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.

Tags: co-founder, equity split, founders, startup

4 Responses to “How to Split the Startup Founder Equity Pie”

  1. Noel Remigio March 3, 2011 at 3:22 pm #

    How do you consider dealing with cash when determining founder percentages? Would it be like a pre-money/ post money calculation?

Trackbacks/Pingbacks

  1. The Start-Up Equity Split Dilemma | Ask The Business Lawyer - Business Lawyer for Entrepreneurs and Small Businesses in NYC - September 1, 2011

    [...] his post, “Startup Founder Equity Splits,” Ryan Roberts touches on an age-old dilemma faced by many beginning entrepreneurs: [...]

  2. TheFoundersDesk.Com » StartUp Checklist – If Launched a Startup - September 6, 2011

    [...] 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) [...]

  3. The Checklist Every Entrepreneur Should Read Before Launching a Startup - September 16, 2011

    [...] 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 [...]

Leave a Reply