What 5 percent common stock actually costs

Five percent sounds small. It is one twentieth of the company, less than most cofounder splits, smaller than a typical option pool. That framing is exactly why accelerator equity is easy to sign away without doing the math. This guide translates 5 percent of common stockiBasic ownership shares, usually what founders and employees hold, junior to preferred stock. into dollars across a range of outcomes, explains how common differs from the preferred stock later investors buy, and shows what later rounds do to the number. If you want the mechanics of the instruments themselves, start with how accelerator SAFEs work.

Why 5 percent does not feel like much

A percentage hides the base it applies to. Today your company is worth very little, so 5 percent of it feels like 5 percent of nothing. But the equity is not priced against today. It is a claim on every future dollar of value the company ever creates, and it never has to be earned again.

The number is also common in the wild. Techstars invests 220,000 dollars per company on its standard terms: 20,000 dollars through a convertible equity agreement for 5 percent of the company in common stock, plus a 200,000 dollar uncapped post-money SAFE with an MFN clauseiMost Favored Nation: lets an earlier investor upgrade to the best terms you later give anyone else., with Techstars receiving a minimum of 5 percent overall. Health Wildcatters invests 30,000 dollars for 8 percent. The percentages are small. The question is what they cost in dollars.

One distinction matters before the arithmetic. Accelerators that take common stock hold the same class of shares you do. Later venture investors almost always buy preferred stockiShares that carry extra rights over common stock, such as being paid back first in a sale., which typically carries a liquidation preferenceiA rule that pays certain investors back first, before common shareholders, when a company is sold.: at a sale, the preferred holders take their money back first, and the common splits what remains. So common sits behind preferred in the payout line, for the accelerator and for you alike.

A dollar walkthrough at three exit sizes

The numbers below are round hypotheticals.

Assume a clean cap table with no preferred stock outstanding, so every dollar of the sale price flows to common. Here is what a 5 percent common stake receives.

Exit price	The 5 percent stake receives	You gave that up for
2,000,000	100,000	the cash and program
20,000,000	1,000,000	the cash and program
100,000,000	5,000,000	the cash and program

Now add the preference wrinkle. Suppose the company had later sold 10,000,000 dollars of preferred stock with a straight 1x liquidation preference, and the company sells for 12,000,000 dollars. The preferred takes its 10,000,000 first. The common splits the remaining 2,000,000, so the 5 percent common stake receives 100,000 dollars, not 600,000. Your own common shrinks the same way. In small and mid-sized exits, the preference is often the difference between the headline number and the real one.

What later rounds and option pools do to the number

The 5 percent you sell the accelerator is the first cut, not the last. Every later financing adds dilutioniThe drop in your ownership percentage when the company issues new shares. on top, and so does the option pooliShares set aside for future employee grants, which dilute existing owners when the pool is created or increased. your investors will ask you to create.

Walk a hypothetical. You start at 100 percent and sell 5 percent, leaving you 95 percent. A new 10 percent option pool takes you to about 85.5 percent. A seed round that sells 20 percent of the company takes you to about 68.4 percent. A Series A that sells another 20 percent leaves you near 54.7 percent. The accelerator's 5 percent shrinks along the same path, to roughly 2.9 percent, unless its agreement protects it. Some do: Techstars' published terms specify a minimum 5 percent at conversion, which means dilution before that point lands on you rather than on them. Read the instrument, not just the headline, and see how accelerator SAFEs work for the conversion mechanics.

The practical takeaway is that early equity compounds. A stake sold at the accelerator stage passes through every later round untouched by you, which is why the honest way to price it is against the outcomes you are actually aiming for.

When 5 percent is a fair price

Fair does not mean cheap. It means the whole package is worth more to you than the stake at realistic outcomes. Judge the offer on three things.

• The full check, not just the equity line. Techstars pairs its 20,000 dollar common purchase with a 200,000 dollar SAFE, so the cash in the bank is 220,000 dollars.
• The program itself. Health Wildcatters, for example, says it values its program at more than 200,000 dollars per spot on top of its 30,000 dollar check. Treat claims like that as something to verify with alumni, not as cash.
• Follow-on behavior and network fit. A program whose partners actually invest again, and whose mentors sell into your market, earns its stake in ways a logo does not.

Here are the two programs above as published pages, so you can see the terms in context:

For a full framework on weighing an equity offer against grant money, read equity vs non-dilutive accelerators. Every term used here is defined in the glossary.

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FAQ

Is it better for me that the accelerator takes common instead of preferred?

Mostly yes. Common holders share your payout position behind any liquidation preferenceiA rule that pays certain investors back first, before common shareholders, when a company is sold., so the accelerator wins only when you do. Preferred with a preference would get paid ahead of you in a modest exit.

Does the 5 percent stay 5 percent forever?

Usually not. Later rounds dilute every existing holder, the accelerator included, unless the agreement sets a minimum stake at conversion, as Techstars' published terms do. Your own percentage falls faster because you also absorb the option pool.

Is 20,000 dollars for 5 percent a bad deal on its face?

Priced as a pure share sale it is a very low valuation. But that line rarely stands alone. In Techstars' case it comes bundled with a 200,000 dollar SAFE and the program. Price the package, then decide whether the package is worth 5 percent of your best realistic outcome.

This is general education, not legal or investment advice. Read the actual documents and talk to a lawyer before you sign.