Splitting equity with your co-founder? Here’s what you need to know


Questions to Ask Before Splitting Equity

Do you have an established relationship and complement your co-founder(s)? If so, you’re off to a great start. But is that enough? Being able to get along is only one piece of the pie. There are a few more pieces you’d need to get together as well. Answer these three questions:

Are they able to deliver quality work?

Hopefully, they have a resume or a track record of things that they have done in the past. If they do, you’ll want to vet them by interviewing others who have worked with them. If they’re a designer, does their style match what you’re looking for? If they’re a coder, are they as good as they say they are? Test out what they’ve created and make sure it’s up to par.

Are their priorities in order?

Or are they going from one mess to the next? Some people are extremely talented and likable, but they don’t have these things in order. You’ll want to make sure the person you’re looking to partner with is able to stay focused and on track for your project.

How long will they stick around?

Does the person you’re planning on working with have a solid source of income? Is this the only source of income they have? If it’s the latter, there’s going to come a point where they get discouraged and want to leave for a paid project. So make sure your partner is able to take care of themselves financially.

What role will they play in the long-term?

It’s important that you don’t make all of your equity decisions based on the company’s current state. You’ll be working on this project for years to come ー possibly your whole life.

Source: Tech.co

Should You Split 50/50?

Splitting equity equally is a controversial subject. Ultimately, there is no right or wrong decision, but you should fully understand both sides of the argument to make the best choice for yourself.

No: Mike Moyer, Investor and Entrepreneur

All of the conventional advice on equity splits is just plain wrong for two primary reasons: 1) most equity splits are based on guesses about the future in terms of company value and/or an individual’s contributions, and 2) most equity splits are “fixed” meaning that chunks of equity in pre-set percentages are doled out in advance of actual work.

Yes: Michael Seibel, CEO Y Combinator

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.

Other Approaches to Splitting Equity

Be fair: Kevin Systrom, CEO Instagram

If you work hard good things happen. You should just try to be as fair as possible for the stage of the company you’re at. And the work people have put in before and after, and treat your employees well… Be generous because those are the people who are gonna be with you until 4 am.

Founder Vesting: Robin Chase, CEO Zipcar

Vesting, in which each founder has to earn his or her equity stake by remaining involved in the startup or by achieving pre-defined milestones, is one way to achieve the dynamic approach.

Contracts: Nicole Munoz, CEO Start Ranking Now

Equity often dictates who makes the decisions within your company. Decide who’s in charge first, and then develop contracts that make it clear who is responsible for what aspects of the business. You can easily justify a higher equity stake if you are also responsible, as CEO, for the difficult work of growing your company.

Conclusion

Tools

These trusted tools objectively assess your industry, business, and co-founders, to calculate equity splits for you:

Further Reading

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