# How is Equity Calculated?

Let's walk through an example of how a member's equity is calculated in throughout different events in the life cycle of a Squad.

## Equity distribution after the first funding round

Consider a case where Alice, Bob and Charlie are forming a Squad. They each contribute 5 ETH in the initial funding round. The equity distribution is as follows:
• Alice: 5 ETH / 15 ETH --> 33.3%
• Bob: 5 ETH / 15 ETH --> 33.3%
• Charlie: 5 ETH / 15 ETH --> 33.3%
--> Total Squad value: 15 ETH
Since the contributions are equal, the equity percentage ownership is exactly the same for each member.

## Equity distribution after investments and a new funding round

Now that the Squad is funded, the Squad starts to operate. Consider a few common events that happen after the first funding round, and how it affects equity distribution:
• They buy an NFT and spends all of the 15 ETH that were raised
• The NFT value then increases from 15 ETH to 30 ETH
• The Squad decided to open an additional funding round to attract new members
• David joins in the new funding round and contributes 5 ETH, but Alice, Bob and Charlie don't contribute to the new funding round
The equity distribution after the new funding round closes is then as follows:
• Alice: 33.3% * 30 ETH + 0 ETH = 10 ETH --> 28.57%
• Bob: 33.3% * 30 ETH + 0 ETH = 10 ETH --> 28.57%
• Charlie: 33.3% * 30 ETH + 0 ETH = 10 ETH --> 28.57%
• David: 0% * 30 ETH + 5 ETH = 5 ETH --> 14.29%
--> Total Squad value: 35 ETH
Note that in this calculation, the NFT value increase has been accounted for and has been accredited to the investors of the first funding round. David, who joined afterwards, is joining at a different Squad valuation. Therefore, despite having contributed the same amount of funds to the Squad (5 ETH), his equity percentage is lower than the stake of the earlier investors.

## Equity distribution after member payout

Consider a case where a member wants to leave the Squad, in this case Alice. Members can only be removed from the Squads if their equity percentage is 0%, i.e. they have been paid out fully. As per the calculation in the example above, Alice is owed 10 ETH, as this is the value of her equity share.
The Squad has to generate liquidity to pay out a member's full equity share, which can be done through funding rounds or selling assets. The Squad has to approve each member payout through a Payout Member proposal.
After Alice's payout, the equity distribution is then as follows:
• Alice: 33.3% * 30 ETH + 0 ETH = 10 ETH; payout 10 ETH --> 0%
• Bob: 33.3% * 30 ETH + 0 ETH = 10 ETH --> 40%
• Charlie: 33.3% * 30 ETH + 0 ETH = 10 ETH --> 40%
• David: 0% * 30 ETH + 5 ETH = 5 ETH --> 20%
Note in this case that the equity percentage that Alice "gave back" to the Squad in return for her payout has been distributed to the remaining members according to their individual equity shares in the Squad.
Note that equity percentages of individual members are displayed with two decimal points in the app. Due to rounding errors, the sum of all members' individual equity percentages may not yield 100% at all times.