6 ms·

My experience is the following: IF you are starting a company with others, decide week 1 what the split of equity is and who (of any persons included) are cofo

My experience is the following: IF you are starting a company with others, decide week 1 what the split of equity is and who (of any persons included) are cofounders or part of the "founding team". IF you are starting a company with other cofounders, week 1 split the equity evenly and assign functional roles (not necessarily titles - those can evolve). I have seen multiple companies explode, friendships deteriorate, businesses die a slow death, or waste hundreds of hours (and dollars) working through the emotional debt built up from not splitting equity evenly. - Edit - changed day 1 to week 1 because typically there is a process of "should we start a company", "should we do it together", then "how" that takes some time. But once the "we are going to do this phase starts, you're in week 1

tomaha 8y ago
One important part you need to add: The equity vests over time. So if one of the co-founders leave they just walk away with the part they earned over time and not the same share as the rest that stays.
- karmajunkie 8y ago
  A vesting schedule is so crucial. Many founders find themselves in the position of being partners with someone who is all but inactive with a substantial portion of equity. Not only is it unfair to those doing the work but even if all parties are willing fixing the split later can be costly, time consuming, and have serious tax implications.
  - windows_tips 8y ago
    Vesting isn't perfect though. It treats all contributions the same and only really looks at the time it took to do some work. The ideal situation seems to be that anyone doing work immediately vests ownership upon performing the work.
    - krasin 8y ago
      This is very hard to administer and will be a source of constant debates. From personal experience, such flexible system is not worth it.
    - edoceo 8y ago
      Vesting with a two part criteria: a) be here the required time and b) do the required work. Protection for all parties, worked for me
- mooreds 8y ago
  This is so important. It keeps everyone motivated and aligned. If someone leaves, they keep what they've earned, but don't accrue additional ownership.
- btrautsc 8y ago
  This is a great point I did in fact miss. Granting stock (not options) with no vesting schedule is probably one of my biggest regrets.
alexhutcheson 8y ago
And then write it down and have everyone sign it. Not for legal reasons, but just to make sure everyone agrees that the issue has been settled. You don't want to end up in a situation where one person believe that a final decision was made, while another thinks there is still room for discussion.
jasode 8y ago
>I have seen multiple companies explode, friendships deteriorate, businesses die a slow death, or waste hundreds of hours (and dollars) working through the emotional debt built up from not splitting equity evenly. To add counterpoint to the discussion, Mark Suster (VC Upfront Ventures) uses the factors you listed as reasons for not doing equal split.[1] Robin Chase (co-founder of Zipcar) also regretted her decision to split equity as 50/50.[2] I'm not arguing with you. Just pointing out that reasonable people disagree on equal/unequal philosophy using the same reasons as justification. [1] https://www.youtube.com/watch?v=oAHgGUFjK3c https://www.youtube.com/watch?v=oAHgGUFjK3c (A slight correction to the video about Youtube's 3 cofounders: I believe the Youtube split wasn't equal as 33/33/33; instead it was 45/45/10.) [2] https://hbr.org/2016/02/the-very-first-mistake-most-startup-founders-make https://hbr.org/2016/02/the-very-first-mistake-most-startup-...
windows_tips 8y ago
>I have seen multiple companies explode, friendships deteriorate, businesses die a slow death, or waste hundreds of hours (and dollars) working through the emotional debt built up from not splitting equity evenly. Do you think it is a coincidence that the leader of Alphabet resigned not long after failing to answer one of Google's own interview questions about how he might split up pirate booty? https://www.entrepreneur.com/article/285789 https://www.entrepreneur.com/article/285789
duxup 8y ago
Like people getting married who never discussed finances I'm amazed when I hear that these arrangements don't happen....how do you not do that!?!?
- btrautsc 8y ago
  It is uncomfortable to talk about. Typically during the initial phase (and forever forward) visible contribution changes.
ta1234567890 8y ago
Day 1 or even Week 1 might be a very unrealistic timeline for most new companies to split equity. Majority of people starting a new company are very unfamiliar with equity splitting, vesting and everything related to theses things. On top of that, usually the team members aren't even well defined yet, same as the idea for the company. A lot will change even in the first 6 months of a company that would justify different equity splits for different members that are still founders but join with different (implicit) roles and at different times. Sadly, unless the founders are extremely lucky, it will probably take them a lot of experience and maybe going through failing a few times until they get the equity split right from the get go for a new company. And there's a bunch of other external and unpredictable factors. For example: about 4 years ago I started a company with a couple other people - each founder joined at different times and had different amounts of equity - a few months after winning a hackathon, incorporating the company, raising some angel money and getting our first few clients, we applied to YC, got an interview and then got an offer to join YC, but one of their partners wanted us to change the cap table to remove some of the people that had equity and re-split the equity among a subgroup of the founders. We couldn't do it, so they withdrew the offer to join.

tomaha 8y ago

One important part you need to add: The equity vests over time. So if one of the co-founders leave they just walk away with the part they earned over time and not the same share as the rest that stays.

karmajunkie 8y ago
A vesting schedule is so crucial. Many founders find themselves in the position of being partners with someone who is all but inactive with a substantial portion of equity. Not only is it unfair to those doing the work but even if all parties are willing fixing the split later can be costly, time consuming, and have serious tax implications.
- windows_tips 8y ago
  Vesting isn't perfect though. It treats all contributions the same and only really looks at the time it took to do some work. The ideal situation seems to be that anyone doing work immediately vests ownership upon performing the work.
  - krasin 8y ago
    This is very hard to administer and will be a source of constant debates. From personal experience, such flexible system is not worth it.
  - edoceo 8y ago
    Vesting with a two part criteria: a) be here the required time and b) do the required work. Protection for all parties, worked for me
mooreds 8y ago
This is so important. It keeps everyone motivated and aligned. If someone leaves, they keep what they've earned, but don't accrue additional ownership.
btrautsc 8y ago
This is a great point I did in fact miss. Granting stock (not options) with no vesting schedule is probably one of my biggest regrets.

alexhutcheson 8y ago

And then write it down and have everyone sign it. Not for legal reasons, but just to make sure everyone agrees that the issue has been settled. You don't want to end up in a situation where one person believe that a final decision was made, while another thinks there is still room for discussion.

jasode 8y ago

>I have seen multiple companies explode, friendships deteriorate, businesses die a slow death, or waste hundreds of hours (and dollars) working through the emotional debt built up from not splitting equity evenly. To add counterpoint to the discussion, Mark Suster (VC Upfront Ventures) uses the factors you listed as reasons for not doing equal split.[1] Robin Chase (co-founder of Zipcar) also regretted her decision to split equity as 50/50.[2] I'm not arguing with you. Just pointing out that reasonable people disagree on equal/unequal philosophy using the same reasons as justification. [1] https://www.youtube.com/watch?v=oAHgGUFjK3c https://www.youtube.com/watch?v=oAHgGUFjK3c (A slight correction to the video about Youtube's 3 cofounders: I believe the Youtube split wasn't equal as 33/33/33; instead it was 45/45/10.) [2] https://hbr.org/2016/02/the-very-first-mistake-most-startup-founders-make https://hbr.org/2016/02/the-very-first-mistake-most-startup-...

windows_tips 8y ago

>I have seen multiple companies explode, friendships deteriorate, businesses die a slow death, or waste hundreds of hours (and dollars) working through the emotional debt built up from not splitting equity evenly. Do you think it is a coincidence that the leader of Alphabet resigned not long after failing to answer one of Google's own interview questions about how he might split up pirate booty? https://www.entrepreneur.com/article/285789 https://www.entrepreneur.com/article/285789

duxup 8y ago

Like people getting married who never discussed finances I'm amazed when I hear that these arrangements don't happen....how do you not do that!?!?

btrautsc 8y ago
It is uncomfortable to talk about. Typically during the initial phase (and forever forward) visible contribution changes.

ta1234567890 8y ago

Day 1 or even Week 1 might be a very unrealistic timeline for most new companies to split equity. Majority of people starting a new company are very unfamiliar with equity splitting, vesting and everything related to theses things. On top of that, usually the team members aren't even well defined yet, same as the idea for the company. A lot will change even in the first 6 months of a company that would justify different equity splits for different members that are still founders but join with different (implicit) roles and at different times. Sadly, unless the founders are extremely lucky, it will probably take them a lot of experience and maybe going through failing a few times until they get the equity split right from the get go for a new company. And there's a bunch of other external and unpredictable factors. For example: about 4 years ago I started a company with a couple other people - each founder joined at different times and had different amounts of equity - a few months after winning a hackathon, incorporating the company, raising some angel money and getting our first few clients, we applied to YC, got an interview and then got an offer to join YC, but one of their partners wanted us to change the cap table to remove some of the people that had equity and re-split the equity among a subgroup of the founders. We couldn't do it, so they withdrew the offer to join.