I'm actually a little surprised that an equal equity split is apparently the default and preferred option in the valley. It's quite an unspeakable topic in my experience so I'd appreciate if someone could confirm this.
I remember being told explicitly in one startup focused class at MIT that it was highly advisable to decide one way or another who would have the majority of shares. We even played a role playing game where an equal split was the only wrong answer. The idea was that not everyone will be sacrificing and committing equally and that it was better to figure that out upfront than have it play out down the line.
> The idea was that not everyone will be sacrificing and committing equally and that it was better to figure that out upfront than have it play out down the line.
If you think you can figure out ahead of time who will be "less committed" or otherwise less deserving of equity, then either (a) you're fooling yourself, or (b) that person shouldn't be a founder.
I have friends with great skills who I want to work with at my startup, but none who I would really expect "founder" levels of commitment out of.
It seems that they agree: what we both really seem to want is that, after I get the business off the ground on my own, I just hire them for cushy jobs as employees. :)
I'm an advocate of even splits. IMO the logic behind having a dominant founder derives from classic corporate management where you have a boss and a team. I don't see that as a good baseline for a team of founders.
I think I agree. I don't believe a startup can work if the focus is on equity grabbing or if any agreement leaves one founder feeling less committed to the project than the other. A sense of ownership is one of the big motivators that helps you to fall in love and commit to an idea. So if there's something on paper that makes it like the idea is less yours than the other co-founder, I think it will cause less commitment as a result.
Better to own less of successful company than all of nothing.
I think the equity grabbing thing is a bit over rated, although it feels like that if you're starting something and want to get other people on board. Get rational and communicate.
Sometimes it's even funny, at a 2 day hacking/business event, you make something with 6 people, two of these people make 90+% of the product. 2 people just stand by the team the whole time barely contributing and 2 people (business) people, are greatly contributing to strategy.
At the end of the hacking event there is a talk about continuing with the project and starting something up, it is so obvious that it is almost not even brought up. People kinda evade the topic. Then somebody starts to talk about it and everybody quickly agrees that 50/50 split is the obvious fair way to start something.
I don't have to tell you this 'startup' didn't last that long :)
I'm NOT an advocate of even (50/50 or 33/33/33) equity splits precisely because of point #2 (Commitment) in the original article.
Almost every startup I've ever seen or been involved with, there have been different levels of commitment early on, which is OK. If/when things go wrong (which they inevitably do), having a clear leader/decision instead of deadlock, can be the difference between death vs. survival of the company, which is much bigger than the individual founders. These are inherently emotional moments. Even for the departing founder, the survival of the company is almost always a better outcome both in financial and personal impact terms.
That being said, unequal equity positions have historically been misused by business/MBAs against tech founders, esp true 5-10 years ago. This is probably why YC has a strong bias towards equal equity positions.
Edit: For comments talking about the "CEO vs. employee" mindset, if you make your co-founders feel like employees in 2-3 person company, you're a shitty CEO, period. In fact, a good CEO should make early employees feel like true team members (not just the co-founders).
My first startup/business was 33/33/34. The business guy (the closest we had to the CEO) was the 34% and would be the tie breaker if the other cofounder and I disagreed on anything.
Even if you want to do 50/50 split of ownership, can't you structure voting power 51/49 or some other way such that you won't end up in a deadlock?
I've started some things and the 'obvious' way is always to go 50/50, but if you're doing most of the work, thinking etc it's not very motivating to continue. Not all start ups start with everybody quitting their job at the same time.
So yeah I think it's a case to case situation, if you both quit your job, have the same programming and business input then you have an awesome situation and 50/50 is great.
I'm not familiar with VC deals and such but how would something like monthly "stock-like" points work? each member of the team would earn points based on their time commitment for that month (year/week/whatever) and as their commitment or schedule changes, so does their point allocation. For example a cofounder who works fulltime for a year will still have some points/shares even if he leaves. If you recruit someone new then they start at 0 and gain more percents of the company the longer he works there. A persons total percent ownership would then be simply his points divided by the total outstanding number of points. The one downside would be the extra effort required to determine everyone's contributions but this system would allow dynamic allocation of the company ownership over time.
I remember being told explicitly in one startup focused class at MIT that it was highly advisable to decide one way or another who would have the majority of shares. We even played a role playing game where an equal split was the only wrong answer. The idea was that not everyone will be sacrificing and committing equally and that it was better to figure that out upfront than have it play out down the line.