Equity is generally the payoff for individuals who invest in your company. However, if you are concerned about how you will pay the equity over time, know that you have some options. Let’s go over a couple.
Convertible Note-This is when you delay establishing the valuation of equity until your business has the opportunity to earn some revenue. At a later date, you can determine the valuation once you have achieved a certain milestone that you pre-determine. Basically, the investor would offer a loan in return for equity later on.
Equity Agreement-You can establish an agreement early on that determine equity distribution based on the amount of cash, assets or other capital that the investor puts into the company.
You have many, many options when it comes to the distribution of equity and you don’t have to feel like you are “giving away” your business, but instead allowing for an opportunity to get your business up and running through financial investment. To make sure you are making the appropriate choices, you should consult a startup attorney.
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