10-15% carve out for ESOP is pretty standard from what I’ve seen. 15% for $2MM also is giving you a $13.3MM (repeating of course) valuation which no one can really speak to without further knowledge of your metrics.
Not particularly raising any red flags from this but there’s still a ton of stuff not mentioned. Some questions the founder should ask themselves: Are they asking for a board seat? Are they going to be able to help out beyond just money? Do they want pro rata for follow on rounds? What’s the liquidation preference? Are there other strategic investors you’d want in on this round?
Broadly it means that the (in this case) seed investor gets to invest in following rounds at the same price as the other new investors, and the pro-rata means they have the right to maintain their ownership percentage as the rounds go on (if they choose to participate). The exact structure often varies from one deal to the next, you can structure that concept in numerous ways. The gist of it, though, is that the seed investor gains the right to participate in the next rounds at their discretion and typically at prices matched to whatever the next investor is getting in at (usually there is not a discount applied, although I've seen VCs reach for that), and also often with the ability to maintain their seed round ownership percentage.
Why does that exist? Primarily so the early investor doesn't get locked out of increasing and or maintaining their participation in a home run outcome. If the early bet turns out to be a great one, it enables them to maximize their potential return. Seed investors will often get diluted quite heavily over time, so that also enables them to offset or eliminate that consequence. They can continue to retain a sizable ownership stake, rather than passively watch as their 10% stake dwindles down to 1%; if they choose to, they could keep the 10% by maxing out their participation rights. Sometimes the structure dictates the pro-rata rights are only for one round, sometimes it applies perpetually. The details can all be negotiated.
The 15% ESOP is likely negotiable – have they included a side letter so they're undiluted by this pool? If so, it's in their interest to make it as big as possible now, so that they don't get diluted by you growing it later.
(Also, everything is negotiable if you get another offer – I would recommend focusing on that.)
ESOP is often at least loosely correlated with round size. You can always increase it, but there's some dilution benefits to pushing for a smaller obligation. I would probably go back (given the target ownership) asking for higher cap and 10% esop. Everything is negotiable.
You will be expected to give early hires equity, this is the pool for that and is very normal. It usually comes before the investor such that ESOP allotment does not dilute their shares in the given round. 10% ESOP allotment per round is a good rule of thumb
Yes, but you typically increase the supply of outstanding shares from the authorized pool rather than subtracting from the original pool. This is typically how the shares for investors work as well. So of you have 100 shares, you will create 10 for employees and then 11 for the investors, assuming both get 10% (11 is 10% of 110)
At each round, you allocate the same amount but it goes to more people so they each get less.
If you are concerned about dilution then you should probably avoid external investment. If you are successful you will typically end up with less than 20% of the company as founders, split amongst you