Annie Webber, founder and CEO of Legal Hero, recently published a 2-part blog on splitting equity between co-founders. You can find the article at Legal Hero.
Starting a new business comes with a lot of excitement, little sleep, and a to-do list that seemingly never ends. Amidst the excitement, it is increasingly easy to avoid a difficult, yet necessary conversation about splitting equity between co-founders. While the topic is easy to postpone, you do not want to deal with the potential fallout and subsequent tougher conversation down the road.
Most assume that co-founders should split equity evenly. This is not necessarily flawed thinking, but there are plenty of reasons this argument does not hold up. Most co-founders divide equity equally for the following reasons:
- Avoiding the awkward conversation, potential arguments, and parting ways.
- Everyone is equal, so they all deserve an equal share.
- An even split simplifies everything. Now they can focus more important things.
- Co-founders want to make every important decision together.
These are honorable positions on the issue, but not exactly the most beneficial for the company. Running a business requires difficult, yet constructive conversations. Learning this early will be vital to your success. It is also important to understand that co-founders ultimately offer different skill sets. As Annie notes in her blog, “to suggest these skill sets and resources are equally valuable is a bit silly.”
Visit Legal Hero for further details on splitting equity, including a detailed framework to help resolve the issue.