Business Knowledge

Founder Equity Splits

Splitting the Pie: Founder Equity Checklist

Don’t let equity disputes kill your startup. Get it right from day one.

1. Avoid the “Equal Split” Trap (Initially):

  • Are all founders truly contributing equally, now and in the future?
  • Are their commitments (full-time vs. part-time, capital) identical?
  • Why: Equal splits often lead to resentment later.

2. Key Factors for a Fair Split (The “Contribution-Based” Approach):

  • Idea/IP: Who brought the core idea or existing tech?
  • Time & Commitment: Who is full-time vs. part-time? Who sacrifices more?
  • Cash Invested: Personal funds put into the business.
  • Skills/Expertise: Unique abilities crucial for launch (e.g., coding, sales, design).
  • Future Responsibilities: Who will carry the heaviest load post-launch?

3. The Magic Word: VESTING

  • What it is: Equity is earned over time (typically 3-4 years).
  • The Cliff: Usually a 1-year “cliff” where you get nothing if you leave before 12 months.
  • Why: Protects the company if a founder leaves early. Investors demand it!

4. Document Everything:

  • Founders’ Agreement: Get your equity split, vesting, roles, and responsibilities in a legally binding document. No handshakes!

Golden Rule: Have the uncomfortable conversations early. A fair, transparent, and vested split protects everyone and motivates for long-term success.