A dynamic equity split is a method of dividing ownership of a company among its founders or investors in which the percentage of ownership is not fixed, but rather can change over time based on certain conditions or milestones being met. This allows for a more flexible and adaptive approach to equity distribution, rather than a one-time fixed allocation at the company's formation.
Dynamic equity split conditions can vary depending on the specific agreement made among the founders or investors of a company, but some common examples include:
Time-based vesting: Ownership percentages are allocated over a set period of time, such as four years.
Performance-based vesting: Ownership percentages are allocated based on the individual's performance or contributions to the company, such as hitting certain sales targets or developing a specific product.
Milestone-based vesting: Ownership percentages are allocated based on the company achieving certain milestones, such as reaching a certain level of revenue or completing a successful funding round.
Buy-sell agreements: It's a agreement among the shareholders of the company that allows them to buy back shares of a shareholder who wants to sell.
Drag-along rights: it's a provision in a shareholders agreement that allows a majority shareholder to force the minority shareholders to participate in a sale of the company.
It is important to note that dynamic equity split conditions should be clearly defined and agreed upon by all parties involved before the company is formed.