Splitting equity with your co-founder? Here’s what you need to know

You'll want to make sure the person you’re looking to partner with is able to stay focused and on track for your project.

Some people feel obligated to say yes when you offer them a partnership, but they don’t really want to do it.

Make sure your partner is able to take care of themselves financially. 

Put them on a vesting schedule in case your judgment was wrong. If you aren’t able to attract partners, then you have to look at all these issues for yourself.

Ensure that your co-founder is capable of providing long-term value to the company.

You should want to work alongside a co-founder in the same situation as you, in terms of experience and commitment. Meaning, you both will follow the same learning curve and will be on the same page as you enter each new stage of your company.

Splitting equity equally is a controversial subject. 

Ultimately, there is no right or wrong decision, but you should fully understand both sides of the argument to make the best choice for yourself. Check the following ideas to understand both sides:

The right way to think about equity is to think about a startup as a gamble. 

When participants contribute to a startup and are not paid for their contributions they are essentially betting on the future of the company. 

The value of each person’s bet is always equal to the unpaid fair market value of his or her contribution. A person’s share of the equity should be based on that person’s share of the bets.

If you work hard good things happen. You should just try to be as fair as possible for the stage of the company you’re at, and the work people have put in before and after, and treat your employees well. 

Be generous because those are the people who are gonna be with you until 4 am. 

Vesting, in which each founder has to earn his or her equity stake by remaining involved in the startup or by achieving pre-defined milestones, is one way to achieve the dynamic approach.

Setting up an agreement up front that outlines negative scenarios that might occur in the future, with corresponding actions to help avoid them, could help founders avoid headaches and increase startups’ chances of success.

Equity often dictates who makes the decisions within your company. Decide who’s in charge first, and then develop contracts that make it clear who is responsible for what aspects of the business. 

You can easily justify a higher equity stake if you are also responsible, as CEO, for the difficult work of growing your company. 

These trusted tools objectively assess your industry, business, and co-founders, to calculate equity splits for you: 

• Slicing Pie  
• Gust: Co-founder Equity Split  
• eShares  
• Founder: Co-Founder Equity Calculator  

These are the people you are going to war with. These are the people who will help you decide the most important questions in your company. Finally, these are the people you will celebrate with when you succeed.

Equal or close to equal equity splits among founding teams should become standard. If you aren’t willing to give your partner an equal share, then perhaps you are choosing the wrong partner