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Companies often issue equity (stock or options) to their employees. For start-ups, equity is particularly important for two reasons – first, it aligns employee compensation with company performance. As the share price rises or falls, employees’ share compensation follows suit. This can create powerful incentives. Second, it allows companies to conserve cash at a time when cash flows to the business may still be low or inconsistent.
That said, care must be taken to manage equity grants to ensure that dilution is managed and does not become excessive. To that end, companies will model out how ownership percentages and cash reserves will look depending on different variables such as share value fluctuations, compensation targets, etc.
WALKTHROUGH VIDEO PROVIDED BY DAVID BROWN
The September Challenge has been created by Kyle McCall, a senior consultant at Equity Methods. It is based on real-world scenarios faced by entrepreneurs and will give you valuable insights into what it’s like to work for Equity Methods.
Video is divided in parts so you can easily skip to the part that you are stuck on to find out best solution.