5 ms·

Cutting Up the Founders' Pie

19 points by pchristensen 18y ago

emmett 18y ago
Maybe it's because I'm a naive (second time) entrepreneur but something about this argument seems wrong to me; I can't put my finger on what it is though.
- staunch 18y ago
  It's a technical approach applied to a non-technical issue. That's the problem I see.
  - jyothi 18y ago
    brilliant. Couldn't have been said better.
andrewljohnson 18y ago
As a CMU alum, I hate to bad-mouth a professor there, but this guy doesn't seem to understand the psychology of start-ups. This method may lead to an equity split that seems to reflect the inputs of the founders, but could potentially, and will probably, demotivate the founders who get the smaller pieces. Does it really seem like a good idea to tell the people you are going to be working with non-stop for the next 3-5 years (hopefully) that you are twice as valuable as they are? It seems like that's going to be a self-fulfilling prophecy. When I started a start-up this year (www.trailbehind.com), I had the idea, wrote the business plan, raised the money, coded most of the original site, and then split the business right down the middle with my co-founder. Because I want her fully and completely interested in making the site work, and not thinking that this is just some job or somebody else's project.
- DaniFong 18y ago
  It seems to me as if the ideal cofounder is one whom: a) You very nearly can't, or wouldn't do without. b) Is working as hard as they can to get this thing going. c) Is totally committed. d) Can do rare things that you cannot yourself do. and e) Feels the same way about you. In such a circumstance and nearly equitable split is almost certainly the best option. If you don't feel the same way, there might be some kind of way to split the equity, but it seems much, much harder to get a good outcome. Then again, you probably shouldn't be founding with such a team? I did; and ultimately the other founders bailed or fizzled out, and I had to let them go. PS: Hi! How is trailbehind going?
  - andrewljohnson 18y ago
    TrailBehind is going really well! Our big news recently was winning an fbFund grant, ands we're going to have a cool launch tomorrow.
- DenisM 18y ago
  The lesson here is not to divide equity 50/50 with any friend who wants to join you, but find someone who brings equal value to the startup.
tyohn 18y ago
I like the idea. If one founder is working harder/more/intently or taking on more responsibility I think the reward should be equal to the "effort"...
chaostheory 18y ago
overall I like the article and I think it's useful... but an idea having the same weight as committment and risk (or even responsibilities) - that's a joke "Genius is 99 percent perspiration and 1 percent inspiration"
tworats 18y ago
This is the caricature of clearly-produced-by-an-academic. The idea that founders would use a spreadsheet with relative weights to divide up the pie is so counter to what actually happens it's comical. I do agree that dividing 100% by the number of founders is wrong. Figuring out the divide does not happen via spreadsheet, however.
sgman 18y ago
Does it really matter seeing as if the product takes off, everyone will get rich, and if it doesn't, no one will? Seems like the time would be better off spent coding.
danteembermage 18y ago
I just recently saw a presentation by a guy out of Harvard at the University of British Columbia. He found the a full 1/3 of High-Tech startups divide the equity equally and that an equal division was a predictor of future trouble later on. Insert generic correlation is not causation critique here, but still the results are interesting. We were under direction not to distribute the paper otherwise I would link to it.
- paddy_m 18y ago
  I'd be really interested to see that presentation. link?
jbyers 18y ago
"Business Plan Preparation" is a line-item? In my mind the credibility of this document is already shot for this audience, and we're not even half-way in. Two founders? 50/50. If you find a co-founder that you see eye-to-eye with and you have non-overlapping responsibilities, you can make it work. I'm an equal partner in Wikispaces, and it works. The alternatives are worse. Get over the theoretical deadlock case, if this happens for real, you're in serious trouble regardless of the split. Three founders? Find a split that works based on background, past and future contribution, etc. Use a spreadsheet if it helps, but be prepared to really, deeply debate this. How the three of you handle this early discussion is a good indicator of how future -- possibly much more difficult -- discussions will go. Four or more founders? No idea. Probably trouble.
paraschopra 18y ago
This document has been posted on HN now for the trillionth time

19 points by pchristensen 18y ago

Maybe it's because I'm a naive (second time) entrepreneur but something about this argument seems wrong to me; I can't put my finger on what it is though.

staunch 18y ago
It's a technical approach applied to a non-technical issue. That's the problem I see.
- jyothi 18y ago
  brilliant. Couldn't have been said better.

andrewljohnson 18y ago

As a CMU alum, I hate to bad-mouth a professor there, but this guy doesn't seem to understand the psychology of start-ups. This method may lead to an equity split that seems to reflect the inputs of the founders, but could potentially, and will probably, demotivate the founders who get the smaller pieces. Does it really seem like a good idea to tell the people you are going to be working with non-stop for the next 3-5 years (hopefully) that you are twice as valuable as they are? It seems like that's going to be a self-fulfilling prophecy. When I started a start-up this year (www.trailbehind.com), I had the idea, wrote the business plan, raised the money, coded most of the original site, and then split the business right down the middle with my co-founder. Because I want her fully and completely interested in making the site work, and not thinking that this is just some job or somebody else's project.

DaniFong 18y ago
It seems to me as if the ideal cofounder is one whom: a) You very nearly can't, or wouldn't do without. b) Is working as hard as they can to get this thing going. c) Is totally committed. d) Can do rare things that you cannot yourself do. and e) Feels the same way about you. In such a circumstance and nearly equitable split is almost certainly the best option. If you don't feel the same way, there might be some kind of way to split the equity, but it seems much, much harder to get a good outcome. Then again, you probably shouldn't be founding with such a team? I did; and ultimately the other founders bailed or fizzled out, and I had to let them go. PS: Hi! How is trailbehind going?
- andrewljohnson 18y ago
  TrailBehind is going really well! Our big news recently was winning an fbFund grant, ands we're going to have a cool launch tomorrow.
DenisM 18y ago
The lesson here is not to divide equity 50/50 with any friend who wants to join you, but find someone who brings equal value to the startup.

tyohn 18y ago

I like the idea. If one founder is working harder/more/intently or taking on more responsibility I think the reward should be equal to the "effort"...

chaostheory 18y ago

overall I like the article and I think it's useful... but an idea having the same weight as committment and risk (or even responsibilities) - that's a joke "Genius is 99 percent perspiration and 1 percent inspiration"

tworats 18y ago

This is the caricature of clearly-produced-by-an-academic. The idea that founders would use a spreadsheet with relative weights to divide up the pie is so counter to what actually happens it's comical. I do agree that dividing 100% by the number of founders is wrong. Figuring out the divide does not happen via spreadsheet, however.

sgman 18y ago

Does it really matter seeing as if the product takes off, everyone will get rich, and if it doesn't, no one will? Seems like the time would be better off spent coding.

danteembermage 18y ago

I just recently saw a presentation by a guy out of Harvard at the University of British Columbia. He found the a full 1/3 of High-Tech startups divide the equity equally and that an equal division was a predictor of future trouble later on. Insert generic correlation is not causation critique here, but still the results are interesting. We were under direction not to distribute the paper otherwise I would link to it.

paddy_m 18y ago
I'd be really interested to see that presentation. link?

jbyers 18y ago

"Business Plan Preparation" is a line-item? In my mind the credibility of this document is already shot for this audience, and we're not even half-way in. Two founders? 50/50. If you find a co-founder that you see eye-to-eye with and you have non-overlapping responsibilities, you can make it work. I'm an equal partner in Wikispaces, and it works. The alternatives are worse. Get over the theoretical deadlock case, if this happens for real, you're in serious trouble regardless of the split. Three founders? Find a split that works based on background, past and future contribution, etc. Use a spreadsheet if it helps, but be prepared to really, deeply debate this. How the three of you handle this early discussion is a good indicator of how future -- possibly much more difficult -- discussions will go. Four or more founders? No idea. Probably trouble.

paraschopra 18y ago

This document has been posted on HN now for the trillionth time