How do you divide equity between co-founders?

Summary

1. Rule 1) Try to split as equaly and fairly as possible.
2. Rule 2) Don’t take on more than 2 co-founders.
3. Rule 3) Your co-founders should complement your competencies, not copy them.
4. Rule 4) Use vesting.
5. Rule 5) Keep 10\% of the company for the most important employees.

How much equity should you give a co-founder?

Investors claim 20-30\% of startup shares, while founders should have over 60\% in total. You may also leave some available pool (5\%), but don’t forget to allocate 10\% to employees. Based on the most outstanding skills of co-founders, define your roles clearly within the company and assign job titles.

Do all co-founders split equity?

When and How to Split Founder Equity Most important, some divide the equity equally amongst all founders, others come to the conclusion that the fair outcome is actually an uneven split that reflects differences among founders.

What is founder’s equity?

Founder’s equity or founder’s stock is a class of stock issued to founders or early members of a company. In reality, founder’s stock is simply common stock issued to founders. Common stock is the basic form of stock issued by every corporation.

How do you divide shares?

The most common stock splits are 2-for-1, 3-for-2 and 3-for-1. An easy way to determine the new stock price is to divide the previous stock price by the split ratio. Using the example above, divide $40 by two and we get the new trading price of $20.

How Should equity be split in a startup?

Founders: 20 to 30 percent divided among co-founders. The company contribution is rarely exactly 50/50 and the equity split should be based on a variety of factors, including those discussed above. Angel Investors: 20 to 30 percent. Venture Capital Providers: 30 to 40 percent.

What is equity split?

What Is an Equity Split? Equity refers to non-cash compensation that represents partial ownership in a company. The equity is usually divided up, or split, among the early founders, financial supporters, and sometimes employees who join the startup in its earliest stages.

What should be in a Founders agreement?

A Founders’ Agreement is a contract that a company’s founders enter into that governs their business relationships. The Agreement lays out the rights, responsibilities, liabilities, and obligations of each founder. Generally speaking, it regulates matters that may not be covered by the company’s operating agreement.

How do my co founders and I pay for our shares?

Typical Steps In general, the most common practice is: The founder gives a check dated the date of the stock purchase agreement to an officer of the company on the same day. The officer keeps a photocopy of the check in the company’s files as evidence of payment. The company deposits the check in its bank account.

Should you split the equity between co-founders?

Getting a larger piece of the equity pie is worth nothing if the lack of motivation on your founding team leads to failure. If you don’t value your co-founders, neither will anyone else. Investors look at founder equity split as a cue on how the CEO values his/her co-founders.

What is an equity split and why is it important?

For founders, the equity split also helps determine decision-making power. An even split means that the founders will need consensus. If questions pop up around the fairness of the equity split, and the founders are unable to resolve these issues, impasses and the inability to move forward can negatively impact the company.

Should equequity be split equally?

Equity should be split equally because all the work is ahead of you. My advice for splitting equity is probably controversial, but it’s what we have done for all of my startups, and what we almost always recommend at YC: equal equity splits among co-founders. [1] These are the people you are going to war with.

What happens if you break up with a co-founder?

[1] If you fear what will happen if you have to break up with a co-founder, make sure you have a proper vesting schedule. In the Valley, a typical setup is to have four years of vesting with a one year “cliff.” In other words, while you might own 50\% of the company on paper, if you leave or get fired within a year you walk away with nothing.