What is the best way to split equity between founders?
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Should it always be even?
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Are there different strategies such as vested equity?
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When should an agreement be made/written
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When do you need a legitimate lawyer involved?
Should it always be even?
Are there different strategies such as vested equity?
When should an agreement be made/written
When do you need a legitimate lawyer involved?
Of course it's not an easy topic... a lot of people here have some good thoughts.
I just wanted to add that I'm a fan of vesting. I did a startup once without it and ran into a problem with a co-founder who wasn't engaged after the equity split and learned why most startups in SV do vesting.
Vesting decreases the risk a lot for everyone -->
So yeah. Vesting is a good idea.
I can speak only from experience here.
My recommendation would be always building a strong relationship with your business partner or co-founder.
The one which is built on
I'm lucky to have by my side true friend, business partner, and mentor - @remotesensei.
Being that said, I feel like the safest and most satisfying way is to be loyal and have same from the other side. You don't want to get into agreements and lawyers :) That will only bring situations when you'll need them. It's a power of thoughts.
If you do this, that means you want to be safe which means you have fear. Fear, in that case, might bring you down :)
first of all, ask if you and your partner are coachable; that means can you give and receive constructive feedback so that you can overcome inefficiencies on either side
In our ventures, when @Jacula joined the team there was a huge distance between mindsets, experience (there is a 10year difference between us). A 'reasonable' approach would be to choose uneven proportions in rev shares, especially because the company existed 2 year before he joined.
But with the trust I had in @Jacula, we decided to split equity 50/50.
That decision had an enormous influence on both of us:
I never looked back on that decision as it is still bearing fruits such as this sentence:
and translates to a team spirit that is vital for the whole
Daaamn, you're The Somebody!
You'll probably quickly find there are infinite opinions on this subject 😂
Personally, I don't think there is a right or wrong way. I don't like how Y-Combinator has such a binary thought process—I get why they do, it's mathematical based on their historical data, but it's short sighted in my opinion.
For what it's worth, me and my two other co-founder's do not share equal split equity. I founded the company originally and then brought them onboard and had more risk initially. Also, one of my co-founder's left a few years in and doesn't have nearly as much equity as me and my remaining cofounder. A proper vesting schedule is the right way to do it to protect all parties and ensure the proper motivation. There isn't a right or wrong way on the split, as long as everyone is happy and it's based on merit/output/risk. Just my opinion!
Check out https://slicingpie.com/the-grunt-fund-calculator/. They have a whole book on this. I heard the audio version. Basically you don’t decide the final split right away at the start, but keep track of everyone’s contributions. The hours, the resources, etc. After a while you can see a trend.
Y-Combinator has a different approach. It’s more about maximizing the motivation of each founder. In the end most teams fall apart, so don’t waste too much time on that.
I personally prefer an equal split. But don’t put it on paper right away. First all work on the project till the MVP is ready with the understanding that you review the contributions after the official launch and then discuss this topic again. If by then the team or idea didn’t fall apart you will quickly see who put in how much effort. Before that it’s just a hypothetical waste of time to think about it.
So depends at which stage your are right now?
Deferring "The Equity Discussion" is a slippery slope. Even if it's not put on paper, make sure you do have this discussion prior to actually starting to work, and that entire founding team is all on the same page about how equity will be split once the Founders Agreement formalities to take place.
Never assume it will work out eventually. Different founders have different expectations about how to value their contributions. Make sure you all understand each other as early as possible.
We are currently building out the MVP, but have seen some considerable interest from our landing page (obviously we will only really be able to tell once people start paying).
We wanted to figure out the split before the money started coming in... or should we still not even worry about that?
It's a difficult topic. How is the team built up? One dev, one non-dev? Are you all full-time on it? Worst is if there is a non-dev telling you "you need to build the software before I can do anything". Run away from this person :D, there are so many things you have to do before or while writing the code.
You can still keep it flexible. If needed, make a contract, but which states the rules of how the split may or may not change. Like one dropping off the project. Then decide what should happen with his stake. Was he pushed out? Did he leave on his terms? Slicing pie helps in this case with some advice. If one team member leaves, he gets nothing. If one is pushed out, he gets to keep some... etc.