DISQUS

cdixon: Dividing equity between founders

  • Louis Marascio · 4 months ago
    Chris, these are good guidelines. In your seed capital description (3rd to last paragraph), don't you mean a convertible loan since that debt should convert to equity at a qualified financing? BTW, I've used this model and it works well.

    Thanks,
    Louis
  • chris · 4 months ago
    Well, to keep it super simple I just personally used a regular loan with the expectation everyone would be fine letting me convert it.
  • Aditya Kothadiya · 4 months ago
    Chris,

    Thanks for another great article!

    You touched following points -
    1. Future contributions
    2. Past contributions
    3. Past success stories

    I was wondering what are your thoughts on risk profiles of co-founders when they are not located at same place? Say one is located in Silicon Valley and other is located in low cost development country. Since the lifestyles are different, should we consider this location factor?As their might be difference of 5x cost at both places.

    Or on the side note, is it not a good idea to have a co-founder a distant apart?

    Your thoughts will be appreciated!

    Thanks,
    Aditya
  • chris · 4 months ago
    Aditya - I don't see why location should be a determinant of the equity split. Perhaps it could be a determinant of cash salary, but that seems like all to me. If you create, say, 50% of the value in the company, you should get 50% of the equity.

    Re having co-founders apart - If there is some strategic reason you need to (e.g. sales office in US, operations in India) it can make sense, but if that's not the case I'd say it's highly preferable to have everyone together in the same location.
  • himanshu baweja · 4 months ago
    The approach we guys used is the founder's pie calculator by CMU prof.

    http://www.andrew.cmu.edu/user/fd0n/35%20Founde...

    Its a more a analytical approach and makes you think about all the different factors and their relative importance.
  • umairmufti · 4 months ago
  • Roger · 4 months ago
    Interesting article. I agree with most of the points mentioned in the article. The one point that seems unfair is to create a loan for the one founder that put in seed money. Loan's are usually secured by hard assets and putting money in at a start-up is a high-risk, high-reward game. For a seed money at a 5% interest loan, it's still very high risk but the reward is just not there. If I were the "no cash" co-founder, I would take that deal all day long.
  • Philip Baddeley · 4 months ago
    Great posts. We came up with the Equity Splitter, see Equity Fingerprint website, to provide a tool to help founders split the equity. It is simple and perhaps does not take into account enough of future scenarios. So important to have good leaver/bad leaver provisions as you say. Your stress on looking to the future says it all. Thanks for great posts