Y-Combinator Guide: How to Split Equity between Cofounders & When You Should (and Shouldn’t) Split Equity Evenly?

Founders often ask how they should split equity with their co-founders….

If you search web on this topic, you will see horrible advice, typically advocating for significant inequality among different founding team members.

Source: Google Images

Lot of founders follow this trend because of following reasons:

• I came up with the idea for the company
• I started working n months before my co-founder
• This is what we agreed to
• My co-founder took a salary for n months and I didn’t
• I started working full time & months before my co-founder
• I am older/more experienced than my co-founder
• I brought on my co-founder after raising n thousands of dollars
• I brought on my co-founder after launching my MVP
• We need someone to tie-break in the case of founder arguments

Founders tend to make the mistake of splitting equity based on early work.

All of these lines of reasoning screw up in four fundamental ways:

• It takes 7 to 10 years to build a company of great value. Small variations in year one do not justify massively different founder equity splits in year 2–10.
• Startups often fail, so the more motivated the founders, the higher the chance of success. Giving founders a larger equity stake can increase their motivation and drive.
• Investors view founder equity splits as a signal of how the CEO values their co-founders. Unequal splits can imply that certain founders are not highly valued, which can deter investment.
• Dramatic equity disparities can overemphasize the initial idea rather than the team’s ability to execute and generate traction. Startup success relies more on execution than the original concept.

Equity should be split equally (or near equally) because all the work is ahead of you.

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My advice :

• Split equal (or close to equal) equity splits among co-founders.
• These are the people you are going to war with.
• You will spend more time with these people than you will with most family members.
• These are the people who will help you decide the most important questions in your company.
• Finally, these are the people you will celebrate with when you succeed.

I believe equal or close to equal equity splits among founding teams should become standard.

If you aren’t willing to give your partner an equal share, then perhaps you are choosing the wrong partner.