protective about their embryonic businesses as they are with their own babies! It can be hard to let go. But whilst all start-ups need an idea/innovation to begin, their ultimate success is down to not one individual but a successful team. Hiring great people is just as important as raising finance, getting IP/patents, securing contracts, etc. The challenge is persuading great people who are probably very happy in their current role and well paid, to take the risk and join your start-up.
There are many factors to take into account when looking at offering incoming executives equity/options. However, there are some common bands to work within. Most NED’s will expect between 1-3% equity. Executive Board Directors will be looking for 2-8%. The higher end of these bands will often be offered in return for less cash, and the lower end in return for market rate salaries. The amount of equity offered needs to compensate for someone joining who might be giving up a significant bonus element, and/or valuable benefits package. It also needs to reward the individual for the significant ‘blood, sweat, and toil’ element needed to grow a successful start-up business.
The key point is that your start-up business, will only be as good as its people.