Why should a founder offer equity?

Skills required for a Startup

There are mainly four skillsets required to start a venture. They are-

1) Marketing Skills 
2) Sales Skills
3) Technical Skills 
4) Financial Skills

If the business lacks in any of the above mentioned sectors then I doubt the business won't be able to sustain for a long time. Business cannot be profitable if is lacks branding, marketing and sales. 

In the era of technology people are shifting from traditional sales and marketing to digital platforms where they can target a larger group of people in a small budget. So, to start a venture the business should have technical department which could handle with things like website, mobile  application and digital marketing.

Finance is the most important department which deals with revenue, budget, profits and investments. If financial department is weak then the company is in trouble.

Also, there are other departments in a business like HR department but in the early stage above mentioned departments should be major concern.

Should the founder offer equity?

The answer is Yes. If a person is bringing a skill to your company and shares the same vision as that of yours, then it shouldn't matter to offer the person a pie of your business. Offering equity will not only align his vision to that of company's vision but keep him motivated at the time of recession. Even though if the company is not able to give him a paycheck at the time of recession, he wouldn't be thinking of leaving the company which won't be possible in the other case.

Get great people - sell them the idea, the vision and share the wealth, be generous with offering stock.  

If a person is bringing a skill and shares the same vision as that of yours, then it shouldn't matter to offer the person a pie of your business.

The most frequent asked question is why should I offer equity to someone:

Founders nowadays believe they can handle all the departments by themselves or hire someone on salary to look after a department or they try to save equity for future investments. Let me make it very clear if the founder is not willing to give up a part of equity/company, he won't be able to go very far. Even if he hires people on salary to deal with a department, things won't work. The team will lack leadership and moreover on being offered a better paycheck by some other company quality people will leave the company or they could come up to be competitors by starting a similar venture. So, to keep them motivated you need to provide ownership to people.

Instead of holding 100% of their company founders should learn to share the equity to deserving members. It will not only help in increasing sales and revenue but also increaing the market capitalization of the company.

Therefore, if the founder owns 100% of company and the company is valued at 1 crore, he will own 1 crore. But if he holds only 10% of company and the company is now valued at 100 crore, then he will own 10 crores. This can only be done by offering equity to talented people in the company who have vision as big as yours.

A small piece of watermelon is larger than an apple. So, decide whether you want to have an apple alone or a  piece of a large watermelon.

Why should a founder offer equity? Why should a founder offer equity? Reviewed by Businesspedia on January 24, 2019 Rating: 5

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