Glossary - Equity
Equity represents ownership interest in a company or property, signifying a shareholder's stake in the company. It is the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all the company's debts were paid off. In the context of venture capital and startups, equity refers to the ownership percentage that founders and investors have in a startup.
Also known as
- Ownership interest
- Shareholding
- Stock
- Stake
Use cases examples
- Term Sheet: The term sheet outlines that the investors will receive a 20% equity stake in the startup in exchange for their investment.
- Shareholder Agreement: According to the shareholder agreement, founding members retain 60% equity ownership of the company, divided equally among them.
Considerations for investors
- Assess the company’s valuation accurately to determine a fair equity stake for the investment.
- Consider the implications of preferred vs. common stock in terms of rights, preferences, and protections.
Considerations for founders
- Understand the dilution of ownership that comes with each round of equity financing.
- Negotiate the valuation and equity stake carefully to retain sufficient control over the company.
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