Trying to figure out how to divide equity with your founders fairly?
What’s there to figure out? There’s only one way to split equity between founders and that’s evenly.
Why? Why split evenly when you’re the guy with the skills or you’re the guy who invented it all? Because a startup is a long, convoluted mission. And the founders are the team of agents who have to tackle the mission’s objectives. The team.
Sure, the initial investment in the project made by each of the team’s members might be significantly different, but by the end of the journey, a couple of years of work later, each team member would have hopefully put in about the same amount of effort toward the tackling of the mission, therefore deserving an equal stake of the end’s reward.
Analogies aside, there are some underlying reasons that I believe that founder’s should split the pot evenly from the beginning, and I’ll detail them below:
You can’t split your winnings before you win anything. The value a founder brings at the very beginning might be more than the other founders’, but that doesn’t mean he deserves a bigger stake. By the time you realize how big the pot you’re splitting is, you’ll have a better idea of the stake everyone deserves. Start out even and vest your stock. Punish a founder for leaving after a month; don’t punish one for joining five minutes into your four year long project.
Drama sucks. Paul Graham says 20% of YC companies end in founder fights. Don’t ignite a fight with your equity distribution. Even if a founder is okay with taking a smaller piece of equity now, don’t let that happen–most likely, a year down the line when the company is starting to take off, that founder is going to realize the mistake they made in agreeing for a smaller stake and ask for his share. And that’s how fights happen.
Why should the little guy work as much as the big guy? If my two co-founders owned 40% of the company each and I owned 20% of the company, why should I work as hard as they do? Shouldn’t I work half as much as they do? Well, that would surely suck for FlightCar. You want all of your co-founders working equally as hard, meaning everyone should be working 16 hour days. What use is a startup with a handful of founders, some of which are part time? Someone working half as much as the founders sounds more like an employee than a founder.
Investors think this looks funny. You have three founders in your company. I’m an investor. You show me your cap table. I see that one owns 45%, the second owns 35%, and the last owns 20%. You tell me that you all joined at the same time. I assume that means you’ve all worked equally as hard. My eyebrow raises as the three bold statements above this run through my head as possible scenarios. I scoff at the thought of investing in you, turn you down, and pick up the portfolio of that company I was looking at earlier–the own whose co-founders had equal equity…now they sound promising.
So for the sake of your company, split your shares evenly! It’ll save you and your co-founders some grief!
The Great Startup 
Posted on September 8, 2012
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