Solving the Equity Equation

Nabil Ullah /  Jun. 21, 2022


Enhanced November 2023

Please note that the following blog, and data therein, are based on OUP’s portfolio company cap tables only and should not be misconstrued as recommendations for model cap tables.

Startup compensation is often an opaque and awkward topic for first-time academic founders. How much equity do I receive? My CEO? The PI(s)? Other co-founders? How will my choices affect future compensation? The truth is, equity allotment is not a one-size-fits-all proposition. And as the data shows, there are a few roles that have an outsized impact on an academic spinout’s cap table. Considering the following strategies and investigating all compensation tools at your disposal can help create a productive balance of incentives and cost. 

The following observations are based on collective insights from a decade of working with hundreds of founders and an analysis of the equity structures of over 90 university spinouts. 

The Impact of Founding CEOs and PIs

Think of equity like a pie, where in the earliest days there are three primary pieces: Lead Founder/CEO, Co-Founders/Employees, and an Option Pool for early hires. Figure 1 represents an example of a neatly sliced starting point for a typical cap table.

The reality, however, is not so clear-cut. Founders must often look at the slice of pie in front of them and figure out how to divvy it up further such that they can reward the past successes of their co-founding researchers but also incentivize future performance of those who are going to be contributing to the company going forward. There is no  one size fits all solution, so for such a complex topic it may be beneficial to explore the allocations from a few real cap table examples.

Figure 2 below shows the founding cap tables of two different tech investments from OUP’s portfolio. The key difference to consider in each of the scenarios is how the level of contribution from the founding PIs translates onto the cap table. We define founding PIs (aka scientific founders) as professors, principal investigators, postdocs, and graduate researchers who developed the startup’s core technology at a university. 

Tech Company A did not have many founders involved at the formation stage. In this case, the two PIs agreed to both take on full-time roles at the company, resulting in a combined ownership of over 70% while the founding CEO received just 23% having joined the company from outside of the university. At Tech Company B, the two founding PIs accepted part-time roles which involved advising the company, recommending talent for hiring, and continuing research at the company while maintaining their full-time role in academia. This time, the CEO was granted over 50% equity due to the limited involvement of the PIs. We will dive into the broad range of PI contributions in more detail later in the blog, but what these real cap tables show is that the PI’s varying level of involvement can influence the CEO’s ownership, which is traditionally the largest.

By now we can see that cap tables have all shapes and sizes – not only can they vary by role, but also by sector. Let’s compare Figure 2 to a few real-life science cap table examples. Figure 3 below represents two different life science investments in the OUP portfolio and their respective founding cap tables.

The main difference between the tech and life science cap tables is easy to spot: the addition of the “Founding Investor” on the life science cap tables. Often, life science venture capital funds will take on “company formation” roles, where they invest their capital and team resources with the intention of directly assisting the company with its operations. This can take form in the shape of recruiting support or even acting as an interim CEO for the company until the company has its own escape velocity and full-time team. For example, the founding investor in Life Science Company A received just 2% while the founding investor for Life Science Company B received a whopping 46%! In the case of Company B, the founding investor was involved in all aspects of company operations for about seven years until eventually reshuffling management.

The second difference between the two sectors, which is perhaps not as obvious, is that founding PIs on the life science side are most often part-time. However, despite their limited involvement, the foundational IP they developed at the university may be so critical to the company that they still demand more equity than their tech counterparts.

Figures 2 and 3 were very specific examples meant to illustrate the different flavors of cap tables. In figure 4 below, however, we attempt to summarize the ownership levels of all of OUP’s portfolio company cap tables into general ranges.

As we discussed, the lead founder (or founding CEO) receives the largest equity percentage — typically 30%-50% as seen in Figure 4. If a CEO does not exist at the time of company formation, best practices would be to reserve some equity for the role in the future. Most of the university spinouts in our dataset had at least two Founding PIs involved at formation. This results in a base-case equity allocation of 15% each with the scale tipping +/- 5% in either direction. Conversely, if you happen to be a sole Founding PI, you are likely to take equity akin to that of a Founding CEO (30%!).  

This table is a representation of a range of scenarios and is not meant to add up to 100% due to the exclusion of an option pool.

Determining PI Equity 

Our data shows that Founding PIs can expect anywhere between 10%-40% equity. This large spread speaks to the asymmetric ownership that exists within this pool (see Figure 4). Determining the exact equity percentage of Founding PIs is informed by three core variables: leadership, commitment, and reputation. 

Leadership. Occasionally, a Founding PI steps up from a more common role of CSO or CTO and takes the reins as Founding CEO. These “PI’s-turned-CEOs,” as we like to call them, are rewarded more than a traditional Founding CEO for the heavy-lifting involved. Only 16% of the Founding CEOs in our dataset were previously a professor or graduate researcher. On average, they received approximately 41% equity at founding, 11% more than typical Founding CEOs.

Commitment. Consider the PI’s time commitment to the company when determining equity. Our portfolio company data reveals that approximately 5% equity, on average, is granted to part-time PI Founders or those who spend around one day per week at the startup while still balancing their primary role in academia as a researcher/professor.

It’s important to keep part-time PI Founders on the cap table, even if they may not actively contribute to technology development. They are conduits to potential research collaborations, commercial agreements, and new employees. Part-time PI Founders and their respective networks can also play a significant role in fundraising. 

Reputation.  Well-known PIs are repeat successful entrepreneurs whose names are recognized throughout the academic and VC communities. This category of Founder PI demands more equity for being associated with a startup.  

Approximately 25% of the PIs in our dataset fell into this category and they received 9% more equity at founding than their traditional PI counterparts (29% vs. 20%) when there were three or more founders. 

All startups are unique, and the respective cap table should reflect that. Founders should avoid a cookie-cutter approach to issuing equity (i.e. “Let’s split everything equally!”). As the company grows, it becomes increasingly important to understand that not all members of the management team are created equal. University spinouts are no exception. While PIs may have poured their life’s work into the research that fueled the startup, their equity allocation is the most varied. As a founder, it is absolutely essential to address individual contributions and future expectations when building the initial cap table. Remember, once equity is granted, it cannot be taken back.  

Whether you are still planning your start-up or have already begun equity allocation discussions, make sure you utilize your resources and even tap expert opinions when possible. With years of experience spanning both the life sciences and the technology sector, OUP’s investment team is happy to offer valuable insight to founders with questions. Feel free to reach out to us anytime at