Giving Equity to an Incubator
A new incubator has shown interest in my startup idea and are asking for 7% equity.
As this is the first time someone has asked for equity from me I'm not sure what exactly this entails.
Does this mean that they get 7% of all my profits for as long as my company exists?
Does this value diminish over time?
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As early investors it is not likely they are interested in "profits for as long as your company exists" - rather they are likely to be looking for an "exit" to get a return on the investment they made. You should probably spend some time reading up about company structure and investors and stock. Venturehacks is a good place to start. – Tim J 12 years ago
1 Answer
Equity is ownership. If you give them 7% equity, then they own 7% of your company. If there is no one else involved, then you would own the other 93%. Eventually, you may share equity with employees and investors as well to give them incentive to get involved with your venture.
For example, if you incorporate and the company has 1,000,000 shares, then the incubator would get 70,0000 shares. The hope of the incubator is that the shares increase in value and can be sold. This can happen by your venture being acquired or going public on a stock market.
Profits really have nothing to do with it. Some shares may have dividend rights and you may distribute profits to owners that way, but that is a whole different topic.
Over time, ownership in a company generally gets diluted as you issue new rounds of stock. There are situations where owners may have anti-dilution rights, but that is also another topic.
