How to Split the Startup Founder Equity Pie
Founders frequently ask me to provide guidance on how their startup should split equity between co-founders. My answer is always: (1) It Depends, and (2) Quickly.
(1) IT DEPENDS
If you’ve ever hired a lawyer, you will (unfortunately) hear the phrase “it depends” several times. In this situation, the “it depends” hinges on the respective past/current and future contributions of the founders:
Past/Current Contributions:
- The Idea
- Business Plan
- Intellectual Property
- Cash (Consider structuring this separately from the founder split.)
Future Contributions:
- Time
- Opportunity Cost (i.e., Is one founder making a larger sacrifice?)
- Industry Expertise
After taking the above items into consideration, a startup team will rarely end up with an equal split. And for what it’s worth, a startup team should rarely end up with an equal split. On the other hand, I don’t recommend the startup team create a complex methodology to come up with the solution. Save the fanciness for the code.
(2) QUICKLY
Rather than pushing forward with development & implementation, co-founders run the risk of spending too much time on the equity-split decision. In addition to multiple startup-wide meetings and emails about the split, the individual co-founders will spend time wrangling with the matter as well. However, it’s not going to “kill” the startup if this decision takes a bit of time.
The main reason to have this determination done very quickly is that the startup team gets to have — and conclude — its first difficult conversation. There’s no avoiding difficult conversations at a startup. Don’t start with the first one.
Regardless of how you decide to split the intial equity pie, seriously consider vesting your founders shares.
About the Author
Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. Click here to learn more about his practice.
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Please consider subscribing to The Startup Lawyer, following @startuplawyer on Twitter, or contact Ryan directly.4 Responses
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[...] his post, “Startup Founder Equity Splits,” Ryan Roberts touches on an age-old dilemma faced by many beginning entrepreneurs: [...]
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[...] of Common: $0.0001 (6) Initial Founders Issuance: 8,000,000 Shares (7) Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations (8) Vest Founders Shares?: Hell Yes (9) [...]
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[...] of Common: $0.0001 6. Initial Founders Issuance: 8,000,000 Shares 7. Founders Equity Split: Depends on the Team, But Quickly and After the Awkward & Difficult Conversations 8. Vest Founders Shares?: Hell Yes 9. Vesting [...]
How do you consider dealing with cash when determining founder percentages? Would it be like a pre-money/ post money calculation?