Recently a company I’m advising asked me about cofounder equity sharing, possibly the most sensitive and potentially awkward discussion to be had among the founders. Thought I’d share my answer to them here as well.
- All cofounders must do independent research on this; there’s a ton of information out there, you’re certainly not the first company to figure this out. Even an hour of Googling will give you a lot of ideas. You’d be surprised how many people don’t put in time for a research and just ask around.
- There’s no right answer – each company figures it out separately. There are many factors involved, and outsiders don’t have visibility to all those factors, so the team needs to figure it out, taking all factors in
- There’s no perfect solution that makes everybody happy. Actually one thing I heard that stuck with me is, if everybody is all slightly unhappy, that might be the best outcome 🙂 The goal is not to make everyone happy but to prevent any cofounder from being absolutely unhappy that s/he is unmotivated and ultimately leaves the team (or the cap table raising a red flag with investors)
- I’m a big believer in the CEO owning the most shares. CEO takes the most responsibility and makes ultimate decisions, so CEO should own the most amount of shares IMO (this is debatable; YC seems to be advising equal shares)
- Make all founder shares vested; if anyone doesn’t do the work or add value in the future, that person should leave without too much of dead equity
- Resetting cap table is pretty much impossible the moment you raise money and investors get involved. So you gotta figure this out before/upon founding
- But don’t overthink either. You can make this a simple, multiple choice question, e.g. when 2 founders are involved, you can choose from: 50/50, 60/40, 70/30, 80/20. (At 90/10, the other person would be more like an early employee, rather than a cofounder)