At a glance
The share ownership decisions you take today can impact tomorrow’s valuation, investor confidence and GTM velocity.
Early stage founders should keep the following in mind:
- Equity is a strategic asset, not an afterthought—design it in parallel with your GTM roadmap.
- Buy founder shares or stock immediately after incorporation to lock in tax advantages and narrative clarity.
- Ensure your GTM is properly funded at each stage of growth and work with investors who support your GTM strategy.
Why founders should care
In a seed-stage technology company, equity is more than an abstract legal construct. It’s the currency that fuels hiring, motivates early employees, anchors your go-to-market (GTM) budget, and ultimately determines the multiple an investor is willing to pay. Decisions around share structures, share ownership, employee grants and investment strategies should be treated with the same discipline you give product-market fit or sales pipeline design.
What equity really represents
In finance terms, equity means the value of an ownership stake, or the amount of money a shareholder would be paid for selling their shares (after any debts have been paid off first).
In simpler terms, equity really represents:
- Economic upside. Each share is a claim on future cash flows (or acquisition proceeds) once your GTM engine converts market traction into revenue.
- Control. Voting rights attached to ordinary or preferred shares decide product roadmap pivots, pricing strategy, and, critically, when to raise or exit.
Think of equity as the spreadsheet version of your strategic story: it tells outsiders who built the value, who finances the next phase, and who calls the shots.
Founders: buy early, buy cheap
If you’re in the US, on incorporation you’ll authorise a fixed number of common shares—usually 10 million for simplicity. Founders don’t automatically own them. You purchase them at “par value” (often $0.000001), before any code is shipped or revenue forecast drafted.
In the UK you are no longer required to “authorise” a fixed number of shares on incorporation, but you should still consider how many founder shares each of the founders should purchase at par or nominal value.
Why rush?
- Tax efficiency. Buying while the company’s valuation is near zero avoids personal tax on unrealised gains.
- Clean narrative. Investors dislike retroactive founder grants; early purchase shows you understand financing hygiene.
- Cap-table headroom. A low initial price leaves plenty of space for option pools, SAFEs (Simple Agreement for Future Equity), and priced rounds without awkward re-pricing.
Choose investors that support your GTM strategy
After initial founder grants, almost all technology companies require further funding and will issue shares to investors in exchange for money to fund the company’s growth.
Don’t just choose an investor who offers the best term sheet. Work with investors and advisers who support your GTM strategy; they will be your best partners for the long term.
Ensure your GTM is properly funded at each stage
Plan your funding needs around your GTM growth phases, not just product development.
After product development, setting up your GTM can be one of the most expensive areas of an early stage tech company to fund.
How much money will you need to take you through each GTM growth phase? What will you need to have in place to build GTM motions at each stage and sustain sufficient GTM momentum to take you confidently to the next funding round?
Plan your funding requirements carefully to ensure you can build a big enough revenue engine at each growth phase to reach your next equity milestone. Be realistic. Plan for different GTM scenarios. Keep your GTM strategy focused, but not over-reliant on individual channels, alliances or customers. Your largest expense will be your GTM team.
Make sure your GTM plan is sufficiently funded at each investment round, otherwise you may be penalised at the next round.
Equity vehicles you’ll actually use
| Equity instrument | When to deploy | GTM impact |
|---|---|---|
| Ordinary or common shares | Founder grants, advisor stakes | Aligns core team on long-term ARR milestones |
| Options/EMI | Early hires before Series A | Lets you hire A-tier sellers & engineers without burning cash runway |
| SAFEs/Convertible notes | Bridge to institutional seed | Buys time to hit key GTM metrics (LTV/CAC, logo count) before a priced round |
| Preferred shares | Seed, Series A+ rounds | Injects capital to scale demand gen and expansion motions |
Ensure cap-table discipline
- Update after every grant, SAFE conversion, or secondary sale.
- Map share classes to board votes so you can model post-money control before signing a term sheet.
- Maintain a lean cap table. Consider repurchasing any shares held by inactive founders or advisors and limit early board seats.
- Stress-test dilution scenarios against your revenue plan—e.g., “If we upsell 30% of customers next year, do we still need a Series B?”
Ensure forecasting discipline
In order to plan your funding needs, it is essential to be able to forecast expected sales and revenues at each phase of GTM growth.
Forecast discipline is an important habit to get into from an early stage. Until you can afford a sales leader, as a founder you will need to learn the basics of forecasting and err on the side of caution when preparing sales and revenue forecasts.
Forecasting means being able to confidently predict future sales, including the time and value of anticipated sales. As with a weather forecast, confidence in a sales forecasts will naturally decline as you look further forward into the future, but there are steps you can take to build confidence in long range sales forecasts and ensure the quality of your sales pipeline.
Unless you can forecast your sales with a sufficient degree of confidence, it is hard to plan your funding needs and ensure you are making the best decisions in terms of parting with your equity.
Equity, valuation and GTM: the virtuous loop
A credible GTM strategy— clear ideal customer profile (ICP), repeatable sales playbook, and defensible unit economics—lifts your valuation multiple. Higher valuation means:
- Less dilution for the founding team when issuing new equity.
- More attractive option offers for growth hires.
- Stronger negotiating position in board discussions about exit timing.
Conversely, messy equity records or mis-sized option pools signal operational risk and drag your valuation down, no matter how slick your demo looks.
Liquidity: the endgame (or a checkpoint)
- Acquisition. Equity converts to cash or acquirer stock—payout is pro-rata to ownership, adjusted for liquidation preferences.
- IPO / Direct listing. Shares become tradable; early investors and employees realise gains subject to lock-ups.
Until then, private-company equity is illiquid, so model different exit timelines in your financial plan to manage founder cash needs and retention bonuses.
Key takeaways for founders & execs
1. Equity is a strategic asset, not an afterthought—design it in parallel with your GTM roadmap.
2. Buy founder shares immediately after incorporation to lock in tax advantages and narrative clarity.
3. Maintain a living cap-table, optimised for both fundraising flexibility and employee motivation.
4. Align option pool size with hiring forecasts from your revenue plan.
5. Use equity storytelling to reinforce your valuation thesis when pitching to investors.
6. Ensure your GTM is properly funded at each stage of growth and work with investors who support your GTM strategy.
Nail these basics, and your ownership structure will accelerate—rather than hinder—the journey from zero to a defensible, high-multiple valuation.
Contact Scaleup Machine for more advice about equity and GTM strategies.
