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You can try out my co-founder equity calculator (http://foundrs.com http://foundrs.com). While it's not biased, I hope it never gives a 50/50 split. There are m

You can try out my co-founder equity calculator (http://foundrs.com http://foundrs.com). While it's not biased, I hope it never gives a 50/50 split. There are many reasons why 50/50 is bad. The obvious one is that it kills decision-making. One day, the two co-founders will disagree, but since no one can overrule the other one, the company will drift and possibly die. But there is a much more interesting problem (that they don't teach you in you MBA class): founders going for 50/50 is a sign that the company doesn't have a real leader. Rather than have a very unpleasant conversation about why you, the alpha CEO, should be the ultimate boss, no one feels comfortable having that discussion. You sit one evening around the table discussing how to incorporate, you sort of shyly say "what about 50/50", your co-founder stares at the floor and nods. Done. You have a 50/50 split, and a huge red warning sign of future company failure. Source: I wrote the calculator below and had detailed discussions with 100+ founders about how to split their equity with their co-founders.

tptacek 13y ago
They don't teach you that in "MBA class" because it isn't true. Equity allocation and executive authority are mostly orthogonal concerns. Smart teams of equal cofounders manage to pick leaders all the time. Controversial decisions at early-stage companies don't get decided based on equity; by the time the equity card gets played, your company is dead anyways. Your calculator appears to, among other things, allocate equity based on who paid for business cards. I don't think anyone's done a better job of explaining how to handle equity than Joel Spolsky. Here's his answer to this question: https://gist.github.com/isaacsanders/1653078 https://gist.github.com/isaacsanders/1653078 He even addresses the "paying for business cards" question! (FWIW: Matasano is an "equal split among founders" company; we elected to make Dave our President and Decider.)
- kristianp 13y ago
  This sounds good. One point I don't agree with is this one: What happens if not all the early employees need to take a salary? Don't resolve these problems with shares. Instead, just keep a ledger of how much you paid each of the founders, and if someone goes without salary, give them an IOU. Later, when you have money, you'll pay them back in cash. Those who don't take a salary don't take any risk, so I would say the IOU should be greater than the missed salary as a minimum.
  - tptacek 13y ago
    So pay it back with interest. The point is to avoid forcing the valuation question into internal tactical decisions, which is what you're doing if you issue shares to offset deferred salary.
- alain94040 13y ago
  Your calculator appears to, among other things, allocate equity based on who paid for business cards. Respectfully, appearances can be deceiving. Without giving away the secret sauce, it's fair to say that most of the questions in the calculator are not measuring what they seem to be asking for. To get to the truth of a situation, indirect questions often work better. I'll ask you to trust me a little bit.
  - tptacek 13y ago
    I'm not sure "secret sauce" is something people should be looking for in founder equity allocation.
carrotleads 13y ago
Thanks mate for your calculator. I had a similar problem when I started out and your calculator was one of the tools I used to make a point. wrote about it too and links to few other resources I used plus the above calculator http://carrotleads.com/how.php http://carrotleads.com/how.php and yes I don't think 50-50 split is right. If someone joining after 1 yr dev as in above example from @technotony can't stomach a 40% share with the original founder getting 60% then that needs to be clear upfront and partnership terminated. what is to say such people will not want more than 50%. any split must be fair on what has been done, what will be bought to the table and need to be protected by vesting schedules. IMO the calculator takes most key factors into account.

tptacek 13y ago

They don't teach you that in "MBA class" because it isn't true. Equity allocation and executive authority are mostly orthogonal concerns. Smart teams of equal cofounders manage to pick leaders all the time. Controversial decisions at early-stage companies don't get decided based on equity; by the time the equity card gets played, your company is dead anyways. Your calculator appears to, among other things, allocate equity based on who paid for business cards. I don't think anyone's done a better job of explaining how to handle equity than Joel Spolsky. Here's his answer to this question: https://gist.github.com/isaacsanders/1653078 https://gist.github.com/isaacsanders/1653078 He even addresses the "paying for business cards" question! (FWIW: Matasano is an "equal split among founders" company; we elected to make Dave our President and Decider.)

kristianp 13y ago
This sounds good. One point I don't agree with is this one: What happens if not all the early employees need to take a salary? Don't resolve these problems with shares. Instead, just keep a ledger of how much you paid each of the founders, and if someone goes without salary, give them an IOU. Later, when you have money, you'll pay them back in cash. Those who don't take a salary don't take any risk, so I would say the IOU should be greater than the missed salary as a minimum.
- tptacek 13y ago
  So pay it back with interest. The point is to avoid forcing the valuation question into internal tactical decisions, which is what you're doing if you issue shares to offset deferred salary.
alain94040 13y ago
Your calculator appears to, among other things, allocate equity based on who paid for business cards. Respectfully, appearances can be deceiving. Without giving away the secret sauce, it's fair to say that most of the questions in the calculator are not measuring what they seem to be asking for. To get to the truth of a situation, indirect questions often work better. I'll ask you to trust me a little bit.
- tptacek 13y ago
  I'm not sure "secret sauce" is something people should be looking for in founder equity allocation.

carrotleads 13y ago

Thanks mate for your calculator. I had a similar problem when I started out and your calculator was one of the tools I used to make a point. wrote about it too and links to few other resources I used plus the above calculator http://carrotleads.com/how.php http://carrotleads.com/how.php and yes I don't think 50-50 split is right. If someone joining after 1 yr dev as in above example from @technotony can't stomach a 40% share with the original founder getting 60% then that needs to be clear upfront and partnership terminated. what is to say such people will not want more than 50%. any split must be fair on what has been done, what will be bought to the table and need to be protected by vesting schedules. IMO the calculator takes most key factors into account.