How To Split Co-Founder Equity

As a founder, one of the first decisions you will face is how to split the equity of your startup with your co-founders. This is a crucial decision that can have long-lasting effects on the ownership and control of your company. Here are some key considerations to keep in mind when determining how to split equity with your co-founders.

1. Skills and Contributions: One of the primary considerations when splitting equity is the skills and contributions of each founder. This includes the time and effort each person has put into the company, as well as the unique expertise and value they bring to the table. For example, if one founder has a background in marketing and has been responsible for driving early sales, they may be entitled to a larger equity stake. Similarly, if one founder has played a key role in securing funding or partnerships, they may also be entitled to a larger equity stake.
2. Vesting Periods: Vesting periods are a common way to ensure that founders remain committed to the company over the long-term. During a vesting period, founders are granted a percentage of their equity over a set period of time, rather than receiving it all upfront. This helps to align the interests of the founders with the success of the company, as they will only fully own their equity if they remain with the company for the full vesting period.
3. Future Hiring and Investment: Founders should also consider how their equity split may impact future hiring and investment decisions. For example, if one founder has a large equity stake, it may be difficult to attract top talent or secure additional funding, as there may not be enough equity to go around. On the other hand, if the equity is too evenly split, it may be difficult for the founders to make key decisions or move the company in a specific direction.
4. Company Stage: The stage of the company can also impact the equity split. In the early stages of a startup, it is common for founders to have more equal equity stakes, as everyone is likely contributing equally and taking on a variety of roles. As the company grows and the roles of the founders become more specialized, the equity split may become more uneven to reflect the unique skills and contributions of each founder.
5. Legal Considerations: There are also a number of legal considerations to keep in mind when splitting equity with co-founders. For example, founders may want to create vesting agreements to protect the company in case a co-founder leaves or is fired. They may also want to consider creating a shareholders agreement, which outlines the rights and responsibilities of the founders and can help to resolve any disputes that may arise.

In summary, determining how to split equity with your co-founders is a crucial decision that requires careful consideration. Factors such as skills and contributions, vesting periods, future hiring and investment, and company stage should all be taken into account. By considering these factors and seeking legal guidance as needed, founders can ensure that they make an informed and fair decision that aligns the interests of all parties and sets the company up for success.