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This comes at a curious time for me. Just recently a startup didn't start at all, because I and the other would-be co-founder couldn't agree on how to split the

This comes at a curious time for me. Just recently a startup didn't start at all, because I and the other would-be co-founder couldn't agree on how to split the equity. Can someone enlighten me please: is a 50/50 split reasonable for 2 founders of a coding-heavy startup, where each founder has roughly the same background? That is what I was asking for. My friend was asking to have 100% equity and I would get a sizable share of sales as a contractor for his company. It was our first startup, neither of us has previous experience running a startup or a business at all. I'm very sad it didn't work out because we worked on the technology for almost 4 weeks and it was promising, and now I feel a bit "guilty" about not having "cooperated", but I just couldn't invest the effort, resources (we have no investment; we would be burning our savings for some months) and yet have no ownership at all of what I was creating and risking into. Any thoughts into this will be greatly appreciated, as I have no other sources of feedback to evaluate my decision.

blacksmythe 16y ago
If your co-founder put in significant work before you started, then you should expect less than 50/50 ownership. It sounds like you both put in equally developing the idea, and equal risk of your effort having no payoff (a very high risk for any startup). I can't see any reason from your description that you should expect less than 50/50 split of the reward. (Maybe 40/60 depending on some contributions before you got involved).
deleted 16y ago
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robfitz 16y ago
Depends on the people, but him wanting 100 is a good warning sign that you should quickly get un-involved. 50/50 is what I would expect in your situation, where neither person is obviously going to be carrying the company. If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock. If you give them too little, they become increasingly motivated to quit and start something they can own. From what you described, you were at a lose-lose impasse. One or other of you was going to end up unhappy, in a company-destroying sort of way. I would have quit also and would make sure to sort the ownership question out earlier next time. Somewhat tangentially, people also tend to over-value the ownership that their "idea" should entitle them to. If someone spends 3 months thinking day and night and you just started, it can seem like they deserve a big chunk. But you have to remember, standard vesting is 4 years, so their 3 months of thought is only about 6% of the time you're each committing to the business.
- timdellinger 16y ago
  "If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock." I'm surprised that I don't hear more horror stories about co-founders and early employees being kicked out just to get their un-vested stock. That's the one thing about 4 year vesting that always seemed risky to me.
  - robfitz 16y ago
    You have to burn a lot of bridges to do it and it leaves a mercenary mark on you and the company. I think it's more likely to destroy morale by making you bitter about each other's ownership than to actually get you to fire each other as an economic choice.
beagle3 16y ago
Yes, a 50/50 is reasonable, even if the other guy had the original idea (which you didn't mention, but I would assume given the facts). Ideas are (almost) worthless. The equity split should reflect resources put in (including potential resources like industry connections), risk taken, and opportunity cost. Sounds like you're both putting in same resources and taking same risks. You didn't mention opportunity cost. If it's his idea, and he can get someone at his term (0% ownership, percent of sales), then it makes no sense for him to take you on a 50%. If you have to quit a $500K/year job to work on it, and he has to quit a $50K/year job to work on it, then even though the idea is originally his, the split should be biased towards you (Not necessarily 90/10, but definitely not 50/50); Essentially, you'll be paying $500K a year for the privilege of founding the company, whereas he only pays $50K. It's a market like any market. If you couldn't reach an agreement, the price wasn't right for either side. Sounds to me like you did the right thing.
silvajoao 16y ago
Thanks a lot for all the replies. Some more info: If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock. If you give them too little, they become increasingly motivated to quit and start something they can own. Totally. I actually felt like he didn't contribute as much (coding-wise), and felt that 50/50 was a bit generous for him, but then again a business is not just coding and he was into the "CEO" role, and I was fine with that. I was at the extreme of the second scenario: no motivation to do this at all. What amazes me is his proposition; how is he going to get anyone else doing this job, with no funding at all to pay a salary? One or other of you was going to end up unhappy, in a company-destroying sort of way. I would have quit also and would make sure to sort the ownership question out earlier next time. This was my key takeaway. Free GOOD learned-the-hard-way advice for ambitious would-be startupers: before even starting to discuss an idea, agree on how are you going to work on it and split the equity. You might be amazed by some people's concept of "partnership". Somewhat tangentially, people also tend to over-value the ownership that their "idea" should entitle them to. The initial idea was his, but we developed it much further together. On the implementation side there also had to be tons of decisions on how to move forward, and here I believe I was contributing way more to make it happen. Overall I felt it was a fair deal. Sounds like you're both putting in same resources and taking same risks. You didn't mention opportunity cost. We are mostly on the same terms. We have both been working our jobs with almost the same salaries, so we were taking very similar risks here and "losing" about the same in opportunity costs. If it's his idea, and he can get someone at his term (0% ownership, percent of sales), then it makes no sense for him to take you on a 50%. That is what puzzles me the most, because I think he can't. We both have no track record and no capital to invest, nor have been funded before, and have very few contacts. And I don't see anyone working on a business with no revenue without being given any equity at all; even with a nice salary, the job could be gone at any time. If your co-founder put in significant work before you started, then you should expect less than 50/50 ownership. That was not the case. Again, thanks for your comments. And, again, the lesson I learned: discuss with your would-be partner(s) how you'll split the equity, work and what each is willing to contribute before even talking about the ideas. Especially before starting to write code.

blacksmythe 16y ago

If your co-founder put in significant work before you started, then you should expect less than 50/50 ownership. It sounds like you both put in equally developing the idea, and equal risk of your effort having no payoff (a very high risk for any startup). I can't see any reason from your description that you should expect less than 50/50 split of the reward. (Maybe 40/60 depending on some contributions before you got involved).

deleted 16y ago

[deleted]

robfitz 16y ago

Depends on the people, but him wanting 100 is a good warning sign that you should quickly get un-involved. 50/50 is what I would expect in your situation, where neither person is obviously going to be carrying the company. If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock. If you give them too little, they become increasingly motivated to quit and start something they can own. From what you described, you were at a lose-lose impasse. One or other of you was going to end up unhappy, in a company-destroying sort of way. I would have quit also and would make sure to sort the ownership question out earlier next time. Somewhat tangentially, people also tend to over-value the ownership that their "idea" should entitle them to. If someone spends 3 months thinking day and night and you just started, it can seem like they deserve a big chunk. But you have to remember, standard vesting is 4 years, so their 3 months of thought is only about 6% of the time you're each committing to the business.

timdellinger 16y ago
"If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock." I'm surprised that I don't hear more horror stories about co-founders and early employees being kicked out just to get their un-vested stock. That's the one thing about 4 year vesting that always seemed risky to me.
- robfitz 16y ago
  You have to burn a lot of bridges to do it and it leaves a mercenary mark on you and the company. I think it's more likely to destroy morale by making you bitter about each other's ownership than to actually get you to fire each other as an economic choice.

beagle3 16y ago

Yes, a 50/50 is reasonable, even if the other guy had the original idea (which you didn't mention, but I would assume given the facts). Ideas are (almost) worthless. The equity split should reflect resources put in (including potential resources like industry connections), risk taken, and opportunity cost. Sounds like you're both putting in same resources and taking same risks. You didn't mention opportunity cost. If it's his idea, and he can get someone at his term (0% ownership, percent of sales), then it makes no sense for him to take you on a 50%. If you have to quit a $500K/year job to work on it, and he has to quit a $50K/year job to work on it, then even though the idea is originally his, the split should be biased towards you (Not necessarily 90/10, but definitely not 50/50); Essentially, you'll be paying $500K a year for the privilege of founding the company, whereas he only pays $50K. It's a market like any market. If you couldn't reach an agreement, the price wasn't right for either side. Sounds to me like you did the right thing.

silvajoao 16y ago

Thanks a lot for all the replies. Some more info: If you give a founder (or early employee) more than they're going to be worth in the long term, you'll feel increasingly motivated to fire them and recover their un-vested stock. If you give them too little, they become increasingly motivated to quit and start something they can own. Totally. I actually felt like he didn't contribute as much (coding-wise), and felt that 50/50 was a bit generous for him, but then again a business is not just coding and he was into the "CEO" role, and I was fine with that. I was at the extreme of the second scenario: no motivation to do this at all. What amazes me is his proposition; how is he going to get anyone else doing this job, with no funding at all to pay a salary? One or other of you was going to end up unhappy, in a company-destroying sort of way. I would have quit also and would make sure to sort the ownership question out earlier next time. This was my key takeaway. Free GOOD learned-the-hard-way advice for ambitious would-be startupers: before even starting to discuss an idea, agree on how are you going to work on it and split the equity. You might be amazed by some people's concept of "partnership". Somewhat tangentially, people also tend to over-value the ownership that their "idea" should entitle them to. The initial idea was his, but we developed it much further together. On the implementation side there also had to be tons of decisions on how to move forward, and here I believe I was contributing way more to make it happen. Overall I felt it was a fair deal. Sounds like you're both putting in same resources and taking same risks. You didn't mention opportunity cost. We are mostly on the same terms. We have both been working our jobs with almost the same salaries, so we were taking very similar risks here and "losing" about the same in opportunity costs. If it's his idea, and he can get someone at his term (0% ownership, percent of sales), then it makes no sense for him to take you on a 50%. That is what puzzles me the most, because I think he can't. We both have no track record and no capital to invest, nor have been funded before, and have very few contacts. And I don't see anyone working on a business with no revenue without being given any equity at all; even with a nice salary, the job could be gone at any time. If your co-founder put in significant work before you started, then you should expect less than 50/50 ownership. That was not the case. Again, thanks for your comments. And, again, the lesson I learned: discuss with your would-be partner(s) how you'll split the equity, work and what each is willing to contribute before even talking about the ideas. Especially before starting to write code.