Question

Equity can be split in many ways between founders. However, it is recommended to:

Group of answer choices

give more equity to the visionary

split equity 60/40 across co-founders

split equity equally

give more equity to the builder

split equity according to order in which employees joined​

Answer 1

Explanation:

Whether because of avoidance, too much optimism, or lack of knowledge, founder teams that split their equity by default were also found, per Wasserman’s research, to have triple levels of unhappiness within their teams.

Which begs the question why?

It all comes down to fairness.

Over time, different work styles, personalities, and issues around contribution emerge. One founder may be putting more hours in, or another may be contributing more capital, which cause questions around the equity split to pop up.

Is it still fair?

If I am working 60 hours a week, but my co-founder is only putting in 40 hours, I deserve more.

I’m more committed. I should be the one making any final decisions for the company.

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. Resentments build, frustrations rise, and the team becomes dysfunctional.

That’s why how you decide equity early-on will have a lasting impact on the co-founder dynamic and the company.

Increase the startup’s chances of success by taking these questions into account when having your equity allocation conversation.