What % of the company should co-founders get?
The first question I suppose is “do I need co-founders?”. There must be many articles written about complementary skills that co-founders can bring to the table. Hustler, Hipster, Hacker, Myers Briggs (and other MBA dogma) … but the main reason you need co-founders is you just don’t want to go it alone. You need someone in the trenches with you.
My next door neighbor here in Bali is a Dutch woman named Marieke; she created ‘Shazoos’: play rugs and toys to help parents and children play together through storytelling. [brief aside: I think that really getting down on the floor and playing with your kids is so so important, and its so easy not to when you are thinking about your career; especially if you have just started a company and are working all hours on it. Here is a rule I applied that helped me]. Anyway back to my story, I have been helping Marieke for a couple of weeks now and today she said: “do you know I am much happier just having someone to bounce ideas off and not be alone!”. I would like to think I am helping but honestly, Marieke knows what to do — but it does matter that someone listens and says “good idea” or “yes” or even nothing, just nods (side note: helps with wives too!).
Of course, it helps that your co-founder’s skills and experience compliment yours, but that is not nearly as important as just having someone there so that you are in it together. I have spoken to many entrepreneurs who are scared to give away equity to a co-founder but this is misguided. Find someone who is positive and supportive that compliments you and just do it. The best (and in my opinion only) way to know if you have found a good co-founder is to apply this test:
“after you talk to them, do you feel better / happier / more pumped / more confident than before you talked to them?
If the answer is yes then they are right, if the answer is no then they aren’t. It is a simple as that. Lydia says to apply this to friends/boyfriends too! So my experience tells me that you need a co-founder or two or three.
“But now they will want to get their greedy little hands on my equity!… it was my amazing idea!”
I started to write “There is no right answer here”, but actually there is a right answer, and the answer is to decide on something that you are all happy(ish) with and then get on with it and never look at it again. The relative values of the co-founders will go up and down as time passes and you need to just get on with it without wondering which of your housemates is doing the most washing up. Research shows us that everyone thinks they do more than they actually do, so just stop it and get on with it. If you are someone who tally’s up what other people do and gets angry that you are doing more, then you are not the right person to be in a startup. The reality is that if you argue about equity all the time then the 51% that you clung to for yourself isn’t worth anything, but if you make it work together, the 25% you own will be worth millions.
For technology guys, this is a really great situation to be in. The capitalist world (that most of us live in) favors the founding team and in the beginning there often can’t be a company without good founding technology guys, so if you are a tech guy joining a founding team as co-founder I would go for between 10% and an equal split. Splitting equally is the easiest thing to do as it seems “fair” to everyone. Another way is to have everyone put in money and use money in as the ratio, which is good because it can stop people from just saying “I want more!” since there is an actual price for ‘more’, but on the other hand it does favor the rich (but that's life!). Another way to do it is you could look at the market and see what other companies do and copy that, but as I (almost) said before there is really no right answer. “the market” could be wrong (and probably is because capitalism is wrong — more on that in another article), splitting equally could be wrong if one co-founder is quitting a high paying job and has a family (i.e. is risking more) and another is unemployed, but who says the risk-reward model is right (I happen to think it is the best one to use).
After I wrote an earlier version of this I did speak to someone who was paying some others to help him with his startup; he was risking this money that he was paying them. They weren’t risking anything, and yet they wanted a piece of the pie. Everyone has to risk something. That is what an entrepreneur is — someone who takes risks and therefore gets the rewards. If you are being paid a reasonable salary then you shouldn’t get any equity. You get equity if you are working for free or for a way smaller salary than you could get in the market; or if you put your own money in. Otherwise, you don’t really deserve it.
So the answer is to find some other risk takers who make you feel better after talking to them, sit down together, decide on something and then get on with it. At Tigerspike this sit down took 8 hours, and no one put in any money (apart from the $8k I initially did, which was a loan) and we all risked something. The splits were not all equal, but we managed to keep it together and pulled it off. Probably because we all meditated together every week!
Someone asked for numbers, so here are some: If its your idea and you started it and then got someone else as a co-founder, then give them between 10% and 30%, if two or three of you genuinely came up with the idea together then share equally. If two of you started it and share the company 5050 then need a tech co founder, give them between 10% and 30%. If the co-founder starts later (like a year+ later, then consider giving them 5% to 15% depending on how the company is doing (give less, the more money the company is making — because it is more valuable).