What do you do if your co-founders and team members are demanding unfair equity splits?

1 Assess Value

Before entering into any negotiation about equity, take a step back to assess the value each party brings to the table. This includes considering the roles, responsibilities, and the level of risk each person has assumed. It's also important to evaluate the long-term contributions that each member is expected to make. Having a clear understanding of these aspects will enable you to articulate why you believe the current equity demands are unfair and what a more appropriate split would look like.

2 Open Dialogue

Initiate an open dialogue with your co-founders and team members. This is the time to express your concerns about the proposed equity splits and listen to their perspectives. Ensure that the conversation remains respectful and focused on finding a mutually beneficial solution. Transparency about your thought process and the reasons behind your stance can help prevent misunderstandings and foster an environment conducive to compromise.

3 Leverage Mediation

If direct discussions hit an impasse, consider leveraging a neutral third party to mediate the conversation. A mediator can help facilitate a more structured negotiation process, ensuring that each party's viewpoints are heard and considered. This can be particularly helpful in diffusing tensions and refocusing the dialogue on finding equitable solutions rather than getting caught up in emotional responses.

4 Explore Alternatives

Sometimes, a direct equity split isn't the only way to compensate contributions. Explore alternative forms of compensation such as salary adjustments, bonuses, or other incentives that could satisfy all parties involved. These alternatives can often provide the flexibility needed to reach an agreement without compromising the company's equity structure or future fundraising efforts.

5 Set Clear Terms

Once you've reached a tentative agreement, it's crucial to set clear terms. This includes documenting the equity split, vesting schedules, and any conditions or milestones that must be met. Clear documentation helps prevent future disputes and ensures that everyone is on the same page regarding their ownership stakes and the expectations tied to them.

6 Future Revisions

Acknowledge that as your business evolves, so too might the need for revising equity agreements. Setting a precedent for regular reviews of equity splits based on performance, contributions, and the changing needs of the business can help mitigate future conflicts. This approach allows for adjustments to be made in a structured manner, reflecting the dynamic nature of startups and the contributions of its members.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?