4 ms·

I'd like to read about first-hand experiences founding startups with equal or unequal equity splits. A postmortem of sorts, what worked about the founder arrang

by dxhdr 8y ago

I'd like to read about first-hand experiences founding startups with equal or unequal equity splits. A postmortem of sorts, what worked about the founder arrangement and what didn't and why, or if it was even a relevant factor at all. I could believe that unequal equity splits are common in these mega-successes just because everyone involved is savvy enough to push hard for their own interests, but that ultimately it's an irrelevant detail to the success of the business. They'd be successful either way, but this way is the best possible outcome for the founder.

e40 8y ago
I'd like to read about first-hand experiences founding startups with equal or unequal equity splits. 30+ year old company, started with equal split (5 ways, 1 founder bought out early). We are not hugely successful, though I have a nice house in a nice & expensive city because of it. It is my belief the company would not exist if the CEO had gotten control early on. The equal equity was a check & balance on his power. However, there are really two possibilities: 1. The check on his power prevented us from being wildly successful because there was too much consensus needed for risky, but potentially rewarding, decisions. 2. The check on his power prevented him from screwing over everyone else. On #2. About 7 years after starting, my CEO intimated to me that he made a huge mistake with the initial equity split, and when I asked why, he said he would be cash cowing the business for his own personal gain and he would be much wealthier. Now, he didn't phrase it just like that, but that's what he meant. The truth is, once you have control of the shares, you can do anything to anyone. I won't give the name (let's call him Mr. X), but an early investor in the company was serially successful at startups and making a lot of money. Two related facts about him: * One of X's co-founders once told our CEO that he made almost nothing from the startup that X had made many millions from. His initial stock had been diluted to nothing, because X controlled the majority of shares and the board. * In the 90s the SEC went after X for dubious sales practices (selling hardware and buying it back under the table to inflate company value... yes, they were public). He paid a large fine and agreed not to be an officer of a corporation for 10 years, but he died before that expired. After these two events, I started to look at successful people in an entirely different light. Nothing I've learned in the 20 years since has changed the view that 99.9% of successful people, aside from being smart and hard working, are either in the right place at the right time or use ethically dubious methods to get ahead. There are exceptions, but they are exceedingly rare. Sorry for the rant.
- tasuki 8y ago
  > in the right place at the right time This is clearly the key. (I wonder how much of it is luck, and how much a myriad of other factors.) > or use ethically dubious methods to get ahead Some do, but without being in the right place at the right time, it won't lead to success.
  - e40 8y ago
    There are degrees of success, though. That's what I was trying to convey. There are many times over the last 30+ years that I've thought if I did X, I would have a lot more money (personally) than I do now, but I never even considered X because I wouldn't have been able to sleep at night. My Mr. X clearly had no such restriction.
- technologia 8y ago
  I relate with the latter part of your story. A company I helped found had an uneven equity split. I was focused on building our platform out and didn't really care about the equity after we set the initial split; Because I was so naive and had a co-founder like your Mr.X, only my equity share was diluted each time we hired someone. Eventually I noticed but it was far too late for me to do anything about it; Years later I carry this lesson with me to constantly pay attention. [edit]: Forgot to mention my Mr.X drove the company into the ground after I left.
  - jerguismi 8y ago
    When doing business, you have to look after yourself. In this case you could have been follwing what the co-founder was doing, and you should have brought up that you don't consider it fair. Things are simpler when there is some simple measure of "fairness", such as salary. With equity it is always more complex, since equity also relates to the risk position, is hard to assign value to, etc.
- deleted 8y ago
  [deleted]
- jiveturkey 8y ago
tedkalaw 8y ago
was at a startup where the split was 72.5/10/10 (eng)/7.5 (me) when we got into an incubator; investors tried to convince the ceo that we should do an even split iirc, but he felt the business was built up enough that the equity split was fair. we were all dumb kids (oldest was 21), and didn't know what we were doing. when the 16 hour days with no pay were too much for me, the lack of equity made it very easy for me to walk away. i would never do a split like that again, and would not recommend it. i still can't watch Silicon Valley because it reminds me of those times haha.

by dxhdr 8y ago

e40 8y ago

I'd like to read about first-hand experiences founding startups with equal or unequal equity splits. 30+ year old company, started with equal split (5 ways, 1 founder bought out early). We are not hugely successful, though I have a nice house in a nice & expensive city because of it. It is my belief the company would not exist if the CEO had gotten control early on. The equal equity was a check & balance on his power. However, there are really two possibilities: 1. The check on his power prevented us from being wildly successful because there was too much consensus needed for risky, but potentially rewarding, decisions. 2. The check on his power prevented him from screwing over everyone else. On #2. About 7 years after starting, my CEO intimated to me that he made a huge mistake with the initial equity split, and when I asked why, he said he would be cash cowing the business for his own personal gain and he would be much wealthier. Now, he didn't phrase it just like that, but that's what he meant. The truth is, once you have control of the shares, you can do anything to anyone. I won't give the name (let's call him Mr. X), but an early investor in the company was serially successful at startups and making a lot of money. Two related facts about him: * One of X's co-founders once told our CEO that he made almost nothing from the startup that X had made many millions from. His initial stock had been diluted to nothing, because X controlled the majority of shares and the board. * In the 90s the SEC went after X for dubious sales practices (selling hardware and buying it back under the table to inflate company value... yes, they were public). He paid a large fine and agreed not to be an officer of a corporation for 10 years, but he died before that expired. After these two events, I started to look at successful people in an entirely different light. Nothing I've learned in the 20 years since has changed the view that 99.9% of successful people, aside from being smart and hard working, are either in the right place at the right time or use ethically dubious methods to get ahead. There are exceptions, but they are exceedingly rare. Sorry for the rant.

tasuki 8y ago
> in the right place at the right time This is clearly the key. (I wonder how much of it is luck, and how much a myriad of other factors.) > or use ethically dubious methods to get ahead Some do, but without being in the right place at the right time, it won't lead to success.
- e40 8y ago
  There are degrees of success, though. That's what I was trying to convey. There are many times over the last 30+ years that I've thought if I did X, I would have a lot more money (personally) than I do now, but I never even considered X because I wouldn't have been able to sleep at night. My Mr. X clearly had no such restriction.
technologia 8y ago
I relate with the latter part of your story. A company I helped found had an uneven equity split. I was focused on building our platform out and didn't really care about the equity after we set the initial split; Because I was so naive and had a co-founder like your Mr.X, only my equity share was diluted each time we hired someone. Eventually I noticed but it was far too late for me to do anything about it; Years later I carry this lesson with me to constantly pay attention. [edit]: Forgot to mention my Mr.X drove the company into the ground after I left.
- jerguismi 8y ago
  When doing business, you have to look after yourself. In this case you could have been follwing what the co-founder was doing, and you should have brought up that you don't consider it fair. Things are simpler when there is some simple measure of "fairness", such as salary. With equity it is always more complex, since equity also relates to the risk position, is hard to assign value to, etc.
deleted 8y ago
[deleted]
jiveturkey 8y ago

tedkalaw 8y ago

was at a startup where the split was 72.5/10/10 (eng)/7.5 (me) when we got into an incubator; investors tried to convince the ceo that we should do an even split iirc, but he felt the business was built up enough that the equity split was fair. we were all dumb kids (oldest was 21), and didn't know what we were doing. when the 16 hour days with no pay were too much for me, the lack of equity made it very easy for me to walk away. i would never do a split like that again, and would not recommend it. i still can't watch Silicon Valley because it reminds me of those times haha.