What is the Equity-Split, and why is it essential that you know this process in order to better manage the Startups you generate? Find it out
Here we are talking about Equity-Split.
Many topics have been covered during our journey in the Studio Model, and certainly, this will not be the last one. Before getting through the Equity Split, here the links to previous articles:
- The Startup Studios advent in Italy
- History of Startup Studios Model: a 30-years journey
- Types of Startup Studios
- What’s the difference between Accelerators, Incubators, and Startup Studios?
- Startup Studio approach to market
- The Startup Studio Benefits
- How startups are crafted by a Studio
- How to validate an idea according to Jake Hurwitz
- Idea validation according to Brent Freeman
- How to Hire Co-Founders in a Startup Studio
Let’s get started with this new chapter, let's go!
A brief introduction about Equity-Split
You have built the core team for your Studio, you have some investors who believe in your project and you've even managed to find a Co-Founder to start the adventure. Great!
What are the next steps?
You have to get through the Equity split issue: how is Equity divided between the Startup Co-Founder and the Startup Studio?
You can do it in many ways, let's go through them.
Startup Studio as Founder
As you learned in the previous articles, the Startup Studio’s main goal is to generate its own ventures through internal ideas generation and validation.
The Studio, being the Founder, keeps from 50% to 80% of the Equity in the startup, the remaining part goes to the Co-Founder.. The percentage may vary according to the specific situation and services provided by the Studio.
The Studio takes care of the startups’ growth and development, providing both team and financial resources. The goal is to get the startup independent as soon as possible, both in terms of funds and team, so that they scale up and then reach an Exit.
Idealab, Rocket Internet and Science use this model.
Co-Founder Studio Model
This model for equity-split is suitable for entrepreneurs that have an idea but lack the resources to turn it into a startup.
The Equity Split is usually organized as follows: the amount kept by the Studio ranges from 30% to 50%. Obviously, these values are only indicative but the percentage can vary from case to case.
The Startup Studio team supports the Co-Founder during the startup’s birth and growth. It helps to get financial resources, hire the team and have knowledge. The Co-Founder usually joins the Startup as CEO or COO.
Also in this case the goal is to get the startup funded, get it to financial and operational independence.
Blenheim Chalcot adopts this model.
Another Equity-Split management: the Builder Outsource Studio Model
According to this model, the Startup Studio supports an entrepreneur and his already existing startup. The Studio provides support in finding a co-founder, validating the business model, and securing seed funding.
The Studio provides support in different ways, it provides knowledge, services, methodology, and other on-demand resources that otherwise would not be available.
This model is suitable for entrepreneurs looking for hand-off support; the entrepreneur usually gives 10% to 30% Equity to the Startup Studio for the services provided. The percentage may change according to the specific agreement and it can increase or decrease based on the kind of support that the Studio will provide to the startup.
The Studio doesn’t simply provide advice to an external party; rather, it is a deep collaboration that brings the Studio and the startup to co-create a product or a service.
Here are some examples of Studios adopting this model: Rocka, Concepter, Spark Foundry, Differential, and Demium.
Now you know how to manage the Equity-Split
We still have some articles in store for you.
The next article will talk about us, exactly, just about us because in the next cycle we will talk to you in more depth about our dojo, what type of studio we are, what approach we use, and much more.
Mamazen is in a never ending evolution. We have been the first to introduce the Startup Studio model in Italy so, now we want to do something more. Our aim is to start a new era in the startup world. That's why we have combined the Startup Studio model with the Dual Entity Model, a model designed to reduce the risk for investors dramatically.
That's why we have combined the Startup Studio model with the Dual Entity Model, a model designed to reduce the risk of us as investors dramatically.
Do you want to hear more?