We all know what it means to give equity away. But what does it take to get it back?
There are a few different methods we can use to begin clawing back some of our hard-lost equity, but all of them require quite a bit of effort — and aren't nearly as easy as giving it away!
When we look at future funding rounds, if things are going well, we may be able to negotiate some additional stock awards based on the next financing.
This is only an option if the company is doing well and we can point to a significant track record that we've demonstrated to get it there. It doesn't happen a lot, but it does happen.
Oh, and if we don't negotiate hard for it, no one is ever going to suggest it for us!
Obviously we always have the opportunity to buy stock back from existing holders, but that doesn't mean we have to pay full price necessarily.
Startup stock is tricky, as it often doesn't have any liquidity until the company is sold or taken public. Therefore, until then, the price is often whatever a buyer and seller decide it's worth. We may have issued the stock at $1 per share but offer to buy it back from existing holders at 50 cents on the dollar.
For some holders, cashing out now is worth more than "maybe some cash" later.
Awarding employees with stock grants is second nature for most startups, so why don't executive team members (and Founders) get the same benefit?
It's possible to earn additional equity back in the form of compensation as an additional stock grant. This would have to be ratified amongst the shareholders, of course, and be in line with a reasonable market rate (as opposed to "Great quarter! I'd like to award myself 50% of the company!).
Investors get additional grants all the time for their incremental contributions — no reason us Founders can't get some!
While all of these mechanisms allow us to get some stock back, it usually goes out the door a hell of a lot faster than it comes back.
Giving it away is easy. Getting it back is super hard. So while we can get some stock back into our coffers, we have to focus more on how quickly we give it away than how we get it back.
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Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.