How to Split Equity with Co-Founders

When starting a company, one of the first difficult questions founders face is, “How should we split equity?” It’s a topic that surfaces in almost every conversation between co-founders, yet it’s often addressed with advice that can do more harm than good.

A quick search online reveals a surprising amount of suggestions advocating for unequal splits, with reasons like:

• "I came up with the idea."
• "I started working before my co-founder."
• "My co-founder took a salary, and I didn’t."
• "I’m more experienced or older."
• "I brought them on after raising money or launching the MVP."
• "We need someone to have a larger stake to break ties in arguments."

At first glance, these arguments might seem logical. However, they fail to account for the bigger picture: startups take years—sometimes a decade or more—to build into something truly valuable. And those early variations in contribution are rarely enough to justify drastically unequal equity splits.

Why Unequal Splits Are a Problem

There are four major pitfalls in splitting equity based on early work or individual contributions:

1. Startups are a long game. Building a successful company takes years. Early contributions, like coming up with the idea or starting a few months earlier, pale in comparison to the effort required over the long haul. Splitting equity unequally based on short-term input overlooks the collective work still ahead.
2. Motivation matters. Most startups fail, and one of the key factors for survival is the motivation of the founding team. Equal equity helps ensure that every co-founder feels fully invested in the company’s success. If one founder has significantly less equity, they’re likely to feel undervalued, which can hurt morale and, ultimately, execution.
3. Investors pay attention to equity splits. The way you split equity signals to investors how much you value your team. If one co-founder only holds 10% or less, it might raise red flags about their importance to the business. Investors want to see a strong, unified team where everyone is equally committed and recognized.
4. Execution trumps ideas. Startups succeed based on execution, not just ideas. Giving outsized equity to the person who had the initial idea discounts the immense contributions of the team members who build the product, bring it to market, and drive traction. Without execution, the idea is worthless.

The Case for Equal (or Near-Equal) Equity Splits

In my experience, equal or close-to-equal equity splits are the best way to go. Here’s why:

• You’re in this together. Your co-founders are your partners in this marathon. They’ll be there through late nights, tough decisions, and moments of triumph. Splitting equity equally ensures everyone feels like an equal partner in the journey.
• Equity aligns incentives. When everyone’s equity stake is comparable, you’re all equally motivated to work hard, make sacrifices, and push through challenges. It’s a shared commitment to the company’s success.
• It fosters trust and respect. Unequal equity splits can create resentment and erode trust among co-founders. Equal splits, on the other hand, signal mutual respect and faith in each other’s abilities.

If you’re hesitant about an equal split because you’re worried about what happens if things go south, there’s a simple solution: vesting.

What Is Vesting, and Why Does It Matter?

Vesting ensures that co-founders earn their equity over time, rather than receiving it all upfront. A typical vesting schedule in Silicon Valley is four years with a one-year cliff. Here’s how it works:

• During the first year, you “vest” no equity. If a co-founder leaves during this period, they walk away with nothing. This one-year cliff acts as a trial period.
• After the first year, 25% of your equity vests.
• Each month thereafter, you vest an additional 1/48th of your total equity. By the end of four years, you’ve fully vested your equity.

This setup protects the company and ensures that only those who stick around for the long haul earn their full equity stake. It also allows the team to resolve issues early without significant fallout.

The Role of the CEO in Equity Decisions

One practical measure to prevent disputes is to ensure that only the CEO holds a board seat during the early stages. This avoids conflicts in the event of tough decisions, like firing a co-founder, and ensures smoother governance until the company raises significant funding.

Final Thoughts

Equity splits are about more than just dividing ownership—they’re about setting the foundation for a healthy, motivated, and united founding team. If you’re not willing to give your co-founder an equal share, it might be worth questioning whether you’ve chosen the right partner.

Remember, the road ahead will test your resilience, creativity, and teamwork. An equal equity split isn’t just a financial decision; it’s a signal of trust, respect, and shared commitment. After all, when your startup succeeds, you’ll want to celebrate as equals.

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