I often find people working with young startups who are not quite sure how to position themselves, their equity holding, their influence, and their accountability in the business.
It's essential to label people's roles and responsibilities correctly. It has many benefits including a) smoothing out day-to-day operations by making areas of responsibility and accountability clear b) accelerating fundraising by helping investors understand whom to talk to and whom they're investing and c) helping key employees feel valued and incentivized to give their blood, sweat, and tears to the business by ensuring they have the right title, responsibilities, and equity.
Here are some key roles that are often conflated and confused.
Operational (co)Founder: Someone who's played an instrumental role in the formation of the company (likely taking on significant risk at the beginning by working without pay) and (crucially) will continue to play a full-time operational role in the business moving forward. This person should have a meaningful equity position.
Non-operational co-founder: Someone who may have contributed to the initial formation of the business but has other commitments that limit their availability to participate in an operational capacity. They might play a role on the board or provide capital as an investor (see below for definitions) but are not involved day-to-day. This person should have a minor equity position for their initial founding contribution (+ any additional equity they earn through capital investment).
CEO: (Very) Ideally a (co)founder. Plays a full-time key operational role in the company. Makes key decisions. Leads essential operational workstreams such as fundraising, hiring, vision/goal setting, etc. Once capital is raised, is (very) ideally only involved in running the given startup and has no other operational roles in any other business. Must have meaningful equity.
Investor: Provides capital and some non-operational support (advice, intros, reputation, industry connections etc). Collectively all the investors can have meaningful equity in the business but must not have a larger position than the operational founders.
Board member: Either an external (wasn't involved in forming or investing in the company) key industry professional who can help steer the business or a key representative(s) from the investor group. Might also include a non-operational founder who has seniority, domain expertise, and perhaps provided initial capital.
1 person can perform multiple functions in the business and, as such, be attributed equity from multiple pools/reasons.
However, it is value destructive to the company for someone to have the title and/or the equity of another role but not properly and fully perform the duties of that role.
As such, it is against their best interest to do this since, whatever equity they hold, will be under-valued or ultimately be reduced to zero when investors and other operators choose to under-invest or walk away entirely.
#equity #fundraising #jobtitles #strartups