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Private Equity

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Entrepreneurs: The ideal equity split

Allocating your equity? It’s an essential concept, especially for early-stage startups. A well-structured cap table attracts the best investors! Here’s how it works.

/ Sommaire

It’s the first time I’ve heard a CEO say: "I’m passionate about my new company, but I don’t need the money." The guy completely floored me.

The company context

Here’s the quick version:

The company is in a promising CSR sector.
The market is deep.
The CEO is a serial entrepreneur. So, on the surface, all the lights are green.

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Should you invest in this company?

To find out, I dug into the entrepreneur's real motivations and asked for their cap table. The founding team? They’re all former serial entrepreneurs, and he took the CEO role with only 17% of the equity.

An incredible and rather rare situation! I hesitated a lot... but in the end, I decided not to invest.

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Why didn’t I invest in this company?

Let me explain why:

Entrepreneurs are like investors: (often) when they have too much money, they don’t make the right decisions.
And I figured he wouldn’t have the same drive as an entrepreneur who is "hungry," and that 17% equity risked becoming a demotivating factor in the long run (with future dilution).

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Time will tell if I was wrong or not.