Co-founders frequently inquire about equity distribution.

Uneven equity splits are frequently cited for the following reasons: We need someone to tie-break in founder arguments because founders frequently make the mistake of splitting equity based on early work. • I came up with the idea for the company.

• I started working n months before my co-founder.

• This is what we agreed on.

• My co-founder took a salary for n months, but I didn't.

• I started working full time n months before my co-founder.

• I am older and more experienced than my co-founder.

• I hired my co-founder after raising n thousands of dollars

There are four major areas in which each of these lines of reasoning fall short:

A business of great value can be built in seven to ten years. Founder equity splits in years 2 through 10 shouldn't be vastly different because of small variations in the first year.

Equity raises motivation. Almost all new businesses fail.

The likelihood of success increases with founders' level of motivation. If your founding team fails due to a lack of motivation, getting a larger share of the equity pie is of no use. No one else will either if you don't value your co-founders. The CEO's valuation of his or her co-founders is influenced by the founder's equity split, according to investors.

Others will either think a co-founder isn't very good or won't have much of an impact on your company if you give them only 10% or 1%. One of the most common factors that influences an investor's decision to invest is the team's quality. Why inform investors that you do not place a high value on your team? Ideas are not what start-ups are about.

Extremely unequal founder equity splits frequently favour the co-founder who came up with the start-up's original concept over the small group of founders who brought the product to market and gained initial traction. Because you have to complete all of the work, equity should be divided equally. Although we have split equity in all of my start-ups and almost always do so at YC, my advice is probably contentious: equal shares of equity among the co-founders. You are going to war with these people. These people will consume more of your time than the majority of your family.

These are the individuals who will assist you in settling on the most pressing questions regarding your company. Finally, these are the people with whom you will celebrate success. Make sure you have a proper vesting schedule if you are worried about what will happen if you have to break up with a co-founder.

A typical arrangement in the Valley is four years of vesting followed by a one-year "cliff." To put it another way, even though you might appear to own fifty percent of the company on paper, you will lose everything if you leave or are fired within a year. You receive 25% of your stock after one year.

You will receive an additional 1/48th of your total stock each month after that. After four years, you only earn all of your stock.

This guarantees that founders will be a good fit over the long term, and if there is a problem, it can be fixed without causing damage in the first year. Before a significant equity fundraise, it's a good idea to seat only the CEO on the board. That will stop board members from fighting over difficult decisions, like when the CEO has to fire a co-founder, which is unlikely.

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